When businesses explore investment possibilities in new jurisdictions, a key consideration is the structure and familiarity of the legal system. Here we examine the two legal predominant traditions: civil law and common law.
Civil law originated in the late Roman Empire with the codification of Roman law by Justinian in the sixth century. This greatly influenced jurists in continental Europe and civil law became the main source of law there from the Middle Ages, eventually evolving into the codified legal regimes encountered today. Civil law was exported by Europe’s colonial powers, notably France, Portugal, and Spain, to most of Latin America, as well as to parts of Africa and Asia. There are now about 150 civil-law jurisdictions.
Civil law, however, did not take hold in England, which developed a distinct legal tradition known as the common law. This emerged following the Norman Conquest of 1066 to replace the less formal Anglo-Saxon legal regime. Common law developed out of a need for courts to interpret writs and orders issued by the monarch which were not sufficiently wide enough in scope to cover a multitude of eventualities. This practice continued when parliament replaced the monarch as the main source of legislation.
Common law traditions are found in all corners of the world by virtue of Britain’s expanding global influence from the 17th century. The United States, Canada, Australia, New Zealand, Ireland and India are all examples of common law countries, as are other jurisdictions once British colonies or territories. Common-law countries now number about 80.
The main differences
The key difference between these two legal foundations is that civil law is codified whereas common is not, at least not in the same way.
Civil law codes tend to be comprehensive and encompass the full spectrum of civil and criminal matters that may need adjudicating in court. They set out how each matter should be dealt with and what remedies should be applied, if any. And unlike their common law counterparts, civil law courts are inquisitorial, with civil law judges investigating and establishing the facts of a case before applying these against the relevant sections of the civil code to reach a verdict.
Common law systems are less structured and more organic in nature. Legislative statutes tend not to be as comprehensive as in civil law countries, so courts play an important role in developing the law. Thus, case law forms a major source of law, and, as a result, judges are more active in shaping the legal landscape. Further, common law judges act more as mediators than as investigators, presiding over an adversarial system where the parties in dispute argue their case.
In reality, however, few jurisdictions are purely using one system or the other, with common law jurisdictions reflecting aspects of civil law practice, and vice versa, often depending on historical legacies. South Africa, for example, with its British and Dutch influences, practises a mixture of the two.
To summarise, no two jurisdictions will share identical legal systems, and unfamiliarity with foreign laws and judicial processes can be an obstacle when setting up abroad. This underlines the necessity of seeking appropriate legal advice to avoid potentially costly legal pitfalls.
Ultimately though, a country’s legal system is but one consideration when choosing an overseas jurisdiction in which to do business, and other important factors will come into play, such as political and economic stability, and infrastructure, when making this important decision.