Module I·Article II·~3 min read
Legal Systems of the World: Civil Law and Common Law
Foundations of Law and Legal Systems
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Two Main Legal Families
For international business, it is critically important to understand that there are fundamentally different legal systems in the world. The choice of jurisdiction for a transaction, company registration, or dispute resolution has enormous practical significance.
Civil Law (Romano-Germanic) Legal Family
It originated on the basis of Roman law and covers Germany, France, Spain, Italy, the Netherlands, Russia, most Eastern European countries, Latin America, Japan, and South Korea.
Key characteristics:
- Law is codified: there are civil, commercial, and criminal codes
- Legislation is the main source of law
- The role of the court is to apply the law, not create law
- Academic doctrine has greater significance
- Legal norms are more abstract and general
The Civil Code of Russia is a typical example: 1,551 articles covering all key issues of civil law. The German BGB (Bürgerliches Gesetzbuch, 1900) became a model for many codifications.
Common Law (Anglo-Saxon Law)
It originated in England and spread through the British Empire. It covers the United Kingdom, the USA, Canada, Australia, New Zealand, India, Hong Kong, Singapore, and most Caribbean states.
Key characteristics:
- Precedent (case law) is the main source of law
- Decisions of higher courts are binding on lower courts (stare decisis)
- Legal norms are more detailed and situational
- Procedural norms carry greater weight
- The institution of equity is a parallel system of norms
Practical example: The Business Judgment Rule in US corporate law is a precedent doctrine that protects directors from liability for good faith, albeit unsuccessful, business decisions. In Russia, a similar principle is enshrined in articles of the Russian Civil Code on bad faith, but operates differently.
Mixed Systems
A number of jurisdictions combine elements of both systems:
- UAE: civil law is based on Egyptian (French) law, but in DIFC and ADGM, common law applies. This creates a unique situation: two different legal regimes within one country.
- Quebec (Canada): French civil law while other provinces have common law
- South Africa: Dutch law (Roman-Dutch law) plus elements of common law
Islamic Law (Sharia)
In some countries (Saudi Arabia, Iran, parts of the UAE), Sharia plays the role of the main source of law. Key features for business: the prohibition of riba (usury/interest), which has given rise to the entire Islamic finance industry; the principle of gharar (prohibition of excessive uncertainty in contracts).
Why Jurisdiction Matters
When entering into international contracts, parties choose: (1) applicable law, (2) jurisdiction for dispute resolution. A typical choice is English or New York law for financial contracts (developed case law base for complex instruments), Swiss law for confidentiality, Singaporean or Dubai (DIFC Courts) law for transactions in Asia and the Middle East.
Practical Assignment
Suppose you are entering into an oil supply contract with a partner from the United Kingdom. Your lawyer suggests two options: applicable law—Russian or English. What arguments would you give for and against each option? Consider: ease of enforcement, recognition of decisions abroad, and the level of development of practice for this type of transaction.
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