Legal practices normally vary from one country to the other depending on the varied social constructs in which the laws are based. There are however some countries whose laws seem to be similar following the reason that their laws were constructed on a common base or some countries had adopted the law of another country as their own by making just a few changes1. This occurs mostly when the colonies continue using the laws of their colonizers, like in the case of Australia and Britain where Australia adapted the Britain law as their own. This situation implies that varied practise in law are likely to be given a different perspective as provided by the laws of each country in the world, where at times some practises are likely to differ.
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Given the above-described situation, there arises the need for comparing the legal practices for various countries following the fact that there are international contracts that may require the reconciliation of the legal practices on ensuring justice and order in different fields including business. International contracts become an issue because they are likely to involve citizens from countries with varied law orientations. Therefore, the need for comparative law.
The paper discusses the legal practices in three countries, that is, China, Germany and Australia in relation to the case study provided of Burns and Company, and Moe Company who were engaged in a lease business.
The Burns Company had entered into negotiation to lease premises from Moe company. The Moe company was to construct the premises and then lease it to Burns Company, where the construction of the premises was to be done by King Kong company. The contract designing between the Moe company and King Kong company was done in a hurry and a number of contract basics were not constituted, that include; the treatment of variations based on unexpected site conditions, allowance caused by delays of wet weather, and did not state the law that could be used in case of a dispute. King Kong encountered wet weather and the site was rocky that made the company encounter more expenses.
Moe Company refused to compensate King Kong claiming that the company never knew that rocks were there and the wet weather was non of their concern. King Kong however was required to undertake the due diligence of the site before the start of the construction as provided in the construction agreement. Another uncertainty that caught the Moe company is when the new manager, Bart, told Moe that the Burns company does not wish to lease premises from them as agreed with the initial manager, Lisa.
The obligation of each party in a contract is reinforced as spelt in the lease agreement, meaning that the non-comprehensive design of the agreement is likely to disadvantage some other parties in the contract in the future if conditions change2. For example, the pooling out of Burns Company from the contract won’t have happened if the agreement had provided for that, and the failure for Moe to compensate King Kong for the extra costs won’t have occurred if the construction agreement had been provided for it. The failure to adhere to the agreement guidelines is also another factor that affects the mutual benefits among the parties involved in a particular contract. King Kong won’t have got the losses if they had done due diligence perfectly on establishing the nature of the site before entering into a contract.
The Lease agreement is a very important document in the contracts that are related to the leasing of premises, provided that the project is likely to take a long time where the conditions of operation might change, which are likely to disadvantage a given party in the contract, more especially in situations where uncertainties are likely to arise. For an effective lease agreement there are a number of components that need to be considered as part of its contents, they include;
The terms and conditions of possession
The Term and conditions of possession provide the length of time that the lease will run and the obligations of the lease and the leaser3. This is meant to eliminate the possibility of there arising conflicts on the responsibilities played by each party involved in the contract.
The lease agreement should be specific on the compensations that are entitled to each party under various conditions as provided by the nature of the lease. This will allow mutual benefit among the parties in a contract.
This section of the lease agreement is expected to review the various ways under which the lease can be terminated and on how compensations can be done following the termination of the lease. It provides the time span over which termination will occur after providing a notice4. Finally, it provides the provisions when the term of the lease is completed.
Option to Renewal
The lease agreement may also extend to the terms and conditions of renewing the lease after the termination of the initial lease term5. In this section of the agreement, the likely benefits from renewing the lease are spelt out including the most likely changes in the terms and conditions of the lease.
Following the case provided above, it poses some legal problems that follow from the inadequacies in the drafting of the lease agreement and also the problems that are associated with the kind of law that is applied in various countries. The paper has used Moe as the reference in determining the legal position against the other parties in the case. Moe has been chosen as the reference following its interaction with all the parties mentioned in the case. The legal position of Moe is provided with respect to the law of different countries that include Australia, China and Germany. The legal positions are provided as follows;
Moe’s legal position against Burns and Company
The relationship between Moe and Burns and the company is that of a leaser and a lease before the law. Where Burns had agreed to lease the premises from Moe, where it later turned down the offer following the stand of the new director, Bart. Assuming that the two companies as independent and legal entities, it’s possible to rule the legal position of Moe under this condition. From the application of the common law, Burns can be perceived to have wronged Moe because it did not stick to the agreements as provided in the lease agreement, thus misconceiving Moe and exposing it to incur unnecessary expenses based on the promises as given in the lease agreement.
Law of Australia
Australia inherited the British common law tradition following Australia as a colony of Britain. The rules that are meant to be used in determining the legal position of contracts are found in the case law. There is no comprehensive contract legislation that is used in all the contracts, but a section of some legislation that is certain to impact particular aspects of the contractual relationship. An example of such legislation include Trade Practices Act 19746. Individuals are allowed to enter into contracts freely.
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There is a little restriction to this freedom in the Australian traditional contract law. There is less to do with the obligation of good faith in the Australian contract law7. Following the Australian law, there is no liability for termination of the pre-contractual negotiations, implying that, the action of Burns terminating the contract is justifiable and Burns does have a liability to worry about according to the Australian law, regardless of the harm that it causes to Moe.
The concept of good faith in negotiating is unworkable following the inconsistency of the position of negotiating among the parties involved in a contract because any party in the negotiation is free to threaten to withdraw or actually withdraw from the negotiation process at his or her wish8. There is no legal penalty for the negotiating party failing to provide all the necessary information as pertains to the contract in a negotiation.
A legal penalty can only be imposed if the disclosed information is false. A remedy may also be available if one party in the negotiation has been misleading the other during the negotiation or if the party has been keeping silent on matters that are relevant to the negotiation and it is evident that the party had the information. Following the provisions of the Australian law, Burns may be perceived as not being guilty as it has the right to withdrawal from the negotiation at any time and in their wish.
Law of China
The contract law of China is codified into legislation known as Chinese Contract Law. The law offers the basic freedom for Individuals to enter into a contract and control their own affairs9. The law is meant to protect the lawful rights and interests of the parties that are involved in the contract, in the process of promoting the social-economic order and socialist modernization drive. The parties that are involved in a contract are expected to observe the social ethics in conducting the contract activities. The parties in contracts are also expected to avoid the practices that are certain to undermine the public interest following the fact that China is a communist country10.
The most important concepts that are spelt in the Chinese contract law include good faith, fairness, honesty and ethical behaviour. According to Chinese Contract law, a party in the contract may be liable for the damages caused by a lack of good faith in either of the parties.
The legal position therefore of Moe according to the Chinese law of contact is that Burns is liable for the damages that caused Moe for withdrawing from the contract, that is, Burns should compensate Moe for the losses that it incurred. The Moe company might have suffered from the waste of time and resources in a project that was never to be according to Burns, which implies negotiating in bad faith, which is a crime according to the Chinese Contract law. The losses are against the goal of promoting the social-economic order as the main agenda for the Chinese contracts law because another party, that is, Moe, suffered a financial loss.
Law of Germany
German law advocates for the basic freedom for Individuals to enter into contracts. The contracts in German are perceived as being a declaration of will by at least two parties, that correspond to each party involved in the contract11. The law provides some restrictions to the general rule of freedom of contract, that in-cooperate the cases where there is bad faith and inequality in the bargaining power between the parties involved in a contract. The rules that govern how contracts should be carried out are contained in Germany’s Burgerliches Gesezbuch (BGB), which follows the rules provided in the Germany Civil Code12.
The contract law in Germany protects the parties from the start of a negotiation. Any party is not excepted to exit from the negotiation table without any good reason, otherwise, the other party has a right t claim on the trust that was offered to the other party who has exited who wish to exit. The parties are expected to act in good faith and acting in a manner that is generally acceptable by all. The contractual obligations arise following the parties involved in a contractual negotiation. Therefore, following the German contract law, Burns is guilty to have pulled out of the negotiation. Moe has a right to claim the trust that it had vested in Burns.
The legal position of Moe Against Lisa and Bart
Lisa and Bart played an important role in determining the fate of Moe as consecutive managing directors of the Burns Company. Lisa made a lease agreement with Moe on the assumption of good faith, meaning that if she could have held the office for a longer time, the end of the lease was to be realised as agreed. Bart, a managing director after Lisa, saw less significance in honouring the lease agreement according to his perception, thus cancelling the lease agreement. The main concept under this situation is the evaluation of the legal position when the person who initiated the contract is substituted with another person with conflicting interests.
Lisa and Bart are separate entities from the Burns Co. Their relationship with Moe is dependent on the relationship that Moe has with Burnt company, therefore, they are just representatives of the Burnt company. Assuming that Lisa and Bart were individuals with a one on one relationship with Moe, then this is the situation where one can give a legal position of Moe in the contract. thus, let’s assume that they were dealing on a one on one basis with Moe. The legal position of Moe against Lisa and Bart can be described with respect to Australia, China and Germany contractual laws as given below;
Law of Australia
According to Australian contract law, a person will only have a legal capacity to engage in a contract if he or she is above 18 years. The person also needs to be sound in the mind. The minors, that is, the persons under 18 years, are only allowed to contract on items that are felt as being necessary at their state of life or for the services that may be felt beneficial to them, otherwise contracting on items that are not within their needs and services, that is, the items that are harmful to them is not allowed.
The contracts that are long-lasting and that involve property interests are binding only if the minor repudiate them as a minor or within a reasonable time after them becoming of age, that is, age of above 18 years. Assuming that Bark and Lisa were above 18 years, meaning that they have a legal capacity to contract, they will be treated as independent entities13. Therefore, according to the Australian contractual law, then the legal position will be the same as the one discussed above, that is, they will never be liable for withdrawing from the contract or compensate Moe for the losses that the company realized following their decisions.
Law of China
The Chinese law of contract has provided less concerning the characteristics for an individual to have a legal capacity to participate in any valid contract14. Therefore, assuming that Lisa and Bark were qualified to carry out a contract and as individuals who are responsible for their actions, Moe will have a right to claim compensation following the damages that were caused by the withdrawal from the contract.
The guiltiness of Lisa can be based on her engaging in a negotiation that later undermined the social-economic order as provided by the Chinese contractual law. Lisa can never be convicted of being dishonest, unfair or have portrayed unethical behaviour because to her, she was dedicated to ensuring that the lease agreement is adhered to given opportunity as the managing director of the Burnt company, to the termination of the lease.
Bark can be perceived as being liable for the damages that were caused on Moe following the withdrawal from the contract. He is guilty because his action undermined the main aim of the Chinese contractual law of promoting the social-economic order. He can also be perceived as being dishonest, unfair and have behaved unethically. Therefore, Bark is liable to compensate Moe for the damages caused by withdrawing from the contract.
Law of Germany
The German contractual law recognises the concept of legal capacity and legal competence, where a child whose age is below 7 years is regarded as being legally incompetent. Therefore, for one to contract in German he or she must be of over 7 years old15. The children whose age is in a range of 7-18 years are however allowed to contract only if they attain a legal advantage in the contract, otherwise, the child has to be represented by his or her guardian16.
Under that same assumption that Bark and Lisa were adults, that is, above 18 years old. According to the German contractual law, Lisa can be perceived as being guilty of evaluating her conduct as an independent person from the Burnt company because she advocated for the contract that was never to be. She was to act in good faith by informing the Moe Company that somebody else might takeover as she is not the final decision maker, thus implying the failure to disclose the necessary information that could have saved Moe company. The bark is also guilty to have pulled out of the negotiation thus undermining the trust of Moe in the contract negotiation that make Bark liable to compensate Moe for the damages that occurred by withdrawing from the contract negotiation according to the Germany Contractual Law.
Moe legal Position against King Kong
The main issue between Moe and King Kong company is the design of the Construction Contract and the fairness of treating each party. This follows from King Kong incurring extra costs that were not expected because of the wet weather and the rocky site. The legal position of Moe against King Kong can be provided as below with respect to Australia, China and Germany;
Law of Australia
According to the Australian contractual law, Moe company’s has no obligation to compensate King Kong for the extra costs that were incurred due to wet weather or rocky site because King Kong was expected to carry out due diligence before accepting the terms and conditions of the contract. This follows from the fact that the parties involved in a contract can pull out with no obligations attached to it. Good faith is also not an issue to be considered by the Australian contractual law17. The law is only concerned with providing a false information, where the disclosure requirements are left at the will of the parties
Law of China
According to the Chinese contractual law, Moe is expected to compensate King Kong company for the extra costs that it incurred on promoting the social-economic order as provided by law18. The Moe company is also guilty of being dishonest, unfair and behaving unethically. Therefore, Moe will be expected to compensate King Kong according to Chinese law.
Law of Germany
According to the German contractual law, Moe will be expected to compensate King Kong because Moe was not acting in good faith. The equality of bargaining is also not observed because Moe had declined to compensate King Kong for the costs incurred, thus Moe is guilty according to the contract law of Germany.
Part Two: The law that should govern
Following the disparities as pertains to the contractual law as provided by various countries, there arises the need for the country to choose a structure for making a ruling over such situations, more especially which the parties involved in the contract are from different countries. For instant, the Australian court may at times not apply the Australian contractual law in solving the disputes that may arise between the parties involved in a contract as the ruling is likely to be unsatisfactory.
The unsatisfactoriness may arise on reason that, the motives for establishing a contract may have been based on a different law on ensuring mutual benefit among the parties than when applying the Australian contractual law, The guidelines that the Australian court can use to decide the kind of law to apply include; The court may decide to apply some kind of law according to the parties involved in the contract’s intentions and this will be evaluated according to the clauses provided in the agreement19.
The use of some clauses in the contract agreement will ensure the fair treatment of the parties involved in the contract, following the initial mutual benefit set in the agreement. This follows from the fact that contractual law of various countries has varied impact on the mutual benefit of the parties in the contract, therefore, the use of the contractual law that is spelt in the contractual agreement clauses will be representational of the intended mutual benefit by each party in the contact.
The Australian court may also use the location of the business as the basis for deciding on which law to apply20. This seems to be the best base for making a judgement as the law of the land in which the business is located will be applied when the parties are in a disagreement on which law to use. This will eliminate the dispute among the parties over which law to be used when the parties are not in an agreement on which contractual law to use. Therefore, it is an arbitrary choice dependent on the location of the business under dispute. This choice is best suited in situations where the parties in an agreement are from different countries but having a business in some country.
The place of living of the parties can also be used as a means for identifying the best law to apply. This is best when the parties involved in a contract are residing in the same country, but either have a business in the that same country or in a different country.
The court can also engage the parties involved in the contract in a negotiation process in determining the contractual law that can be used to ensure a fair treat among themselves. This can be made possible by first supplying them with the necessary information for them to make a decision over which contractual law to be applied to settle their dispute on ensuring mutual benefits.
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- L Francis, Why Study Comparative Law in Business (2005) 12, University of Aberdeen.
- K Johnstone, The Common Law (2004) 114, Asia Pie Limited.
- K Dian, Rental Agreements (2007) 51. Prentice-Hall.
- C Sam, Social Responsibility of Companies (1991) 43, University of California.
- J Alan, Comparative law of England (1978) 57, Oxford University Press.
- D Churchill, Principles of European Contract Laws (2003) 112, Copenhagen Business School.
- M Carthy, The International Business Law (1992) 114, Wills Publishers.
- W John, Contract: Issues in the International market (2001) 301, Oxford University Press.
- S Zhongguo, The Economic Contract Law ( 1992) 41, Prentice-Hall.
- M Dorsey and L White, The Returning Liability For Improvements To Lease of Premises ( 2007)45, Prentice-Hall.
- M Crouch, Technology Contract Law (1992) 121, Weinstein University Press.
- P Cutlers, The law Firm (2004) 65, Findlaw.
- V David, Business law: Contractual Law (2003) 102, Oxford University Press.
- D Smith and H Kotz, Introduction to Comparative Law (1998) 321. Clarendon Press.
- R Youngs, English, French and Germany Comparative Law(1998) 15, Cavendish press.
- P Mabo, Germany’s Contact Law: A comparative study (1993) 154, Oxford University Press.
- B Steven, Business law in Australia: An Introduction (2003)223, Prentice-Hall.
- F Terry, The law of property (2000)119, DIANA Press.
- C Joseph, International Trade; Contractual law as King (2006)57. CIANA Press.
- G Barry, Harmonization of Contract Law in Asia-Harmonizing Regionally or Adopting Global Harmonization-The Example of the Cisg (2005 )362,372. Singapore Journal of Legal studies.