Appunti integrati, International Business Law - Cavalieri

International business law

The text is self-sufficient for the exams. The relevant part for the exams starts at page 15, and with the chapter “contract” of this paper. A diligent use of words is fundamental. Jurisdiction is not a substantial part of the exam. The convention of Vienna and New York are probably the most important. Probably you have to comment a not well drafted clause and something about arbitration.

Main focus of the course

The central part of the course is about how a contract is drafted (types of clauses, all the risk allocation clauses…). The main purpose of a contract is to reduce risk. The second part will be made through assignments as a group-work from remote. The exam will have a question and a comment, the comment may be on a single clause or a section. You should identify the type of contract, whether the clause is from a convention and comment, whether it could be done better, bargaining power, good faith, creativity. You must not use the wording of the book; you can use online sources… 1h – 1h 30. In the exam, you may also compare the given clause with the one you analyzed in class to find more to say.

Course aim

Business is made through contracts, through agreements, which are a widespread tool for economic transactions. The aim of this course is to provide students with basic information about the most significant and critical aspects of international business contracts through a general introduction, the analysis of some of the most frequently used clauses that appear in cross-border contracts.

Course structure

After an introduction on basic legal notions and terminology, the first part of the course will focus on the legal sources of international contracts, and their negotiation and drafting processes. The second part will consist of a critical reading of some contractual templates and some class works. Due to the restrictions in force, the organization of groups and the methodology of their work will be discussed in due course.

Definitions

Legge has two definitions: legge, in general, as diritto, or legge, law, specifically, as an act. Law (as diritto) is a system of sanctionable rules. The violation of such rules is punished by the community with a sanction. Today the State the production and enforcement of legal rules is (almost) a monopoly of national states. In the past, this wasn’t quite the case, it was the social community to shape it. In Europe, in the civil law system, the Parliament produces legal norms, while the Judge enforces the law, keeping judicial and enforcing power. In the UK and its colonies, for example, like in Common law countries, the Judge shapes the original law, has a de facto power to legislate.

International level

On an international level, there are a few non-state subjects which can, in a limited scope, produce something very similar to law, every year they produce a set of rules which may be accepted and ratified by the State to be laws between the parties, becoming binding. In a second phase, the State which ratified enforces them. Enforcement must be translated with Esecuzione, Execution is a completely different action.

Source of law

Source of law: Any act or fact apt at producing legal rules in a given system. Here, source is referred to as the source of production of the law.

• Statute (or statutory) law. Legislative Acts are written documents by which an authority vested with the power to legislate draws up legal rules. Hierarchy of sources.
• Case law {casi giudiziari o diritto casistico}. Judicial precedents are decisions already rendered in the past in cases which appear analogous to the case to be decided (stare decisis). This is not feasible in Civil Law Country.
• Customary law {diritto consuetudinario o consuetudine}. Almost disappeared in formal adjudication, but still existent as social practice. Generally, where the law is silent, the State may exceptionally accept this custom as a law.

Legal systems

A legal system is a procedure or process for interpreting and enforcing the law. Legal Systems are usually divided into legal families. On one hand, because of the effects of globalization different legal systems got standardized. On the other hand, there are still huge differences remaining strongly perceivable between countries of the same legal system in the way they practice law (law in the books vs. law in action). Law can be territorial or personal (like Islamic law). Territorial Systems can be classified as follows:

• Civil law: based on the Roman tradition, uses codes. Also, China, Korea, Japan are all civil law system countries, even if the law changed much.
• Common law: based on the British tradition. Its success is linked with England as a dominant influential country, and they all use English as a language, even if Hong Kong is the first putting English aside in favor of Chinese in contracts. However, differences between Common Law Countries exist and are evident, like in the different application of law in England and Nigeria.
• Mixed/Post socialist: these law systems maintain some features of both the systems above, like Japan, which still keeps intact the Civil Law schema, but, after, WW2 imported many Civil Law System’s distinctive attributes from the US. Many, like China and Russia, received a great influence from politics on the rule of law, becoming a mixture of civil law system with the addition of many distinctive attributes coming from socialist ideas. For example, they do not admit the principle of independence of judges, which are dependent on the Communist Party.
• Mixed/Religious or customary law system: for example, Shariah is the main source of Egyptian law. In India, you can choose Religious rules may be applicable according to your religion of choice. In Africa, customs are very important to law, and also the rules which many people follow aren’t regulated by law.

Definition for law categories

Public Law: the set of rules regulating public institutions (state and public bodies in general) and their relations with individuals. It is not related to economic subjects. In Italy, the primary part it is applicable to is diritto costituzionale, and, secondly, il diritto amministrativo. In Italy, TAR is the institute responsible for regulating the relationship between public institutions and their relations with individuals, and so the disputes between them. There is no such an institute in Common Law Systems. Il diritto processuale is the part of the law which gives you guidelines on the procedural application of law. International public law is about international agreements and relations between different states.

• Constitutional law, Administrative law, Criminal law, Civil and criminal procedure law, Economic Law (competition, regulated markets, tax, etc…)

Private/civil Law: the set of rules regulating personal and economic relations of individuals between themselves. State-owned companies also act as private subjects. In Italy, private and civil law are homonyms. Abroad, private law shall be a wider subject in comparison with the Civil law since Private law also includes commercial law.

• Civil law (in the strictest meaning: ownership, obligations, torts/civil liability), Family law, Inheritance/succession law, Commercial law (enterprises and companies, business contracts, bankruptcy law, etc…)

Additional concepts

Obligation: the action of obligating oneself to a course of action (as by a promise or contract). For example: civil liability, torts, marriages, contracts, successions. Enforce an obligation.

Sovereignty: every country is independent and enjoys full power and authority over itself.

International law

Public International Law: regulates the rules applying between States and other international entities. Law of treaties and law of international organizations.

Conflict of Law/Private International Law: is a set of rules which regulates conflict of laws and jurisdictions, concerns the process for determining the applicable law to resolve disputes between parties. It is useful when there is more than one jurisdiction applicable to the same case, more than one judge who may be in charge, in other words, it is often associated with international law cases. Private international law rules are procedural and not substantive, meaning the aim is to identify the applicable law for an international case and not to guide a judge to issue a sentence.

However, it is of great importance to know which national law is applicable to a case, as it is a decisive element. For instance, it makes up for an agreement which was mute on a certain issue and may determine the outcome of a dispute. Private International Law addresses two focal points: 1. The identification of the applicable jurisdiction 2. The enforceability of a given sentence in a foreign country. To solve the above-mentioned issues, Private International Law and International Civil law rely on connecting factors. The most common approach is called “the closest connection”, or “proximity rule”.

In this respect, private International Law differs from public international law, which is the set of rules entered into by the governments of various countries that determine the rights and regulate the intercourse of independent nations.

Italian international private law

Legge 218/95, the jurisdiction is determined by choice of the parties, according to the freedom of choice, principal of or, generally, comes to be the one of the defendants. The substantive law is ascertained by the competent judge, the judge may decide also according to a foreign law, with the exception of Public Order.

Law applicable to contracts

In a contract, there shall be a choice, implicit or explicit, of the parties concerning the competent judge and substantive law, according to the principal of the Freedom of Choice. Whether there’s no clause implying an explicit choice (i.e., the contract is mute/silent), the competent judge will interpret the contract asserting the implicit choice of the parties, by analyzing the other clauses of the contract, identifying the law with the closest connection to the contract and selecting that specific law.

Common criteria to select the law

• The habitual residence of the Parties
• The Parties’ main places of business
• The place(s) where performance is to occur. The monetary performance is never considered as characteristic to the contract, usually the most characteristic performance is the one of the seller, since he needs to perform more
• The place where the contract is made (which may be evident from fax, emails, etc.)

The freedom of choice stops, where an incongruence with the law of the competent judge starts. This freedom faces the limits of the national law: these limits may preventively restrict this freedom or subsequently prevent the chosen law to be applied to the matter concerned, i.e.: public order. For example, Chinese law requires the application of domestic law to JVs.

International business law

The set of rules and practices regulating international business transactions and disputes. It is mainly produced by national legislators and courts, with a great contribution of some international trade conventions, whether its treaties were ratified by national legislators involved. It is a national tool which regulates the relationship with foreign entities. When you deal with a country who has also ratified trading becomes much easier. The “players” in this field are mainly four: Companies (entrepreneurs, managers, legal counsels), law firm or lawyers, (national) competent judges or (international) Arbitrators.

International trade law

International trade law refers to the body of rules and regulations that governs the relationships of nation states for regulating their domestic markets in relation to international trade. The law regulates the global exchange of goods and services.

Lex mercatoria

Lex mercatoria (from the Latin for "merchant law"), often referred to as "the Law Merchant" in English, is an example of codification, which regulations were used by merchants throughout Europe during the medieval period. It evolved similar to English common law as a system of custom and best practice, which was enforced through a system of merchant courts along the main trade routes. This type of codification as the UNIDROIT principles of International Commercial Contracts were born in order to easy international trade relationship. Finding the most suitable applicable law for every party usually is not a smooth process, these sets of rules constitute a valid and fair alternative to choosing the law of a given country.

Contracts

A contract is a voluntary, deliberate, legally binding and enforceable agreement creating mutual obligation between two or more parties to establish, regulate or extinguish a patrimonial legal relationship among themselves. Business contracts are usually intended to be between parties of the same level.

Process of formation of a contract

The typical process of formation of a contract is characterized by the following 5 phases:

• Negotiation (pre-contractual phase)
• Drafting
• Execution/entry into force (which may or may not coincide in case the entry into force is delayed)
• Performance
• Enforcement

Also buying a book in a shop or online involves a contract, a non-written contract, but usually skipping the negotiation phase. In the pre-contractual phase linguistic and inter-cultural issues arise. The life of a contract can be described as physiological or pathological, meaning/implying that happened after completion of mutual obligation or that was caused by a litigation or other unexpected reasons, such as the bankruptcy of one party.

On a fictitious “contractual scale” graduated on complexity: sale – supply – agency – work – license – Joint-Venture… Take into account that business contracts are usually a mixture of the above-mentioned contracts. Contracts may vary in aim and therefore in form, also share some common features with a creative product, and therefore can vary a lot. Moreover, contracts may be very simple or very complex, so that they can be classified differently according to graduated complexity. For instance, on a complexity scale, common contracts of sale would be simplest and complex cross-border corporate deals would be the most complex. In accordance with a contract level of complexity, both length of the pre-contractual phase, investment in resources and risk would increase at the same rate.

Parties

Parties: natural or legal persons. For a contract to be valid parties must have the legal capacity to enter it.

Contractual principles

Contractual autonomy / Freedom of contract: wide freedom of form (written, oral, mute) and of content. These freedoms are limited by the State, to protect the weak party, in account of social interest and against monopoly and antitrust actions. Principles may vary from legal system to legal system.

Art.v1322 c.c., The parties can freely determine the contents of a contract within the limits imposed by the law.

Art.v1322 c.c., The parties can freely determine the contents of a contract within the limits imposed by the law. This is the principle of contractual autonomy, in addition, according to Art. 1323, “All contracts, even though they are not particularly regulated, are subject to the general rules contained in this Title”.

Domestic/national contract

Contracts that do not contain one or more “foreign elements” (i.e., elements of extraneity - elementi di estraneità) therefore do not relate to more than one State/legal system/jurisdiction.

International contract

A contract between parties belonging to different legal systems or to be performed in a different country. Anyway, the sources of law shall be:

• National laws
• International conventions
• Non-State rules
• Customary business practices and case law

According to national law, the sources in use shall be determined. In Italy, generally, the jurisdiction shall be determined by choice of the Parties or the jurisdiction of the defendant/convenuto; while, the Substantial Law is ascertained by the competent judge, who may be decided according to a foreign law. The substantive law is the law governing the subject and merits of the dispute. It is sometimes described as the 'applicable law', 'governing law' or 'law of the contract'. In most jurisdictions, the parties are free to choose the law that will apply. However, there are a few exceptions: the substantive law shall not be applicable in Italy and shall be applied the national law, whether the substantive law goes against public order or where mandatory provisions are overriding. The competent judge shall then do his research and may even appoint an expert for help.

General and special law of contracts

General law of contracts: a set of rules which deals with a contract formation, object, form, validity, or interpretation; these rules are common to all contracts of any kind. The general rules of a contract required from either the seller or the buyer is to comply with their obligations.

Special law of contracts: is a set of rules which regulates specific types of contracts.