Chapter_1_Essential_Elements_of_Legal_Systems

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1Economic, political and legal systems
The inter-relationship between economic, political and legal systems
A country's political economy refers to its political, economic and legal systems.
These systems are interdependent, and interact and influence each other. The
political and economic system of a country will be influenced by its legal system
and will have implications for the practice of international business.
Economic systems
A country’s economic policy decides how that society finances itself, that is,
what it produces, how it produces it and for whom.
There are three main types of economic system:
•Planned – where decisions and choices are made by the government,
e.g. how natural resources in the country are to be used and what prices
should be paid for them.
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•Market – where decisions and choices are left to market forces of supply
and demand, e.g. the price is set by how much will be paid for the
resources and how much of it is needed. If a particular resource is easily
obtainable, the price will usually be lower. The reverse is also true – if a
particular resource is rare, the price will usually be high.
•Mixed – which is a mixture of the two types above (in practice, most
countries have a mixed economy, and what makes the difference is the
proportion between market forces and planned economy in that country).
Test your understanding 1
Define a planned economy.
Political systems
Politics refers to how countries are managed.
A country might be run by a dictator (political system: a dictatorship) and
individual freedom might be heavily regulated.
In contrast, a country might be run by an elected body (political system:
democracy) and individuals may be more free to regulate their own lives, still
being subject to an overall body of law made by the elected government.
The nature of the political system:
•affects the way that laws are made
•affects the way that economies are run.
Test your understanding 2
What is democracy?
Legal systems
Law is the body of rules that exists in a society, under which its members
operate.
Law is therefore:
•usually understood in ‘local’ rather than ‘global’ terms
•historically in writing as societies changed from tribal/family government to
nation states
•often outlined in basic terms in a country’s constitution
•made by the people governing the country.
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There are three broad ‘types’ of legal system which operate in the world:
•common law (e.g. in the UK and the US)
•civil law (e.g. in France and Germany)
•Sharia law (for example, in Pakistan and Iran).
These will be looked at in more detail later in this chapter.
Many countries in the world have a constitution setting out its citizens’ basic
legal rights. For example, the US has a written constitution.
Increasingly, countries are trading internationally.
•This can cause problems where legal, economic and political systems are
so different as to make agreeing terms between the parties difficult.
•This has led to an increasing interest in creating ‘international’ law,
particularly with regard to international commercial transactions, which is
what this syllabus focuses on.
Test your understanding 3
Define law.
Separation of powers
Separation of powers is the ancient constitutional principle that different
‘powers’ involved in the government of a state should be separate from
one another. The fear was that if two or more ‘powers’ in the same state
get into the same hands, then they are likely to rule as tyrants. Many
modern dictators bear out this observation. The concept is understood in
various ways. Modern thinking analyses the ‘powers’ of government as
being three: a legislature to make the law, and executive to implement it,
and a judiciary to interpret it in cases of dispute. What varies is how (if at
all) the principle is applied – are the organisations involved to be separate,
the personnel different in each ‘power’, no organisation to be able to
control another – or some combination of those.
The US constitution was designed with separation of powers in mind. Thus, the
President (in charge of the executive limb of the constitution) may not be a
member of Congress (the legislature). However, the US also has an intricate
system of ‘checks and balances’ to link the ‘powers’ together and keep them
accountable to each other – so that one tyrant will not merely be replaced by
three. For example, although the US Supreme Court (the most senior judicial
body) may declare laws made by the US Congress to be invalid, the members
of that Court are chosen by the President, subject to the approval of the senior
(upper) chamber of Congress, which is called the Senate.
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The UK has what is often called an unwritten constitution: its key rules have
never been formally collected together into one enactment. The UK constitution
has evolved over centuries, rather than ever been ‘designed,’ and so it does not
reflect this criterion. On the one hand, it is a basic principle that – contrary to the
theory of separation of powers – the most senior members of the executive are
chosen from the legislature. This is known as the ‘Westminster Model’ and has
been copied extensively worldwide: it is seen as promoting the executive’s
responsibility to the legislature and so the people that they represent. On the
other hand, His Majesty the King as Monarch has potentially significant powers
of a legislative (calling elections), executive (appointing ministers) and judicial
(pardoning criminals) nature.
These powers are now considered, briefly, in turn as they relate to the law.
The legislature:
•is the primary law maker in a state
•will usually indicate if a state is to be considered democratic or not by
whether its membership is wholly or substantially elected
•may either have unlimited law-making power (in which case it is called
‘sovereign’ or ‘supreme’) or be subject to legal limits on its power
(‘subordinate’) – limits that are often imposed by that state’s written
constitution. Those limits (if any) are often enforced by that state’s
judiciary, who may be given power to declare invalid laws made by the
legislature that are inconsistent with those limits.
One of the key rules of UK unwritten constitution is that the UK Parliament is
sovereign. The courts (that is, the judiciary) have no power to declare its law to
be invalid: if a law made by Parliament is flawed, then it is for Parliament to put
the matter right. It would be seen as unconstitutional (an abuse of separation of
powers) for a UK court to criticise the soundness of an Act of Parliament.
Whether the law in question is to be changed remains a matter for Parliament.
The executive:
•implements the law (that is, brings it into effect)
•is usually the numerically largest of the ‘powers’, consisting of central and
local government, the civil service, government ministers, the police, the
armed forces, the tax authorities, etc.
•in states that seek fully to practise separation of powers (such as France
or the US, in different ways), will be largely independent of the legislature
and the judiciary. In states that follow the Westminster Model (see above)
it will by contrast be a constitutional requirement that the leading members
of the executive be chosen from and accountable to the legislature.
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The separation of powers allows for the legislature and the executive, which
may be expected to function semi-independently of each other, to be elected
individually. That will be especially likely to happen if they are controlled by
different political parties. Under the Westminster Model, there is more likely to
be only one set of elections, which chooses the legislature and the executive at
the same time, and so gives the new government both the power and the duty
(called the doctrine of mandate) to enact as laws the promises and policies that
they made in their successful election manifesto.
The judiciary:
•decides authoritatively questions that arise about what is the law of that
state, and about its application to particular cases. Judicial activity may be
classified as criminal – matters between state and citizen concerned with
punishing those guilty of crime – or civil – matters between citizens usually
about compensation for loss of some kind.
•is usually wholly or largely outside the legislative process. Where the
legislature is not sovereign, the judiciary may well have power to declare
unconstitutional (or otherwise legally unsound) laws made by it to be invalid.
This may be the role of all the courts or just one or more specialist courts.
•in a common law legal system like that of the UK of the USA, i.e. one
where the law is found in many, many case decisions of the courts – there
will be a further important function of the judiciary: it will be their function to
interpret the law, and (usually) to lay down authoritative rulings (called
precedent) about what is the law. In a civil law legal system like that of
France, the law is instead to be found in a comprehensive code (a very
long enactment), and it will be said that the judiciary do not need to
interpret the code, they just apply it.
•in both common law and civil law systems courts exercise limited control
over the actions of public bodies by way of a judicial review. The review
usually takes place at the instance of an individual whose rights have been
infringed by the public body and who claims that that public body acted
either illegally or ultra vires – outside their powers. Judicial review
applications are heard by the King’s Bench Division of the High Court. On
application, the court will not determine whether any individual decision of
the public body was correct on its merits. It will only determine whether that
public body had the authority to make such a decision and whether the
decision was taken according to proper procedures. If the courts determine
that the decision was taken by a body that did not have the appropriate
authority or proper procedures were not followed, it will quash the decision
and will ask the relevant public body to reconsider the decision on its merits.
Test your understanding 4
Define the function of the legislature.
Test your understanding 5
Explain the concept of separation of powers.
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2Different legal systems
Types of law
Each country has its own set of national laws which regulate how entities relate
to each other and to the state. International law on the other hand reflects the
interrelationship of states and will seek to resolve problems where there is a
conflict of national laws.
Each country will also distinguish between civil and criminal law.
Criminal law versus civil law (the UK)
Criminal lawCivil law
Criminal law relates to conduct of
which the State disapproves and
which it seeks to control. It is a form of
public law.
Civil law is a form of private law and
involves the relationships between
individual citizens.
Purpose– the enforcement of
particular forms of behaviour by the
State, which acts to ensure
compliance.
Purpose– to settle disputes between
individuals and to provide remedies.
In criminal law the case is brought by
theStatein the name of the Crown.
A criminal case will be reported as R v
..., where R stands for Regina or Rex.
Regina means the Latin for 'queen'
and Rex for ‘king’.
In civil law the case is brought by the
claimant, who is seeking a remedy.
The case will be referred to by the
names of the parties involved in the
dispute, such as Brown v Smith.
Burden of proof– on the prosecution.Burden of proof– on the claimant.
Standard of proof– guilt must be
shownbeyond reasonable doubt
(high standard of proof).
Standard of proof– liability must be
shown on thebalance of
probabilities(lower standard of
proof).
Object– to regulate society by the
threat of punishment.
Object– usually financial
compensation to put the claimant in
the position he or she would have
been in had the wrong not occurred.
If found guilty the criminal court will
sentence the accused and it may fine
him or her or impose a period of
imprisonment. If innocent the accused
will be acquitted.
The civil court will order the
defendant to pay damages or it may
order some other remedy,
e.g. specific performance or
injunction.
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Conflicts of laws
A conflict of laws occurs when parties from different legal jurisdictions interact
and trade with each other and their respective legal rules conflict.
This is where international law steps in and will regulate the relationship
between the parties and their rights and duties towards one another.
Sources of international law
International law is derived from various sources:
•International treaties and conventions
•International custom
•The general principles of law.
Common law
Common law derives from the body of law built up in England between
1066AD and 1400AD. It has been exported to various countries, notably
the USA.
Key principles of common law:
•Principles of law do not become inoperative through lapse of time
(therefore a principle applied in a court case of 1066AD may be relevant to
a case today).
•New laws developed by the legislature are presumed not to alter the
existing law (unless they state that they do so).
•Judges apply the law and must apply decisions reached in previous cases
subject to certain conditions, e.g. that there is no material difference
between the cases in question. This is the doctrine of judicial precedent,
which is an important concept in common law.
Sources of law in common law systems:
•Common law: the body of law referred to above, which has evolved
through the application of the doctrine of judicial precedent.
•Equity: the system of rules developed by Chancery to overcome the
perceived rigidity of common law.
•Statute: law made by the legislature.
•Delegated legislation.
•Custom (historic law): customs still plays a part in commercial
transactions.
•The constitution: in common law countries that have a constitution.
•European Union (EU) law: in all countries that are also part of the
European Union. Many European Union countries have a civil system.
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BREXIT
On Thursday 23
rd
June 2016 a referendum was held and the UK voted
to leave the EU.
The UK left the EU on 31
st
January 2020, meaning that European Union
law no longer applies in the UK. Prior to leaving, European Union law
took precedence over all other sources of law in the UK.
All of the EU law that directly applied to the UK at 31
st
January 2020 was
brought within the UK’s domestic legal framework as a new category of
law known as retained EU law.
Legislation and delegated legislation
Legislation is the law created by the Parliament as the highest sovereign law
making body in the UK. UK Parliament consists of the House of Commons and
the House of Lords. For any Act to be enacted the Bill (proposed Act) must be
approved by the House of Commons, House of Lords and a Royal Assent by
the Monarch must be given.
Acts may be passed to:
1Create a new law
2Authorise taxation
3Codify existing law
4Consolidate existing statute
5Overrule an existing precedent.
The process of enacting Acts of Parliament is very time consuming and
burdensome. It would not be possible to regulate every legal aspect by an Act
of Parliament or considered every minute detail of each relevant section. To
facilitate law making process and to save Parliamentary time, the Parliament is
able to authorise another body to enact secondary legislation. This type is
usually called delegated or secondary legislation. This means that the
legislation is done on behalf of the Parliament.
There are many types of delegated legislation:
1Orders in Council – it permits the government, through the Privy Council to
enact new law. The Privy Council is nominally a non party-political body of
eminent parliamentarians. Orders in Council are usually used in times of
national emergency, for example to mobilise the Armed Forces on the
outbreak of hostilities.
2Statutory Instruments – they are usually made by government ministers in
which particular regulations are enacted.
3By-laws – they are made by local authorities or other local bodies. The
application of by-laws is limited to a specific geographic territory.
4Court Rule – made by Court Rule Committees to govern the procedures in
the particular courts under the Supreme Court Act 1981, the County Court
Act 1984, and the Magistrates’ Courts Act 1980.
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5Professional regulations – made by e.g. the Law Society under the
Solicitors’ Act 1974 to regulate and control the conduct of practising
solicitors.
The role of judges
The role of judges in common law systems is to:
•apply the law consistently with previous decisions of judges unless there
are valid reasons for overruling previous decisions
•interpret the statutes made by the legislative
•review the law to determine whether it conflicts with the overriding
principles of law (for example the US Constitution). This is not a feature of
a UK judicial role.
UK Courts and their hierarchy
The UK Court structure is divided into civil law courts and criminal law courts.
The Supreme Court– is the highest appellate court in UK for both civil and
criminal cases.
Court of Appeal– the second highest court in UK. It has two divisions: criminal
and civil. Appeals are normally considered in the Court of Appeal before they
can be heard in the Supreme Court. Civil division hears appeals from the
County Courts and the High Court of Justice. Criminal division hears appeals
from the Crown Court.
Civil casesCriminal cases
High Court– for jurisdiction purposes the High
Court is divided into three divisions: the King's
Bench Division, the Chancery Division and the
Family Division.
The King's Bench Division deals mainly with
contract and tort disputes. The Chancery Division
deals with land law, trusts, probate, copyright,
company law, partnership law, revenue law and
insolvency cases. The Family Division deals with
matrimonial matters.
County Courts– court of first instance for civil
claims in contract, tort, land and tenant, probate,
and insolvency.
Crown Courts– deal with
serious criminal offences
where the defendant is
tried by the judge and the
jury.
Magistrates' Courts–
deal with other criminal
offences and some limited
family matters.
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Doctrine of judicial precedent
The system adopted by the judges, of following the decisions in previous cases
is called the doctrine of judicial precedent.
•Some precedents arebinding(meaning theymustbe followed in later
cases).
•Others are merelypersuasive(meaning that a judge in a later casemay
choose to follow it but he or she is not bound to do so).
The application of consistency is the basis of judicial precedent, which has the
following rules.
•A precedent must be based on a proposition of law not of fact.
•The facts of the case being considered must be materially the same as the
case in which the precedent was laid down.
•The previous court must have had the power to bind the court making the
current decision (it must be a superior court).
•In order for a precedent to be binding on a judge in a later case, the
material facts of the two cases must be the same. If they are significantly
different, the precedent will be persuasive rather than binding.
•A precedent can be overruled by a higher court. Please note that the
Supreme Court can overrule itself.
Rules of statutory interpretation
Statutory interpretation is the process by which judges assign meanings to
ambiguous words or phrases in statutes.
Literal rule
Words must be given their ordinary dictionary meaning, even if this produces an
undesirable outcome.
Fisher v Bell (1961)
Facts:The court had to consider the meaning of the wording 'offer for sale'.
It was an offence to 'offer for sale' offensive weapons. A shopkeeper
had flick-knives with price tags attached on display in his shop
window.
Held:The court applied the fundamental principles of contract law in a
literal fashion, accepting that the display of flick-knives was an
invitation to treat. It was the customer who made an offer to buy. In
consequence, the shopkeeper was found not to be acting illegally.
The aim of Parliament, however, had been to prevent sales of
offensive weapons.
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Golden rule
Where the literal rule gives more than one meaning or provides an absurd
result, the golden rule is used to ensure that preference is given to the meaning
that does not result in the provision being an absurdity.
Adler v George (1964)
Facts:A conviction was challenged on the basis of what appeared to be a
miswording in the Official Secrets Act (1920). This Act made it an
offence to obstruct a member of the armed forces `in the vicinity of'
particular locations, but not actually `in' those locations. The
defendant was actually inside an Air Force base at the time of the
incident, which he claimed was beyond the literal scope of the Act.
Held:The words ‘in the vicinity of’ a prohibited place in the Official Secrets
Act were held to cover the acts of the defendant which took place
‘within’ a prohibited place.
Mischief rule
Used to interpret a statute in a way which provides a remedy for the mischief
the statute was enacted to prevent.
Gorris v Scott (1874)
Facts:The Contagious Diseases (Animals) Act 1869 provided that any ship
carrying animals should contain them in pens. The defendant
neglected his duty, and some of the claimant’s sheep were washed
overboard and lost.
Held:Since the purpose of the statute was to prevent the spread of
contagious disease, and not to guard against the danger of the
property being washed overboard, the claim failed.
Purposive Rule
This is a more modern approach. Here the court is not just looking to see what
the gap was in the old law, it is making a decision as to what they felt
Parliament meant to achieve.
Gardiner v Sevenoaks RDC (1950)
Facts:The purpose of an Act was to provide for the safe storage of film
wherever it might be stored on 'premises'. The claimant argued that
'premises' did not include a cave and so the Act had no application
to this case.
Held:The purpose of the Act was to protect the safety of persons working
in all places where film was stored. If film was stored in a cave, the
word 'premises' included the cave.
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Eiusdem generis
General words mean the same kind of thing as the specific words they follow.
Powell v Kempton Park Racecourse Co (1899)
Facts:Section 1 of the Betting Act 1853 prohibited betting in a ‘house,
office, room or other place’. The issue was whether a ring at a
racecourse was an ‘other place’ for the purposes of this statute.
Held:The Lords decided that if the eiusdem generis rule was applied, the
specific words such as ‘room’ and ‘office’ that preceded the general
phrase ‘or other place’ created a class of indoor places. As a ring on
a racecourse was outside it would not fall within this category.
Therefore the Act did not apply to restrict gambling here.
Expressio unius exclusio alterius
Where a statute seeks to establish a list of what is covered by its provisions,
then anything not expressly included in that list is specifically excluded.
Presumptions
There are presumptions which will generally apply unless the legislation
specifically states otherwise, for example:
•A statute will not bind the Crown.
•A statute cannot conflict with international law. An Act should therefore be
interpreted as giving effect to international obligations.
•A statute does not have any retrospective effect.
•A statute does not alter the common law.
•A statute does not exclude the jurisdiction of the court.
•Legislation does not extend beyond the territorial jurisdiction of the UK.
Civil law systems
Civil law is the law historically developed from Roman law, based on
codes of written law.
Principles of civil law:
•Comprehensibility: law is contained in codes, which are drafted as general
principles, which should answer any situation.
•Certainty: derived from the above, questions of law should be decided
predictably, in the context of the codes. Judges only have limited powers
of interpretation.
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Sources of law:
•countries’ constitutions
•(in EU members) EU law
•statute (much of which is codified, as noted above)
•administrative regulations
•custom.
Role of judges:
•The distinction between those who draft the law and those who apply it
tends to be greater in civil law systems than can be the case in common
law systems.
•Judges apply the law.
•Judges create precedents (in effect law) which must be followed by other
judges.
Principles of judicial interpretation:
•In general terms, judges are not supposed to interpret the law but apply it.
•However, when some interpretation is required, judges are required to
identify the social purpose of the law and apply it in a manner that ensures
that purpose is enacted.
•Also judges may look at the historic intention of the law and seek to apply
it in the way that it would have been drafted to cover modern situations.
Illustration 1 – Different legal systems
There are a number of specific interpretational rules in France, such as
that judges must follow the clear meaning of the law and not seek a
different meaning. In addition, the law must be interpreted in accordance
with its spirit, not to its letter, when the meaning is ambiguous.
Illustration 2 – Different legal systems
Certain common law countries have developed a system whereby
the judiciary may decide whether any given statute is
constitutional.
Germany has constitutional courts which exist for this purpose.
Test your understanding 6
Give two examples of countries which have a civil law system.
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Test your understanding 7
Judges in a civil law system are required to interpret the law.
True or false.
Common law and civil law distinguished
The differences between common law and civil law can be seen in the
descriptions above.
•Sources of law: In civil law, codes and statutes are supposed to be
comprehensive. In common law, they are supplementary to the body of
historic law created by judges.
•Role of judges: In civil law, judges are required to apply the law, whereas
in common law, they have a much more interpretative and creative role.
Illustration 3 – Different legal systems
Auguste is a judge in France. Alison is a judge in the UK. They are
presiding over cases which have similar facts. Auguste will refer to the
relevant code and apply the law as stated within that code. Alison will
have to consider the relevance of statutory law to the case. She will also
have to consider if there has been a similar case previously decided by
a superior court and apply any decision of law made in that case to the
present facts.
Test your understanding 8
Compare and contrast statutory interpretation in common law and
civil law systems.
Sharia law
Sharia law is law based in the religion of Islam.
Principles of Sharia law:
•Sharia is law given by Allah and is the divine way ordained for mankind.
Sources of Sharia law:
•Quran: Allah’s divine revelation to his prophet Mohammed.
•Sunnah: record of what has come to be the acceptable course of conduct,
derived from sayings of the prophet, known as Ahadith.
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•Madhab: schools of thought based on writings and thoughts of major
historical jurists. There are broadly speaking two schools, the Sunni and
the Shiite. The Sunnis form the majority, and the schools under the Sunnis
can be further subdivided into the Hanafi School, the Maliki School, the
Shafii School and the Hanbali School.’
•Constitution of the country.
Role of judges:
•Judges in Sharia law are generally clerics, given the religious nature of the
law although some countries also have secular judges.
•Judges are required to apply the law.
•There are limited powers of interpretation, given that the law was ordained
by Allah.
Interpretation of the law:
•If clear guidance is not available in the Quran, a cleric may refer to the
Sunnah to confirm, explain, or clarify the law.
•If the Quran does not give guidance on a specific matter, the Sunnah may
do so.
•Within the Sunnah, Ahadith are classified according to their reliability:
Mutawatir are virtually guaranteed, Mashhur are less certain and Ahads
have little certainty about their reliability.
•There is controversy in the Muslim world whether further interpretation of
law may be required.
•Taqlid is the theory that the law has been interpreted sufficiently and does
not require further interpretation.
•Ijtihad are the historic processes used for interpreting the law (the specific
types of Ijtihad are: Ijma’, Qiyas, Istihan, Maslahah mursalah, ‘Urf, and
Istishab).
Ijtihad:
•Must not be carried out on certain matters (such as whether Allah exists).
•Must be carried out by a suitably qualified person, known as a Mujtahid,
who has studied the Quran and the traditions of the prophet, understands
the principle of Ijma’, understands the conditions for Qiyas and is a just,
reliable, trustworthy and good practising Muslim.
Ijma’ is a consensus of opinion of jurists.
Qiyas is comparison of two things with a view to evaluating one in the light
of the other.
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Illustration 4 – Different legal systems
Because taking alcohol is forbidden by the Quran, the principle of Qiyas
applies the same rule to matters which have a similar effect to alcohol,
such as taking illegal drugs.
Istihan is the concept of equity or fairness, exercised within the bounds of
what the Quran says.
Riba is an unjustified increment in borrowing or lending money, paid in
kind or in money above the amount of loan.
Judicial review:
•May exist in some Muslim countries to ensure that issued statutes are
based on Sharia law principles.
Test your understanding 9
Define Sharia law.
Test your understanding 10
Judges have the power to interpret Sharia law.
True or false.
Test your understanding 11
Define Qiyas.
3International trade, international legal regulation and conflict of
laws
Public and private international law
Private international law is a set of national, domestic rules to determine