Common law and civil law are the two main types of legal systems adopted by countries nowadays and some countries have adopted features from both into their legal systems. While the approach to allocating risk under a PPP Contract should be fundamentally the same in both civil law and common law jurisdictions, how such risk allocation is drafted and the extent to which it is negotiable may differ according to the level of freedom the Parties have to enter into bespoke contractual arrangements.
An overarching consideration in relation to freedom to negotiate under both systems is whether the applicable procurement processes and rules limit the ability of the Parties to negotiate and amend the terms of a PPP Contract issued as part of a tender process, and whether any changes might give rise to procurement challenges or allegations of corruption. The Contracting Authority should take this into account when formulating the terms of the PPP Contract which will form part of its tender documentation to avoid tendering an unnegotiable, unbankable, PPP Contract.
Aside from potential procurement law restrictions, underlying general laws may affect or apply to PPP contractual relationships without express inclusion in the relevant PPP Contract. In jurisdictions where this is the case, the Parties will need to verify whether and to what extent it is legally possible to amend or waive rights and obligations under such laws (taking into account how this may also affect third parties, such as users). Depending on the result of such analysis, the Parties may want to expressly spell out the underlying legal position in the PPP Contract for the sake of certainty. How such issues are addressed will depend entirely on the jurisdiction and Parties concerned and professional legal advice must be sought. Lenders will be equally concerned with this aspect.
Common Law System - In a common law system parties typically enjoy extensive freedom of contract and few provisions are implied into a contract by law. Judicial decisions set precedents which will be followed in the determination of contractual disputes and therefore influence contractual drafting. A consequence of this freedom is that the terms of any contractual arrangements should be expressly set out in the relevant contract. In a PPP context, all arrangements governing the relationship between the Parties therefore need to be expressly set out in the PPP Contract itself.
Generally speaking, everything is permitted that is not expressly prohibited by law or by contract. If a government is embarking on a PPP programme, it may therefore wish to ensure that certain protections are enshrined in applicable legislation and/or built into PPP Contracts for public policy reasons. For example, it may wish to expressly prohibit the service provider from cutting off the water or electricity supply of delinquent payers, or limit the toll or tariff a Private Partner can charge users, to reflect governmental obligations under relevant international treaties. It may also wish to expressly require that certain documents related to the transaction be disclosed under freedom of information legislation.
Civil Law System - A civil law system is a codified system of law which is generally more prescriptive than a common law system. Basic rights and duties are enshrined in an overarching constitution under which specific legal codes are promulgated (such as administrative and commercial legal codes). In addition, in many civil law jurisdictions, underlying principles of good governance and other administrative law rules affect public sector parties, and broad obligations such as "good faith" have an important impact on contract performance. Broadly speaking, legislative enactments are considered binding for all, as opposed to judicial decisions as in common law jurisdictions (although case law may be relevant, for example with regard to financial hardship concepts and force majeure). Codified provisions and underlying principles may be implied into civil law contracts without being expressly included. As a result, less importance is generally placed on expressly setting out all the terms governing contractual parties' relationships because gaps or ambiguities can be remedied or resolved by operation of law. Accordingly, a civil law contract is often less detailed than an equivalent common law contract.
As in any jurisdiction, it is key for all Parties to understand how the underlying civil law operates and how it potentially affects the Parties' risk allocation negotiations. PPP Contracts typically fall under the administrative law umbrella and the Parties will have to take into account underlying administrative law principles which apply to contractual relationships (e.g. in the context of force majeure rights or rights of the Contracting Authority to voluntarily terminate a contract or rights to "economic rebalancing" or compensation for a Private Partner suffering financial hardship as a result of certain changes in circumstance).
Changing or overriding an administrative law principle by contract may or may not be legally possible and this will need to be confirmed on a case by case basis. Some civil law jurisdictions enjoy extensive freedom to contract (e.g. the Netherlands). However, in other jurisdictions, it may not be possible to derogate from certain principles or to completely waive certain rights, so the Parties will need to take this into account in their negotiations. A related issue for the Parties is what to include in the PPP Contract if underlying legal principles apply. Generally speaking, there is an increasing preference in civil law jurisdictions to expressly set out the position so that the PPP Contract is clear on its face and is not relying on implied terms from underlying law. This is partly because this approach will be more familiar to parties from common law jurisdictions, but also because relying on underlying law can be problematic as the meaning of certain terms and rules may not be clear. An alternative, which may also be effective, is to set out expressly in the PPP Contract how an underlying administrative law principle it is to be applied.