10.2 What Is a Legal System?

The legal system of a country is a set of rules or laws, procedures by which these rules or laws are enforced, and legal institutions where these rules or laws are interpreted.

A country’s legal system is essential to the success of international business. Rules and laws of a country define the rights and obligations of parties involved in business transactions. These rules and laws of a country also determine the way business transactions are executed, and they regulate business practice.

The degree to which rules and laws of a country are enforced on parties involved in a business contract can determine the attractiveness of a country as a business or investment site.

Here, we are going to discuss national differences in legal systems and discuss the impact of different legal systems on business contracts.

Types of Legal Systems

There are three main types of legal systems around the globe: common law, civil law, and theocratic law.

Common Law

The common law system evolved in England and is now practiced in the United States and many of Great Britain’s former colonies. The common law cannot be found in any code or body of legislation, but only in past decisions by judges – these are also known as precedents. In other words, the Common law system is created by the judiciary and is based on precedent rather than statute.

Precedent is a legal principle and constitutes cases and legal issues previously decided by a court (Liddell & Schubert, 2023). These cases are then used by other courts to resolve present pending cases and similar legal issues. Judges have the authority to interpret the law so that it can be applied to unique circumstances of individual cases. This new interpretation will then set a precedent for future cases (UpCounsel, 2020).

Common law countries rely on an adversarial system, where two opposing sides, the prosecution and the defence, present their facts in front of a neutral adjudicator, such as a judge or a jury (FasterCapital, 2023). This neutral adjudicator, a judge, or a jury then makes the decision based on the evidence and facts presented by the prosecution and the defence.

Civil Law

Civil law, also called Napoleonic law, can be found in Europe, South America and many other countries that were once European colonies. The civil law system is governed by statute and relies on comprehensive legal codes that contain all laws of the country. Statutes are written laws passed by the legislative bodies of the government, such as federal, provincial, and territorial legislatures (Wex Definitions Team, 2020).

The civil law legal system relies on the inquisitorial system rather than an adversarial one. The inquisitorial system is characterized by extensive pre-trial investigation and interrogations in order to avoid bringing an innocent person to trial (UNODC, 2018). The inquisitorial process can be described as an official inquiry to discover the truth, whereas the adversarial system uses the competitive process between prosecution and defence to determine the facts.

Theocratic Law

This is a law system that is based on religious teachings and texts as its primary basis. The court will interpret and present facts and statutes in accordance with those religious texts. Many Muslim countries use a theocratic law system for all or part of their laws. This law system is mainly concerned with moral behaviour and is only extended to certain commercial areas; therefore, in commercial areas, theocratic systems have elements of common or civil law.

References

FasterCapital. (2023, December 7). Adversarial system: The adversarial system and common law: A dynamic duo. https://fastercapital.com/content/Adversarial-system–The-Adversarial-System-and-Common-Law–A-Dynamic-Duo.html

Hill, C.W.L. (2022). International business: Competing in the global marketplace (14th ed.). McGraw Hill.

Liddell, C. & Schubert J. (2023). Precedent in law – definition & examples [Module]. Intro to Criminal Justice: Help and Review. https://study.com/academy/lesson/video/precedent-definition-law-examples.html

UNODC. (2018). Module 9: Prosecution strategies – Adversarial versus inquisitorial legal systems. E4J University Module Series: Organized Crime. https ://www.unodc.org/e4j/en/organized-crime/module-9/key-issues/adversarial-vs-inquisitorial-legal-systems.html

Upcounsel. (2020, October 28). Legal definition of precedent: What you need to know. https://www.upcounsel.com/legal-def-precedent

Wex Definitions Team. (2020). Statute. Cornell Law School. https://www.law.cornell.edu/wex/statute

Attributions

“Types of Legal Systems” includes material from “11.3 Types of Legal Systems around the World” from Introduction to Political Science by OpenStax – Rice University., licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.