Lecture 2: Jurisdiction & Applicable Law

Question 1

What are the two primary legal systems?

Answer 1

1. Civil law (from EU)
2. Common law (from UK and US)

Question 2

Define civil law.

Answer 2

Origin:

• Rooted in Roman law, particularly the Corpus iuris civilis (compiled under Emperor Justinian).
• Developed primarily in continental Europe.

Meaning: The term “civil” was used to distinguish it from church law.

Main idea:

• Legal rules are codified - laws are written down and organized into systematic legal codes.
• Legal codes cover specific areas e.g. contract law.
• Law is applied abstractly, not case-by-case.
• Contains clear, general rules that judges must follow.

Characteristics:

• Codification of legal regulations
• Often abstract and systematic
• Non-case-based formulation (not based on precedent)
• Emphasizes stability, fairness, and legal certainty

Question 3

Define common law.

Answer 3

Origin:

• Developed in England during the 12th century under King Henry II.
• Aimed to unify local customs through a royal court system.

Meaning: Called “common” because it applied uniformly across the kingdom, unlike local or feudal laws.

Main idea:

• Law is developed through judicial decisions (precedent), not only written statutes.
• Courts are bound by earlier decisions (principle of stare decisis).

Characteristics:

• Case-based legal system dependent on precedent.
• Increasingly supplemented by statutory law (laws written and passed by a government).
• Historically: instable, unreliable and unfair.
• Today: stable, reliable and fair but still influenced by the duality of common law and equity.

Question 4

Outline some of the differences between common law and civil law in terms of contracts.

Answer 4

Length

• Common: Extensive and very detailed (every plausable aspect included)
• Civil: Short (higher trust in law system with default rules)

Standardization

• Common: Yes (reduced risk)
• Civil: Not necessarily (higher flexibility)

Statement of assumptions

• Common: Yes (protection against uncertainty)
• Civil: No (good faith)

Precise wording

• Common: Very important (interpret literal wording, not intention)
• Civil: Important (but consideration to context and intention)

Context

• Common: Self-contained (external laws should not affect interpretation)
• Civil: Read in context of the law (law helps with interpretation)

Content

• Common: “all-inclusive” (incl. legal terms)
• Civil: Not “all-inclusive” (only legal terms when deviating from law)

Question 5

What are the four (five) elements in contract formation that must be present for a contract to be valid?

Answer 5

1. Offer and acceptance
2. On essential elements
3. Intention to be legally bound
   (4. Consideration)
4. (5.) Formal requirements

Question 6

What is the major difference between common law and civil law in terms of contract formation?

Answer 6

Summary of the legal systems:

• Civil law: A legal system where rules are written in codes and used to decide cases.
• Common law: A legal system where judges make decisions based on past court cases.

Difference = Consideration: Each party must give something in return (a promise, service, or payment), which is required in common law for a contract to be valid.

• So, in common law, no consideration = no contract (usually).
• Whereas, in civil law, a mutual agreement can be binding even without consideration.

Consequences: One-sided actions are often invalid or non-enforceable - e.g. pre-contractual obligations, contractual amendments, side agreements and promises. There might be remedies under equity for these cases, but there are uncertainties attatched.

Question 7

What is the concept of consideration?

Answer 7

Each party must give something in return (a promise, service, or payment), which is required in common law for a contract to be valid.

Question 8

What are the implications of the requirement of consideration in common law?

Answer 8

• One-sided promises (e.g. gifts) are not enforceable as contracts.
• Amendments and side agreements must also include new consideration.
• This creates uncertainty in enforcing informal or goodwill-based agreements.
• Parties often need to draft contracts more carefully to ensure consideration is clear.

Question 9

How does consideration affect contract formation in common law systems?

Answer 9

Consideration is a required element - something of value must be exchanged. Without it, a contract may be invalid or unenforceable.

Question 10

What is a difference between common law and civil law in terms of legal remedies?

Answer 10

Equity

Question 11

What is equity?

Answer 11

A special part of law in common law countries that helps make things fair when regular legal rules don’t give a good solution.

It offers extra remedies like forcing someone to do something (specific performance) or undoing a deal (rescission), which regular law doesn’t always allow.

These remedies are given only if the judge thinks it’s fair, not automatically.

That’s why contracts in common law countries (like England) are longer—to cover more situations in detail.

In civil law countries (like Denmark), contracts are shorter, because people rely more on the legal code.

Question 12

Describe the emergence of equity and the impact hereof on contracts

Answer 12

Core message: Because common law courts were rigid and equity courts were uncertain, businesses in common law systems rely heavily on detailed contracts to protect themselves.

• Old system: Local Earls judged cases, but their decisions were inconsistent and unfair.
• Common law began: The King introduced model judgments (precedents) to make court rulings more fair and consistent.
• Conflict: Earls lost money and resisted. They demanded influence over the courts.
• Split system: King’s court handled money claims; other matters stayed with the Earls.
• New problem: The King still didn’t earn enough from the courts.
• Solution = Equity: A new court system (Equity) was created to handle non-monetary remedies (e.g. return of a horse).
• Equity courts were flexible, but less predictable, since judges had discretion.
• Result: In common law countries, contracts became longer to include every possible situation. In contrast, civil law countries trust the law system more and use shorter contracts.

Question 13

What is the role of equity in the common law legal system?

Answer 13

Equity provides remedies like specific performance and injunctions, granted at the court’s discretion when legal remedies (like damages) are insufficient.

Question 14

What are the practical consequences of the equity system with regard to contract design in common law?

Answer 14

• Contracts must be very detailed: Because equity remedies are not guaranteed, parties rely on contractual clauses for protection.
• All possible situations are written into the contract: Courts won’t “fill in the gaps” unless fairness demands it and equity applies.
• Increased use of disclaimers, remedies, and precise terms: To avoid relying on a judge’s discretion, contracts often include specific fallback solutions.
• Longer contracts: Compared to civil law, common law contracts are longer and more technical to reduce reliance on equity.

Question 15

Compare how civil law and common law systems interpret contracts.

Answer 15

Civil law focuses on parties’ intent and good faith; common law emphasizes the written text and formal rules (e.g., four corners rule).

Question 16

What happened in the shark vs. whale meat case and what does it illustrate?

Answer 16

A contract used a misunderstood term.

• The civil law court ruled based on parties’ intent (wrong delivery).
• The common law would go by wording (correct delivery).

It shows how legal systems affect contract interpretation.

Question 17

In real life, what laws do companies choose for contracts?

Answer 17

0. Other (not specified)
1. English law
2. Swiss law
3. US state law
4. French law
5. Transnational law

Why English and Weiss?

• Money: Largest banking capital is in London and the second largest is in Zurich. Aligning banking contracts with the x contract, such that the contracts follow that same legal systems

Most businesses stick to their national law, but sometimes meet on “neutral” grounds, which would typically be English law (depends on negotiations).

Question 18

What is transnational law? (recap from lecture 1)

Answer 18

= soft law

A set of legal rules that are non-binding (Analogy: “PDF reader” (law) can be used by any “computer” (country))

• Regulation of entire area of law (e.g. commercial law) or parts of it (e.g. INCOTERMS)
• Typically developed by public or private international organizations (e.g. ICC, UNIDROIT, Lando Commission)

Examples:

• UNIDROIT Principles (UPICC): Principles of European Contract Law (PECL) and derivatives (DCFR, CESL)
• INCOTERMS: Uniform Customs and Practices for Documentary Credits (UPC 600) [Lex mercatoria]

Question 19

How can transnational law be used in international contracts, what are its pros/cons and what does the ICC have to do with transnational law? (recap from lecture 1)

Answer 19

It offers neutral, harmonized rules.

• Pros: flexibility, neutrality and avoiding costs/time of choosing other laws.
• Cons: not universally accepted and not enforceable in courts, only valid in arbitration.

The ICC are producing passages for contract law, i.e. standardized rules like ICC Arbitration Rules and INCOTERMS for global contracts.

Question 20

Define governing law.

Answer 20

The law(s) of which legal system(s) are applicable to the contract.

Question 21

Define jurisdiction.

Answer 21

The legal entity is granted the right to enact justice.

Question 22

Why is it important to specify governing law in an international (commercial) contract?

Answer 22

It determines how the contract is interpreted, which remedies are available, and how it is enforced.

Without it, uncertainty and increased legal risk arise.

Question 23

What happens if you make no choice of jurisdiction?

Answer 23

Jurisdiction will be decided by default rules under international conventions or national laws, often based on the defendant’s domicile or other indirect criteria - making the outcome less predictable.

Question 24

Is it wise to make no choice of jurisdiction? What are the strategic risks of making no choice of jurisdiction?

Answer 24

No, because courts may default to national conflict rules, leading to unpredictable results, inconvenient forums, or unfriendly jurisdictions.

Question 25

How does one make sure that a contract ends up in the right legal environment?

Answer 25

Two options: **1. Choose** a governing law and jurisdiction in a contract (the better option). **2. Rely on legal regulations** to determine the governing law and jurisdiction.

Question 26

What are the two main factors providing security in the choice of governing law and jurisdiction?

Answer 26

1. The chosen jurisdiction has to uphold the choice 2. Any excluded jurisdiction(s) has/have to honor the choice

Question 27

Where can one more or less reliably predict the outcome in terms of choice of jurisdiction?

Answer 27

Within the European Union, the UK, and other countries applying harmonized rules (e.g. under Brussels Ia or the Lugano Convention), the outcome is relatively predictable even without a choice.

Question 28

Which countries pose a higher risk for enforcing jurisdiction clauses?

Answer 28

Countries not bound by: * Brussels Ia Regulation (EU) * Lugano Convention * Hague Choice of Court Convention

Question 29

Can you name some major harmonizing legislation in terms of jurisdiction?

Answer 29

* Brussels Ia Regulation (EU) * Lugano Convention * Hague Choice of Court Convention * National laws aligned with international standards

Question 30

Define 'Brussels Ia Regulation'.

Answer 30

A regulation that harmonizes rules on jurisdiction and enforcement of judgments in civil and commercial matters within the EU. Countries follow the same rules to decide: * Which court should hear a case (jurisdiction), and * How to recognize and enforce a court decision made in another country. This means that if a court in one EU country makes a ruling, other EU countries must respect and enforce that ruling easily and consistently. This avoids legal conflicts and delays in cross-border cases.

Question 31

Define the 'Lugano Convention'.

Answer 31

An agreement between the EU, Norway, Iceland, and Switzerland that mirrors Brussels Ia, ensuring similar jurisdiction rules among these countries.

Question 32

Define the 'Hague Choice of Court Convention'.

Answer 32

An international treaty that ensures courts respect and enforce exclusive jurisdiction clauses in international contracts.

Question 33

Where does one go to court if nothing is written in the contract?

Answer 33

The court in the town where the defendant is sitting.

Question 34

Define the 'Rome Regulations (Rome I & II)'.

Answer 34

EU laws that set rules for determining the governing law in contracts (Rome I) and non-contractual matters like torts (Rome II) in cross-border disputes.

Question 35

What legal risks are associated with courts not bound by Brussels Ia or the Hague Convention (excluded forum)?

Answer 35

A valid jurisdiction clause may not be upheld by the court if the country is not bound by international conventions like Brussels, Lugano, or Hague. They may refuse to honor jurisdiction or governing law clauses, leading to 'exorbitant jurisdiction' or enforcement issues.

Question 36

What is 'exorbitant jurisdiction'?

Answer 36

Jurisdiction claimed by a court without a strong connection to the parties or dispute.

Question 37

What areas of law can one (under certain circumstances) make a secure choice?

Answer 37

* Choice of governing law regarding contractual obligations and some non-contractual obligations in commercial matters. * Choice of jurisdiction in commercial matters.

Question 38

Define the areas of choice in regards to governing law.

Answer 38

Ket takeaway: * No choice: Areas where the law applies automatically and cannot be changed (e.g., criminal law, tax law). * Choice: Areas where parties can agree on the legal system governing their contract or dispute (e.g., contract law, commercial law). Explanation: **No choice:** Some laws are mandatory and cannot be changed by agreement. These include: 1. **Constitutional law:** Defines government structure and fundamental rights. 2. **Criminal law:** Covers offenses and penalties. 3. **Tax law:** Defines taxation rules. 4. **Labour law:** Protects workers' rights. 5. **Consumer protection law:** Ensures fair trade practices. Key Point: Individuals and businesses must follow these laws regardless of agreements. **Choice:** In certain legal areas, parties can choose which law applies to their contracts and disputes. These include: 1. **Contract law:** Parties can agree on which national law governs their contract. 2. **Commercial law:** Businesses can choose applicable trade rules. 3. **Non-contractual obligations:** Some civil and commercial matters allow for jurisdiction choice. 4. **Jurisdiction:** Parties can decide which courts/arbitration tribunal will handle disputes. Key Point: In international business and contracts, parties often negotiate the governing law and jurisdiction for resolving disputes.

Question 39

What is the difference between mandatory law and dispositive law? (recap from lecture 1)

Answer 39

Mandatory law (ius cogens) cannot be overridden by contract; it must always apply. Dispositive law (ius dispositivum) provides default rules that parties can change by agreement.

Question 40

Define the areas of choice in regards to jurisdiction.

Answer 40

1. State jurisdiction vs. Arbitration (private jurisdiction) 2. Location of court (State, Region, City) 3. Level of court * Ordinary courts: primary/secondary, first/second instance * Arbitration: ordinary/fast track, ad hoc/institutional 4. Function (general/specialized) 5. Scope * All disputes determined by one court vs. only partial assignment * Contractual issues only vs. non-contractual issues 6. Mode * Prorogation (choice of a specific court) vs. Derogation (express exclusion of a specific court) * Exclusive jurisdiction (jurisdiction of one court) vs. Concurrent jurisdiction (optional jurisdiction in another court) vs. Asymmetric jurisdiction

Question 41

What elements should a balanced governing law clause include?

Answer 41

**1. Choice of state jurisdiction** (prorogation): Location, level and function **2. Choice of exclusive vs. non-exclusive jurisdiction** **3. Clarification of scope:** "Hear, settle and/or determine any dispute ... arising out of ... including ..."