Legal systems are embedded in the social, economic, and political life of a people and are, therefore, influenced by their culture, history, and tradition.
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The world’s legal system can be classified in terms of legal traditions or legal families/heritage as Common law, Civil law, theocratic law, socialist law and the transnational law.
1. Common Law:
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In a common law much of the law is based primarily on tradition and a gradual accretion of court decisions, built up over centuries by court’s reference to earlier precedents. In other words, “common law is based on cumulative wisdom of judges’ decisions on individual cases through history,” known as case law.
The operative doctrine of common law system is stare decesis, i.e., doctrine of precedent. Normally every court is bound by its own precedents (or of a superior court) with regard to earlier cases with similar facts.
In coming to any conclusion, the court will examine laws, rules and regulations, customary procedures and previous cases dealing with similar issues. Common law is the foundation of the legal systems in the UK and its former colonies, including India, US, Canada (except Quebec and British Columbia), Australia, New Zealand, Malaysia, Barbados, St. Kitts and Nevis. In other words it developed in England and spread to its colonies.
The common law has emerged differently in different countries following common law. The laws affecting business practices do vary between the US and the UK. And it may create problems for an uninformed international business manager. Not only case laws differ, even statutory laws (enacted by legislature) also vary.
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To illustrate, the Official Secrets Act of UK shields dealing between the state and private firms from the public scrutiny; in the US, the Freedom of Information Act calls for transparency. Administration of law also varies. In the US the defendant and plaintiff have to bear their legal expenses.
However, in the UK, it is the loser in the case being responsible to pay legal expenses of both the parties. This is one of the reasons of too much and too little litigation in the two countries respectively. England has a split legal profession with solicitors (to advice on legal aspects) and barristers (to present the case in the court).
In the US there is no such distinction in the legal profession. In civil matters in the US the jury hearing the case is quite common, but in the UK it is very limited. Also in the US it is a common practice for lawyers to charge the fee on a contingency basis (on a percentage basis of what the client receives at the end).
2. Civil Law:
The civil law system originated in biblical times with Romans, who spread it throughout the Western World. The countries following this law include Western Europe, Quebec, Louisiana State in the US, Scotland, Latin America, and parts of Africa and Asia. There are two subfamilies of this system.
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Territories conquered by Napoleon Bonaparte in early nineteenth century follow the Napoleon Code, i.e., The French Civil Code, 1804 (Poland, Indonesia, and Equatorial Africa). Several other nations of Continental Europe, Japan, and South Korea follow another subfamily which is based on German Civil Code, 1896. There are about 70 civil law countries.
The Civil law has a strong tradition of codification. That is why this legal system is also called as ‘Code law’. The formal laws clearly spell out as to what constitutes proper behaviour. The “letter of law” is very important in code law. Of course, at times some interpretation may be required.
Table 6.1: Civil Law Vs Common Law:
| Basis | Civil Law | Common Law |
| Source | comprehensive and written rules of law | Traditions, precedents, conventions, statutes and judgments |
| Fullness | Complete | Not being all inclusive |
| Importance of Case Law | Guidance, but not binding | System of binding precedent |
| Legal Style | Systematised application of Principles | Pragmatic and piecemeal |
| Ownership of Intellectual Property | Established by use | Determined by registration |
| Force Majeur (non-performance due to…) | Includes natural and human Actions | Only nature related reasons |
| Countries employing | Most continental European Countries and Japan | US, UK, Canada, India, and other commonwealth countries |
| Interpretation of Law | Follow “letter of the law’ | Judge’s personal ability |
| Role of Judge | Like that of a lawyer, to Interpret the law | Neutral referee, only to apply the law |
There are many differences between Civil law and Common law as shown in Table 6.1. The judge in a common law is more neutral and rules more on requests by the parties’ lawyers who initiate and conduct litigation and gather evidence (adversary system).
The judge in civil law takes on many functions of the lawyers in deciding what evidence needs to be developed and/or produced. These two systems affect marketing differently. In case of right to brand names, the common law gives weight to prior use (i.e., who used the name first), but the civil law gives right to one who registers it first.
3. The Socialist Law:
The socialist law is based upon a code; hence it can be classified as Civil law. However, its ideological basis (Marxist-Socialist system) produces some fundamental differences. The larger needs of the society dominate over individual need. In North Korea, no private ownership of means of production and intellectual property is permitted.
But one should not assume that all socialist legal systems are the same – as visible in China and Cuba. These communist countries do not care much about commercial law because any dispute can be solved politically and/or bureaucratically. Law under communist rule serves a different function than in a democracy. The individual’s rights are of less concern and the state is permitted to encroach upon the rights granted by it.
Often the legal system is referred to as bureaucratic law, because the whims of bureaucrats rule over the formal law of the land. Myanmar under military junta rule is a good example of this kind of law. Law can be made or broken at the whims and fancies of the rulers. Lack of consistency, predictability and appeal procedures are unavoidable by-product of bureaucratic law. To avoid costly misundertakings/misunderstandings, international business managers must be aware of them.
4. Theocratic Law:
Religious law, also called as theocratic law, is based on “the faith and practices of a particular religion.” In the Middle East and some countries of South Asia the legal system stems from Islamic religion. The belief is that Islamic law contains God’s rules (Sharia). The Koran is the holy book which is not a code of law but the expression of the Islamic ethic. Moral conduct is the prominent concern.
Religious laws can create problems for the international firms. Islamic law prohibits Riba (unearned profit) and Gharar (unanticipated profit). To overcome the problem of interest on loans, Islamic banks depend upon leasing arrangements. In such countries an absence of independent judiciary and due process and appeals procedures is observed.
Here it is the right connection which matters the most. It is why foreign firms do employ a local representative with rich connections. In Table 4.2 (in Chapter 4) a detailed impact of Islamic framework on marketing has been presented. About 27 countries follow Islamic law.
5. Trans-National Law:
Apart from the four systems mentioned above, the fifth legal system is also there. It is popularly known as trans-national legal system. It includes bilateral and multilateral agreements, treaties and conventions emerging through the elaborate mechanism of international organisations. International organisations have delved into a pervasive phenomenon, and according to most calculations even outnumber states.
Some of the important Conventions include:
i. International Convention Concerning Carriage of Goods by Rail (For Rail-Roading), 1985.
ii. Warsaw Convention (Extent of International Airline Liability), 1929.
iii. Hague Rules (Liability Exposure of International Water Carriers), 1921.
iv. United Nations’ Convention on Contracts for the International Sale of Goods, 1988.
Apart from the laws mentioned above, there are some decrees or laws which emnate from other countries, but due to geopolitical situation, weaker nations are bound to follow.