(a) Legal cultures and determinative interpretation factors

Three main legal traditions. Three main approaches to legal practice can be distinguished, each representing the characteristics of the legal culture behind it:

  • The Roman legal culture;
  • The Germanic legal tradition; and
  • Most visibly impacting the size of a contract, the common law.

Other legal families. Other important cultures can also be identified, such as the Arab (or Islamic) legal culture, the Hindu tradition, the Scandinavian ‘family’, the (former) socialist countries, and various mixtures: the Scottish and South African legal systems are somewhat of a mixture between common law and civil law; Japanese law has been influenced by both U.S. common law and German law, Turkish law by the Swiss codification of around 1900, and Russian federal law by several European legal systems including the Dutch civil code of 1992. In Africa the influence of the former coloniser is often recognisable (in many cases either the French or the English legal system has been adopted, but then developed independently). Elsewhere, the British Commonwealth jurisdictions have adopted English common law.

Roman and Germanic traditions. In both the Roman and the Germanic legal cultures, courts will come to their decisions by reverting to systematic codifications of the law (i.e. a civil or a commercial code), the meaning of which is elaborated on in parliamentary materials, doctrinal opinions and case law. These codifications have a rather abstract character, building on general principles such as ‘good faith’, ‘reasonable’, ‘fair dealing’, ‘justifiable’, ‘duty to co-operate’, which are familiar tools for each lawyer. These principles require that a party observe standards of proportionality and subsidiary when exercising its rights under a contract.

In the Roman and Germanic legal traditions, courts are not strictly bound to their precedents and, exceptionally, are even able to set aside unfair consequences of a law or regulation. Lawyers from Common Law jurisdictions would probably reject such sources of uncertainty about explicit provisions, but the practical consequences are not as sweeping as they may seem. In case of breach of contract, remedies are not limited and will typically include specific performance or an otherwise effective remedy.

The two legal traditions are fundamentally different as regards contract interpretation (although the difference may seem philosophical or academic rather than practical). In the Roman legal culture, the rather subjective consensus between the parties is determinative for the scope and nature of the parties’ mutual obligations. This means that not the written contract but the mental, ‘common intentions’ are relevant and that a written agreement is considered to be only a welcome (albeit important) piece of evidence. In the Germanic legal tradition, an objective approach prevails in the interpretation of contracts and legal acts: the important thing is what, under the circumstances, a reasonable and informed person in the same position would deem to reflect most accurately how the parties are bound. In this approach, as well, the written contract is a good starting point. The Unidroit Principles contain the following general principle of contract interpretation:

Article 4.1 (Intention of the parties)

  1. A contract shall be interpreted according to the common intention of the parties.
  2. If such an intention cannot be established, the contract shall be interpreted according to the meaning that reasonable persons of the same kind as the parties would give to it in the same circumstances.

Article 4.2 (Interpretation of statements and other conduct)

  1. The statements and other conduct of a party shall be interpreted according to that party’s intention if the other party knew or could not have been aware of that intention.
  2. If the preceding paragraph is not applicable, such statements and other conduct shall be interpreted according to the meaning that a reasonable person of the same kind as the other party would give to it in the same circumstances.

Article 4.3 (Relevant circumstances)
In applying Articles 4.1 and 4.2, regard shall be had to all the circumstances, including:

(a) preliminary negotiations between the parties;
(b) practices which the parties have established between themselves;
(c) the conduct of the parties subsequent to the conclusion of the contract;
(d) the nature and purpose of the contract;
(e) the meaning commonly given to terms and expressions in the trade concerned;
(f) usages.

The Articles cited above provide a well-balanced principle of contract interpretation, which would even encompass English law. It is fair to say that each European jurisdiction is represented in the concepts expressed in these Articles, and none is contradicted. Note that the literal meaning of contractual words is not necessarily decisive.

Common law. In Common Law systems, vast codifications of private law have never been developed or, at least, they never achieved the authority given to their counterpart on the European continent. In the U.S., for example, codifications exist for corporate law, partnership law, various types of transactions in movable property (embodied in state codifications of the Uniform Commercial Code), and federal topics such as competition law, intellectual property law, arbitration, securities laws and regulations and bankruptcy law (known as ‘Chapter 11’). Subject matters that are not covered by these codifications have often been developed in the common law (i.e. case law). Accordingly, legal concepts such as ‘mistake’ or ‘set-off’ are based on court precedents. The influence of legal doctrine is, at least in the U.S. state laws, very limited if relevant at all. To state that legal concepts such as ‘good faith and fair dealing’ can be excluded contractually is exaggerated, but to say that the typical common law attorney is well able to appreciate its scope often contradicts practical experience.

Other than in the Roman and Germanic traditions, the default remedy in common law systems is payment (in cash) of damages. Whether or not an injunction or specific performance may be awarded might depend on the adjudicated court, except that parties can always contractually provide for remedies.