Most countries in Europe have a legal tradition based on civil law. Their law derives from a set of written rules or a civil code. By contrast, in common law jurisdictions such as England and Wales, Ireland and Gibraltar, it is the common law (meaning case law and precedents rather than a civil code) which forms the fundamental basis of all commercial transactions, and from which the principles underpinning the allocation of risk have developed.
PPP arrangements in many civil law countries are governed by administrative law. Administrative law sets out fundamental principles which, in many cases, cannot be derogated from or overridden by agreement of the parties. As such, it provides the framework within which PPP contracts must be negotiated5.
Common law and civil law jurisdictions have distinct approaches to many issues relevant to PPPs. Differences also exist among civil law countries. It is not possible to explore here all European jurisdictions and we will instead highlight only some of the main aspects that could be particularly important.
In many civil law countries a number of the rights implied by law are relevant to PPPs. A public authority may often be unable to renounce a right conferred upon it by the body of administrative laws and regulations that govern it. This can be perceived by the private party as a limitation to negotiations of bespoke PPP contracts. These rights may include the right of a contracting authority unilaterally to cancel a contract early, the right of an operator to compensation following an unexpected rise in the cost of operations, or the right of an authority to make unilateral changes to the contract if they are in the public interest. Some civil law jurisdictions also contain mandatory notice periods which must be observed before termination for breach of contract (by either party) can be invoked. In certain civil law jurisdictions, direct agreements or step-in rights are not possible or if they are, they are limited in scope and reach by the existing administrative laws and regulations6.
Different approaches are also adopted towards security and insolvency in civil and common law jurisdictions. In insolvency situations, the emphasis in common law jurisdictions is on rescue and reorganisation. In contrast in civil law jurisdictions, the insolvency process focuses on winding companies up. In relation to security, which generally forms an important part of PPP arrangements, the concept of trusts in common law jurisdictions allows a security trustee to hold security on behalf of lenders. This avoids the civil law practice of granting security separately to all lenders, and re-registering it if they change, which can be costly and impractical.
A further practical issue in some civil law jurisdictions is that concessions are not allowed to be transferred to a replacement concessionaire without going through the whole re-tendering process. This is the case for example in Slovakia, and causes major issues for any project lenders who may need step in and cure rights, which is a fundamental principle of project finance. This issue can be partially addressed by allowing for the transfer of the shares in the concessionaire, but with the disadvantage that any transfer of shares carries with it the liabilities of the concessionaire and the asset of the concession.
In general, common law jurisdictions will have a less prescriptive approach to the structuring of PPPs than civil law jurisdictions but one has to ensure that both in substance and in terms of formalities public bodies exercise powers to enter into PPP contracts within the scope of their powers, particularly in the case of authorities which are not departments of state (that is, part of central government). In addition, regard must be had to administrative (rather than legal requirements) imposed by Finance Ministries and to standard form documentation.
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5 World Bank Guidance on Legal Framework assessment, including a list of key issues in civil law countries that may impact PPP arrangements: http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTLAWJUSTICE/EXTINFRANDLAW/0,,content MDK:21734392~menuPK:64860402~pagePK:4710368~piPK:64860384~theSitePK:4817374~isCURL:Y,0 0.html
6 A number of these concepts are explained more fully in Annex 1 which deals with Project Finance.