There are two major legal traditions in the world: common law and civil law. Most countries have incorporated features of one or the other into their own legal systems. The main difference between the common law and civil law legal traditions lies in the primary source of the law. While common law-based systems consider judicial decisions as the most important source of law, civil law-based systems place particular emphasis on codified law.
To learn more about the different sources of law, see the Source of Law section .
- Common law system
- Civil law system
- Synthesis of the differences between the legal systems of civil law and
- Civil law systems: key administrative case law that can affect PPP agreements [1]
- Other civil law regulations that may affect PPP agreements
Common law system
The countries subject to the “common law” system are generally the former colonies or former British protectorates, including the United States.
Characteristics of a common law system include:
- There is not always a written constitution or codified laws;
- Judicial decisions are enforceable: decisions of the highest court can generally be invalidated by that same court alone, or by legislation;
- Extensive freedom of contract: some provisions are implicit in the contract by virtue of binding force (although provisions intended to protect private consumers may be implicit);
- As a general rule, anything that is not prohibited by law is allowed.
A common law system is usually less prescriptive than a civil law system. It is therefore possible that a government may wish to enshrine safeguards for its citizens in specific legislation related to the proposed infrastructure program. For example, he may wish to prohibit a service provider from cutting off the water or electricity supply to bad payers.
In common law systems, some provisions are implicit in the contract by virtue of its binding force. It is therefore important to define ALL of the terms that govern the relationship between the parties to a contract in the contract itself. One will often obtain a contract with a longer term than that concluded in a civil law country.
Civil law system
The countries subject to the civil law system are generally the former French, Dutch, German, Spanish or Portuguese colonies or protectorates, as well as much of Latin America and the Caribbean. Most countries in Central and Eastern Europe and East Asia also follow a civil law structure.
The civil law system is a codified legal regime that originates from Roman law. Characteristics of a civil law system include:
- There is usually a written constitution as well as specific codes and laws (eg Civil Code, Penal Code and codes which cover company law, administrative law and tax law) which enshrine basic rights and duties;
- Only legislative texts are considered binding for all. Jurisprudence is less important than the law in civil, criminal and commercial courts, although in practice judges tend to follow previous court decisions. The Constitutional Court and the Administrative Court can annul laws and regulations. In such cases, their decisions are binding on all.
- In some civil law systems, such as Germany, doctrine significantly influences court decision-making;
- Freedom of contract is less important than in a common law system: many provisions are implicit in the contract in accordance with the law and the parties cannot enter into one by excluding these provisions.
A civil law system is usually more prescriptive than a common law system. However, a government will still need to consider whether particular legislation is needed, e.g. for a specific infrastructure sector, or whether a particular law is necessary to limit the scope of certain restrictions in order to allow the success of an infrastructure project.
Since, in civil law systems, a number of provisions are implicit in the contract and to the extent that inaccuracies or ambiguities can be corrected or resolved through the operation of the corresponding law, it is generally less important to define L SET of terms that govern the relationship between the parties to a contract in the contract itself. We will often obtain a shorter contract than that concluded in a country subject to the “common law”.
It is also important to point out that, in the area of infrastructure, some well-defined legal concepts for specific forms of infrastructure projects exist in civil law jurisdictions. The legal concepts of Concessions and Affermage, for example, have a specific technical meaning and structure, the understanding or application of which may not be appropriate in a common law country. Therefore, the use and application of these terms should be exercised with caution.
Synthesis of the differences between the legal systems of civil law and
“common law”
The table below indicates some key differences between common law and civil law jurisdictions.
Characteristic
“Common law”
Civil right
Written constitution
Obligatory
Not required
Court decisions
enforceability
Are not enforceable on third parties. However , the decisions of the Constitutional Court and the Administrative Tribunal taken on laws and regulations are binding on all.
Doctrine
little influence
Significant influence in some civil law jurisdictions.
Freedom of contract
Scope: only a few provisions are implicit in the contractual relations
under the force
obligatory.
More limited: a number of provisions are implicit in contractual relations by virtue of binding force.
Judicial system applicable
to PPP projects
In most cases, the contractual relationship is subject to private law and the private courts that
deal with these matters.
Most PPP arrangements (eg concessions) are considered to be public service and therefore subject to public administrative law administered by administrative courts.
Civil law systems: key administrative case law that can affect PPP agreements [1]
In many civil law countries, a separate administrative law governs PPP agreements. It is therefore important to obtain local legal advice to check whether this is the case for the specific civil law system in which the PPP project is being considered. It is also important to note that, in a civil law jurisdiction, the contract will be enforced by the administrative courts unless it specifies that the parties have agreed to resort to arbitration. Some key administrative rules applicable to delegated management contracts are listed below.
Rights of the contracting authority which may override contractual provisions
Right of unilateral modification
The contracting authority may, e.g. in France, to have the right to modify certain aspects of the contract unilaterally if it deems that the change is in the public interest. It may not change the financial provisions of the contract or its basic nature, but it may have the right to change certain aspects such as, for example, the specification of the service to be provided.
Unilateral right of withdrawal
The contracting authority may have the right to terminate the contract unilaterally (although, if so, it must pay compensation to the operator).
Right of continuity of service
The operator may not be able to suspend performance of its contractual obligations even if the contracting authority defaults on its contractual obligations. In the context of a concession or affermage, the operator is considered to assume duties relating to the provision of a public service, even beyond those included in the contract (such as investments for to meet the growing demand for the public service in question or to adapt to new technologies).
Legal operator protections
Operator’s right to financial equilibrium
In some cases, the operator may be protected by his right to maintain the “financial equilibrium” written into the contract. Therefore, when the contracting authority imposes a unilateral modification of the contract, it must also adjust the financial conditions of the agreement so that the operator does not find itself in a more difficult situation than before (if, for example, the contracting authority requires higher service standards, they may also have to authorize payment of a higher rate to the operator). Specific doctrines that form part of the operator’s right to “financial equilibrium” in France and that have equivalents in other civil law countries include:
Made of the prince . Compensation is granted when the contracting authority is responsible for the reduction in the operator’s profit without breaching the contract. To obtain this compensation provided for under the act of the prince , the following conditions must be met:
- § The measures taken by the contracting authority were detrimental to the operator and were unforeseeable at the time of the conclusion of the contract;
- § The action taken by the contracting authority exceeds the scope of the contract (otherwise the action would simply constitute a breach of contract); and
- § The measures taken by the contracting authority must be specific to the operator (general decisions which affect all companies are not considered an act of the prince but may give rise to damages on the basis of the principle of contingency See below).
Unpredictability . The operator is entitled to compensation for financial difficulties which result from substantial and unforeseen changes in economic conditions which make the execution of the contract financially dangerous. The following events are among those possible that may give rise to compensation in the context of contingency such as a significant devaluation, a price control decided by an authority other than the contracting authority or a reduction in working hours which increases labor costs. The negative economic impact of these events must not only be exceptional, but also exceed all the limitations provided for by the contract. Nevertheless, the operator’s compensation does not equal all of the losses or damages suffered (an administrative circular provides an indicative rule for which the administration will cover 90 per cent of the losses).
Unforeseen hardships – The operator is entitled to compensation for unforeseen physical conditions which make construction and/or operation more onerous.
force majeure
Unforeseeable and uncontrollable events which make the execution of the contract materially impossible release the operator from his obligations. For example, a spill from a chemical plant that results in permanent pollution of the project’s only water source would be considered a force majeure . Similarly, natural disasters such as hurricanes and droughts can be considered force majeure .
Governments may wish to include force majeure provisions in the respective PPP agreement. Even if these are already part of an applicable law and insofar as the provisions contained in the respective law may be ambiguous, it is always advisable to reinstate them in the contract (for example, it is possible that the actual meaning of the expression “restoration of financial equilibrium” is not obvious).
As a general rule, a contract that includes a principle of administrative law and sets out exactly how it is to be applied is valid. However, a change or departure from an administrative law principle may not be legally acceptable and should be checked first. For example, it may not be possible to completely remove a contracting authority’s ability to unilaterally change service standards. In France, any attempt to prevail over the ability of the contracting authority to unilaterally abandon the contract is invalidated by law. Some civil law codes also have mandatory notice periods before an agreement can be terminated for a breach of contract that cannot be avoided or exceeded.
Other civil law regulations that may affect PPP agreements
Contractual penalties
Once there is a contractual commitment which provides that the operator must pay a penalty in the event of a breach and the amount of this penalty is fixed by contract, French law nevertheless allows the judge to decide to reduce or increase this amount (provided that it is not estimated to be less than the damage actually suffered). Similar concepts exist in Mali, Tunisia and Algeria, for example .
Surcharge clauses
In accordance with the French Tax Code, gross-up clauses relating to compensation in the event of withholding tax on interest are not enforceable for the French tax authorities when the debtor is a French entity.
Bankruptcy
In common law jurisdictions, such as England and the United States, bankruptcy proceedings emphasize seeking reorganization rather than liquidation in order to keep the respective business going. (e.g. Chapter 11 of the US Bankruptcy Act). By contrast, civil law jurisdictions favor liquidation (although in some countries such as France and OHADA member countries, reformed bankruptcy laws now allow debtors to be reorganized before they become insolvent).
Financial assistance (European doctrine), “business interest” (French doctrine)
These doctrines prohibit or severely restrict a target company and its subsidiaries from providing guarantees (upstream and cross-functional) or guaranteeing security in connection with the acquisition of the shares of the target company. This is of particular importance for PPPs where the private sector takes part in a public service (joint venture) and/or privatizations. Other civil law countries, such as OHADA member countries (eg Algeria), have similar concepts.
Guarantees and syndicated loans
Systems based on the common law system are much more flexible in granting different types of security on assets, an important feature of PPP agreements involving commercial financing, such as BOT (Build-Operate-Transfer ). These systems also involve the concept of trusts which allows a trustee to hold the collateral for lenders in a syndicated loan situation without the need to effect a formal transfer or re-registration of the collateral in the name of a new lender. Conversely, most civil law systems do not recognize such a concept. As a result, the guarantees generally have to be re-registered in the name of the new lender (which generates additional registration costs and notary fees).
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