Magazine 2017
International Peer-Reviewed Journal
RESEARCH HORIZONS, VOL. 7 SEPT. 2017
LAW
THE INFLUENCE OF MULTICULTURALISM IN THE TRADITION
OF CONTRACT: THE PRIVATE LAW PERSPECTIVE
*
Made Suksma Prijandhini Devi Salain
*Putu Aras Samsithawrati
*
ABSTRACT
Contract plays an important role and is valuable to business transactions involving foreign elements
specifically in international business transaction. It aims to protect the interests of contracting parties
and to provide legal certainty for their business transactions. When contracting parties come from different
countries with different legal systems then it certainly affects their traditions in contract. Meanwhile,
contracting parties cannot survive with their own traditions of contract because of the need and demand
for market share causing them to conduct business transactions. Legal problems in this article are: what
is the form of multiculturalism influence on the tradition of contract? and how do the contracting parties
from multi cultural legal background overcome differences in their contract? This article uses normative
legal research by collecting legal instruments, scientific papers and related case examples. Example of
the multicultural influence on the tradition of contract is the New BW of Netherland. In different legal
cultural circumstances, the parties in contract can mutually adjust and align their different traditions of
contract with each other as long as there is agreement and good faith from the parties. Adjustment and
alignment of contracted traditions leads to shifts in terms of the preparation and validity of a contract.
This shift and harmonization sometimes creates problems in the event of a ‘gap filling’ where the solution
depends on the choice of law chosen by the parties concerned. Thus, contracting parties must be more
thorough and detailed in arranging international business contracts with different legal systems and
traditions.
Keywords : multi cultural, influence, tradition of contract
I. Introduction
Contract is one of the legal actions often done by legal subjects especially individual or legal entity from the
private law perspective. As example, when parties decide to conduct business transaction, the next step is
drafting a contract. There are various definitions to describe what is a contract. However, a contract is basically
a legally binding agreement made by two or more parties who intend such agreement to have legal effect and
remedy as provided by the law when there is a breach of contract (Ryan, 3). Briefly, contract itself aims to
protect the interests of contracting parties and to provide legal certainty for their business transactions.
As the globalization era is now spreading all over the world, contract becomes more and more important.
Globalization itself is the process of intensifications of cross-area and cross-border social relations between
actors from very distant locations and of growing transnational interdependence of economic and social activities
(Scherer&Palazzo,3). Thus, globalization leads this world into a borderless world where distant areas of places
are no longer a hindrance to communicate or create relations with each other. As an effect of globalization and
its technological sophistication, party in one part of the world becomes easy to establish business with other
party located in other parts of the world. Hence, contract especially the international one which contains
foreign elements in it, is playing important role to secure such business transaction.
The existence of a contract is inevitably related to legal tradition or culture adopted by each country. There are
two major legal systems in the world, namely the Civil Law and the Common Law systems that influence the
tradition of contract. The Civil Law system comes from the Roman Law which basically led to the foundation of
French Law, the Napoleonic Code (Laeuchli, 82). Meanwhile on the other side, the Anglo-American legal
tradition which is based on English law is called as the Common Law system (Ibid). With regard to contract,
those two legal systems have their own traditions which in some ways are different from each other. For
example, the Civil Law system is not recognizing the requirement of “consideration” to form a contract, meanwhile
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RESEARCH HORIZONS, VOL. 7 SEPT. 2017
in the Common Law system, consideration is one of the requirement to form a contract (Ibid). Thus, such legal
cultural difference certainly affects the parties coming from different countries with different legal cultures in
creating their international business contracts.
In international business contract which involves contracting parties from two different legal cultures, the
circumstance will become difficult if both parties insist on maintaining their own legal culture. Let us imagine
with this example. There is a tourist, who comes from a country that follows Common Law system, he is very
fond of silver jewelry but in his country there is no basic material to make silver jewelry. On the other side, Bali-
Indonesia, which is a Civil law country, is famous for its silver jewelry and has silver base material. The silver
jewelry produced by the Balinese is well known and is the target of local and foreign tourists. Finally for
example, they want to do international business transaction on silver and based their agreements on contract.
However, it is noted that contracting parties can not survive with their respective contracting traditions for
reasons of the need and demand for market share causing them to conduct business transactions.
Hence, the legal questions raised in this article are: what is the form of multiculturalism influence on the tradition
of contract? and how do the contracting parties from multi cultural legal background overcome differences in
their contract? The aims of this article is to explore the form of multiculturalism influence on the tradition of
contract and to elaborate the ways of contracting parties from multi cultural legal background to overcome
differences in their contract.
II. Research Methodology
The method used in this study is normative legal research with snowballing technique by collecting primary,
secondary and tertiary legal materials. The legal materials are then described, analyzed and interpreted therefore
legal arguments can be provided so that it can analyze the above legal problems.
III. The Form of Multi Cultural Influence on the Tradition of Contract
Multiculturalism, including traditions in the preparation of contracts, is a reality that cannot be avoided in the
era of cross border countries. Contract is one of the actions in the realm of private law. A contract is an
agreement between two or more people which is legally binding. This agreement begins with the offer from the
seller and acceptance from the buyer which later on is elaborated out into rights and obligations of the parties
which are transformed into a contract (Ryan, op.cit and see also Boundy,4). The contract drafting process
requires knowledge, expertise, values and of course the traditions of contract, which vary depending on which
legal system is followed by a country. All of those elements are needed to accommodate the agreements
raised by each contracting parties. Drafting a contract where its parties are coming from the same legal citizenship
or domicile will be easier than drafting a contract for parties who are coming from different citizenship or
domicile. It is noted that differences of citizenship or domicile are followed by difference in the legal systems.
For example, if one party is Indonesian and another is Australian; they are having different legal system. Indonesia
follows Civil Law System or European Continental system meanwhile Australia follows Common Law System or
Anglo Saxon system. Difference in the legal systems will finally affect the contracting parties’ traditions in a
contract.
The two major legal systems in the world (Civil Law System and the Common Law System) have their own
tradition or cultural differences in a contract. In general, the differences between the Civil Law System and the
Common Law System can be seen through the type of legal sources, the position of the judges and the judicial
systems. The main legal source of the Civil Law system is the codified codes of legislation whereas in the
Common Law system it is the legal customaries developed in the community. The position of the judges in the
Civil Law system is as the mouthpiece of the law whereas in the Common Law system the judge is bound to the
previous court decision for the same or similar cases. Both of these legal systems also differ in the judicial
system, where the cases filed in the Civil Law system court are decided by the judges while in the Common Law
system, the cases filed to the court are decided by the jury (Qamar, 40). In the field of contract law, initially
these two systems also have some differences starting from the legal terms of the contract, the stages of
drafting a contract and the substance of the contract.
In Civil Law system, contract formation begins with the intention of contracting parties. However, the lack of
negotiation process, for example lack of offer and acceptance lead to the thin-sized contract. Also, clauses in
the contract regarding the rights and obligations of the parties are drawn up in accordance with the relevant
legislation. For example, a contract of sale and purchase of land in Indonesia which follows Civil Law system
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must in accordance with the Indonesian Civil Code (Kitab Undang-Undang Hukum Perdata) and Law no. 5 of
960 on the Basic Regulations of Agrarian Principles. Such obedience is a must due to written laws and
RESEARCH HORIZONS, VOL. 7 SEPT. 2017
1
legislations are the main legal sources of the Civil Law System. In addition, in Indonesia for example, regarding
the land purchase agreement, the preparation of such contract should be in the presence of a notary. Notary is
a legal official who is authorized by the Government to validate legal act into a legal document (deed, certify
documents, contract). A notary signature is a fundamental element in order to guarantee the authenticity of a
contract, deed or certify documents (CEPEJ Studies No.20, 434). Basically, notary already prepares various
forms of contract. Thus, it is very often that the contracts provided by the notary are rigid.
On the other side, in Common Law system, a contract is said to be valid if it has started with the offer and
acceptance process of the contracting parties. Contract preparation begins with the drafting of a Memorandum
of Understanding (MoU). MoU is a preliminary agreement. The parties who would like to make a contract are
doing a negotiation in the first place and later on transforming it into a MoU. MoU is morally binding and
constitutes as commitment (Vernimmen, 802). Negotiation between the contracting parties is prioritized in
order to well prepare the consideration section since this part plays an important role related to the principle of
good faith in contract (Suharnoko, 120). The principle of good faith has different meaning under Civil Law
System and Common Law System. In the Civil Law System, according to Hoge Raad Verdict dated 18 June
1
982, NJ 1983,723, the principle of good faith is mandatory started before the contract is concluded. On the
other side, Common Law System has different paradigm about good faith principle. Refer to the Gold Group
Properties Limited v BDW Trading Limited (formerly known as Barratt Homes Limited) [2010] EWHC 1632
(
TCC), the good faith principle applies when the contract is already concluded.
Besides that, as mentioned previously in the introduction, consideration is a main requirement of contract in
Common Law system. Contracts made under the Common Law system tend to be thicker because they are
more detailed and complete since those are formed as the transformation of the agreement of the contracting
parties. Another difference of Common Law system from Civil Law system is the legal sources for contract
formation are more into legal customaries in the contractual field, the jurisprudence and of course, the agreement
of the parties.
Based on the above description, there are fundamental differences which can be seen in the tradition of contract
between Civil Law and Common Law systems. Besides that, the emergence of globalization which allows the
cross-border business relations is causing the emergence of the cultural shifting in the tradition of contract. The
traditions of contract in Civil Law system and Common Law system affect each other. It cannot be denied that
heterogeneous population or multi ethnic or multicultural can be seen in one territory of a state. Such cultural
shifting is also influenced by the needs and conditions that require business actors to conduct international
transactions as described in the background. Multi-cultural in traditions of contract are not obstacles but can
be assumed as alignment between one legal system with another. There is no compulsion for one legal system
to adopt tradition of contract from other legal systems. The cultural shifting goes by itself according to the
conditions and needs of society.
Sometimes, Balinese people, whose country follows Civil Law system, are not eager to maximize the negotiation
process before drafting a contract. One of the reasons is due to the daily practice of the society itself where the
people are accustomed to being served by a ready-contract or the standardized one in case of land purchase
agreement made by the notary. On the other hand, many business people from Common Law system countries
like Australia, the United States, Singapore and the United Kingdom conduct international business transactions
in Bali or with Balinese people. For a contract, a private contract, relationship between the parties concerned
is on the basis of good faith and freedom of contract. Because Balinese people often conduct transaction with
parties from Common Law countries, Balinese people begin to follow the contract tradition of the Common
Law system, for example, they put forward the negotiations as well as the MoU drafting as the initial step of a
contract. Another example, in academic area, is that some Faculties of Law in Indonesia started to introduce
courses which also explain contract tradition according to Common Law System as well as its practice. This
cultural shifting continues to promote the use of Laws and Regulations in relation to the object of contract as
the legal basis so as not to eliminate the character of the Civil Law system which uses written Laws and
Regulations as its main legal source.
Another form of multi cultural influence in contract traditions is alteration of the contract requirements in the
New Dutch Civil Code. Indonesia and the Netherlands are countries that follow Civil Law system. The similarity
of the legal system followed by Indonesia and the Netherlands is due to the history of the Dutch who colonized
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Indonesia and based on the principle of the Dutch BW concordance derived from the French Code Civil
applied in Indonesia since 1848 (Rahmatullah,25). In Indonesia, the applicable Civil Code, which is sourced
from Dutch Civil Code, consists of four books: Book I on People, Book II on Objects, Book III on Agreement
and Book IV on Evidence and Expiration. Meanwhile in the Netherlands, the Dutch Civil Code has grown into
the New Dutch Civil Code which has ten books. Those books are: Book I on Natural Persons and Family Law,
Book II on Legal Persons, Book III of Property Law in General, Book IV on Law of Succession, Book V on Real
Property Rights, Book VI on Obligations and Contract, Book VII on Particular Contracts, Book VIII on Transport
Law and Means Transport, Book IX on Intellectual Property Rights and Book X on International Private Law
(http://www.dutchcivillaw.com/civilcodegeneral.htm.).
Initially, the legal requirements of a contract under Article 1320 of Indonesian Civil Code which is sourced from
Dutch Civil Code, consist of four elements that must be fulfilled, namely: (a) there must be consent of the
individuals who are bound thereby; (b) there must be capacity to enter into an obligation; (c) there must be a
specific subject matter; (d) there must be a permitted clause. In general, these four requirements are the basic
requirement of contract according to Civil Law system tradition. As the era progressed, the Dutch Civil Code
which had been changed into the New Dutch Civil Code which now has ten books is adding the legal requirement
to contract under Section 6: 217 of section 6.5.2 on Contract Formation. The article states that, “An agreement
comes to existence by an offer and its acceptance”. This article shows the influence of Common Law system
culture in contract. As noted, there are three fundamental requirements in the formation of contracts according
to Common Law system, namely: the agreement reached through the offer and acceptance process, contractual
intention and consideration (Advocates for International Development). Offer and acceptance as one of the
basic conditions of contract validity can be assumed as New Lex Mercantoria. Its existence as one of Lex
Mercantoria makes offer and acceptance an international custom in private law so it no longer sees the origin
of the legal system (whether it is the Civil Law system or the Common Law system). Offer and acceptance is a
standard requirement if contracting parties intend to have a contract.
IV. The Ways of Contracting Parties From Multi Cultural Background to Overcome Differences in Their
Contract
Cultural shifting and mutual influence of cultures in contracts do not simply change all the character of each
legal system (Civil Law system and Common Law system) in the tradition of contract. There are basic things
that cannot be changed as mentioned in the previous description. Clauses in a Sale and Purchase Contract
(
including land as the object) in Civil Law system countries, such as Indonesia, shall use the relevant Laws and
Regulations as well as to be drawn up before the Notary. This situation does not become a barrier for business
people from Common Law system countries to draft a contract with business people in the Civil Law system
countries. Basically, contract is one of the acts in private law which regulates relationship between the contracting
parties (whether individual or legal entity). Contracting parties are free to determine the subject of their contract,
the format of the contract and the clauses in its contract so long as it is not contrary to public order, morality
and legislation (Art. 1337 and 1338 Book III of the Indonesian Civil Code). This is in accordance with the
fundamental principles in the international contract drafting, namely: the freedom of contract and the consensus
principles.
The freedom of contract principle is one of the general principles of law recognized by civilized nations in the
world, including the Civil Law system and Common Law system countries. It is not only used in the field of
private law but also public law. This principle gives freedom to the parties to have contracts with anyone, the
parties are free to be bound or not in a contract and the parties are free to negotiate things that will be
transformed into the contract (Ayyagar). This principle can be well-implemented if it is supported by the consensus
principle. Contracting Parties are free to determine their rights and obligations (method of payment, method of
delivery, in case of default, settlement of disputes) within a contract as long as there is consensus from both
parties. The parties involved in the contract must, at the very first place, agree before the contract is binding
and becomes enforceable. The agreed contract will become the law for the parties making it; often referred to
as the Pacta Sunt Servanda Principle. The Pacta Sunt Servanda principle is used by contracting parties to
prevent default. The parties cannot avoid the obligations that have been agreed upon in the contract except in
circumstances of force (Andrews, 169).
Based on the above principles, business people from different legal systems can still conduct business transactions
and draft their contract despite having different contracting legal traditions as long as they both agree about
the content of the contract. As stated by Clive M. Schmitthoof, with the freedom of contract principle, the
parties can modify and bring out their innovations to create new forms of contract that they agree on (Adolf,
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RESEARCH HORIZONS, VOL. 7 SEPT. 2017
21). The freedom of contract principle is also recognized in two major international legal instruments in the field
of contract law, namely: the UNIDROIT Principles of International Contracts 1994 (UNIDROIT) and the United
Nations Convention on Contracts for the International Sales of Goods 1980 (CISG). Article 1.1 of the UNIDROIT
states that “The parties are free to enter into a contract and to determine its content.” The 12 Explanatory Notes
of the CISG also recognize such principle by stating, “The basic principle of contractual freedom in the international
sale of goods is recognized by the provision that permits the parties to exclude the application of this
Convention......”.
CISG is one of the private international legal instruments that can be used to draft an international contract
related to goods when parties come from countries with different legal systems and traditions of contract.
Different tradition of business and contract transactions between the Civil Law system and the Common Law
system are harmonized within the CISG (Denis). Several articles in the CISG actually show the characteristic of
contract from the Civil Law system or the Common Law system. One of them is regarding the formation of
contract. Article 18 (2) states that, “An acceptance of an offer to be effective at the moment of indication of
assent reaches the offeror.” An acceptance is not effective if the indication of assent does not reach the offeror
within a period of time. This part shows the civil law receipt theory. This theory stated contract is concluded
when the acceptance from the offeree is accepted by the offeror (Ferrari & Torsello). However according to
Article 16 (1) which states, “Until a contract is concluded an offer may be revoked if the revocation reaches the
offeree before he has dispatched an acceptance.” This article tends to show the mail-box theory of Common
Law system. The mail box theory is different from the receipt theory. This theory is based on English Law when
the postal service became a popular method. The acceptance of an offer becomes effective when the offeree
posts an acceptance to the offeror and not when the acceptance received by the offeror (Smith, 60-61).
In its development, the implementation of the CISG has few constraints as not all matters of international sale
and contract of goods are regulated in the CISG. If there are matters that are not regulated or are ambiguous
under CISG, then CISG Member States are given space for interpretation. There are no rules or legal text is
perfect, contains an issue that is not foreseen by the drafters. The international legislator attempted to find
autonomous method, the original terms using a single system of laws or legal terminology makes an autonomous
method of interpretation necessary (Diedrich). Interpretation as provided by Article 7 (1) of CISG is different
from the interpretation of domestic legislation. It is called as autonomous interpretation. The terms and concepts
of the convention are to be interpreted in the context of the Convention itself. If they are to be regarded as
independent terms and concepts, they must be interpreted by reference to the Convention’s own system and
objectives (Goode, Kronke, McKendrick, 712). Such interpretation must be based on good faith. If such effort
is failed, then filling a gap should be considered under Article 7 (2). The first attempt to solve the gap is
searching the general principles on which the convention is based. Or, in case such principles are absent, the
recourse is to be domestic law denominated by the conflict of law rules of the forum (Schlectriem).
As an example of gap filling we can see through whether the service sale and purchase contract is a scope of
the CISG. The CISG articles do not clearly stipulate whether the service-buying contracts are subject to regulation
so that gap filling occurs. It can be seen in the LG Mainz Case November 26, 1998. Gap filling in a contract will
become more complicated if the contracting parties are not from a country that ratifies the CISG. Differences in
legal systems and different traditions of contract will make it difficult for the parties to solve the contract
disputes. Interpretation of gap filling will depend on the legal system chosen. Not to mention if the legal system
chosen is not the judge’s national law in the filing of a case. The situation will become increasingly difficult when
the parties do not clearly choose what legal system applies to their contract. Therefore, it is strongly recommended
to the parties who wish to make an international contract to include three important elements, namely choice
of law, choice of dispute and choice of forum. These three elements will facilitate the parties in the event of a
dispute in the implementation of the contract.
V. Conclusion
Countries that follow Civil Law system and countries that follow Common Law system both have their own
different traditions in contract. However, with the globalization era where world becomes borderless, the
international business transaction between parties from different law systems started to growth bigger. Thus,
the traditions of contract in Civil Law system and Common Law system are affecting each other. Example of
multi cultural influence in contract is the New Dutch Civil Code regarding the requirement of offer and acceptance.
It is also noted that cultural shifting and mutual influence of cultures in contracts do not simply change all the
character of each legal systems since there are basic things in traditions of contract that cannot be changed.
The solution to overcome the different traditions of contract faced by contracting parties from different legal
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RESEARCH HORIZONS, VOL. 7 SEPT. 2017
systems is by relying on the fundamental principles of freedom of contract, pacta sunt servanda, consensus
and good faith. Based on such principles, international business transactions and contract can still be conducted
and drafted as long as they both agree. Thus, contracting parties specifically from different legal systems
backgrounds must be more thorough and detailed by mentioning choice of law, choice of dispute and choice
of forum in their contract.
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EWHC 1632 (TCC)
Hoge Raad Verdict dated 18 June 1982, NJ 1983,723
LG Mainz Case November 26, 1998
Legal Instruments
Kitab Undang-Undang Hukum Perdata (The Indonesian Civil Code)
Law no. 5 of 1960 on the Basic Regulations of Agrarian Principles
The Dutch Civil Code
The United Nations Convention on Contracts for the International Sales of Goods 1980
The UNIDROIT Principles of International Contracts 1994
*
& ** Lecturer of International Law Department at Faculty of Law, University of Udayana, Bali-Indonesia.
Email: [email protected], [email protected]
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