International Franchising - What US Franchisors Need to Know before Expanding Abroad (Part I)
.jpg)
Franchise agreements drafted for common law countries tend to be longer and more comprehensive than franchise agreements used in civil law countries. Franchisors based in the United States often use their common law agreements in civil law countries without localization, reasoning that a more comprehensive agreement is all that is needed to protect them in a civil law system. However, when considering this approach, franchisors and their counsel need to be aware that a more comprehensive franchise agreement alone may not be enough to protect them in a civil law system. Recently, when discussing this issue with Kenneth A. Goss, Esq., in house counsel to a franchisor experienced in franchising in countries under common law, civil law and Islamic law systems, Mr. Goss explained shared some general principles common to many civil law systems from the perspective of a common law practitioner. The following is the first of Mr. Goss' two part guest post on this important topic:
Common Law verses Civil Law.
There are two dominant legal systems in the world today - the common law and the civil law. In addition to the specific franchise disclosure, relationship and other laws applicable to franchising in any specific country, franchisors in the United States should carefully consider the different approach each system takes to contract law before using a common law franchise agreement in a civil law country. This series looks at some characteristics typical of most civil law systems. Part I of this series compares common law and civil law systems generally and Part II takes a closer look at what affect a civil law system will have on a common law franchise agreement.
Common law and civil law systems are similar in principle but differ considerably in the methodical approach each takes with respect to statutes and interpretation. Both common law and civil law systems are rooted in liberal philosophy, which has the purpose of protecting and advancing individual rights. In this regard, common law and civil systems are more akin than, for example, Islamic law, which is based on religious teachings and is regarded as the word of God. However, a major difference between common law and civil law systems is the priority given to sources of law. Specifically, the common law gives priority to jurisprudence over legislation and the civil law gives priority to legislation over jurisprudence. As a result, there are considerable differences between common law and civil law systems in style, terminology, interpretation, conception and emphasis on certain elements over others, all of which are relevant for a franchisor that is thinking about operating between the two systems.
Common Law Systems
Most U.S. based franchisors are familiar with operating in a common law system. The common law is the Anglo-American legal tradition based on unwritten usage and custom that derives its authority from the legal opinions of judges. The common law was adopted by each of the United States, except Louisiana, and has spread to India, Australia, most of Canada and other countries formerly part of the British commonwealth.
In common law systems, the judiciary has the power to make law and each court is bound to apply precedent to cases with similar fact patterns as they arise. This means that the judiciary in a common law system has the power to create new rules for cases with novel fact patterns where the legislature has not enacted a statute addressing the specific issue. The power of a court to make law in a common law system is typically constrained by precedent and is a function reserved to the highest courts of appeal.
In those instances where the legislature has chosen to enact a statute, common law courts tend to interpret that statute narrowly, thus reserving to the judiciary the right to fill in the gaps. Attorneys are the primary actors in common law courts and will argue their cases before impartial judges who are themselves attorneys. It is in this system that a common law franchise agreement is intended to operate.
Civil Law Systems
On the other hand, the majority of the world's population lives under a civil law system. Modern civil law has its origin in Roman law codified by the emperor Justinian in 534 A.D. and, contract law in particular, has been influenced by Aristotelian ideas of equality in exchange and liberality. The French Civil Code of 1804, more commonly known as the Napoleonic Code, is considered the first modern civil code and has spread throughout Europe, Latin America, Russia and China, the state of Louisiana, the providence of Quebec, and some African and Asian countries.
In civil law systems, legislation embodied in the civil code is the primary source of law and the function of the judiciary is merely to apply the rules from the civil code to the fact pattern of each case. Courts in civil law countries look exclusively to the civil code and neither have the power to make law nor are bound by precedent. The advantage for litigants is that the law applied in court decisions tends to be predictable because the law is established in advance by the legislature. However, the judiciary in civil law countries is powerless to adapt the law if the legislature has remained silent on a given issue. As a result, courts in civil law countries tend to look beyond the plain language of a statute to the intent of the legislature and apply statutes broadly. Courts in civil law countries also look beyond the plain meaning of contract terms to ascertain the parties' intent. To this end, courts in civil law countries use an inquisitorial method to adjudicate cases. Judges, who are specially trained judicial officers, will take an active part in trials by questioning counsel and witnesses and otherwise independently investigating the facts of each case.
In Part II of this series we will take a closer look at the operation of civil law systems.
