Newsletter January 2011

Best Wishes 2011


The entire Foundation team sends its best wishes for 2011!
Editorial – January 2011

First news for the New Year

By Jean-Marc Baïssus, CEO, Fondation pour le droit continental

On October 6, 2011, the first English « alternative business structures » will see the light of day. These are new forms of business organizations for lawyers, in the wake of a series of reforms introduced in 2007. With the aim to open up access to legal services and to rejuvenate professional structures, the English lawmaker has decided to allow investors outside the legal world to become shareholders and even majority holders in law firms. Next to an entrance « test » provided at the licensing stage to ensure that the new owners are acceptable investors in this particular field, the rules see to it that the actual practice of law is ring-fenced against any interference by the non-lawyers, be they the majority shareholders. This law earned the nickname of “Tesco law”, the name of a supermarket chain, because of the fear expressed by many small- and medium-sized firms of being competed against and ultimately defeated by the provision of legal services through major stores. One also has recently learned that Slater et Gordon, the first law firm to have been floated on a stock exchange, in 2007 in Australia, has just bought up one of its competitors for an amount of 35 million Australian dollars (26 million Euros), after acquiring no less than six other firms in 2011, whilst its earnings have increased by 21 % over a year. The Rio Tinto group hopes to diminish its yearly legal bill to the tune of 100 million U.S. dollars through the outsourcing of some 20 % of the legal services it requires. The New York Times recently reported that « since 2008, some 15,000 attorney and legal-staff jobs at large firms have vanished ». At the same time three prospective Australian barristers out of four cannot find a pupillage and have to give up on their professional ambition, whereas they are often due to repay student loans.

No need to dwell any further on these examples. They mean that common law jurists are experiencing a tectonic shift in the way they operate, and this cannot leave continental law countries indifferent. The competition for the provision of legal services knows fewer and fewer borders and one has to adapt. This is the reason for a number of ongoing discussions in France.

Nevertheless, there is no case to rush headlong and attempt to copy the evolution under way in Australia, England or the United States. Such an evolution is due to different local circumstances and we would always at least be one step behind anyway. Such challenges should, quite to the contrary, been seen as opportunities to better distinguish the assets of the way legal advice and legal certainty is brought in our system of law. Specifically, the independence of the lawyers and the fundamental meaning of professional regulations should be underlined. They embody a different way of protecting clients, different from that approach which only sees in him the consumer focused on getting the best price for the service he intends to buy. An improved analysis of the intrinsic qualities of our legal system has to be pushed further in order to have it acknowledged as a viable and performance-oriented alternative to a series of choices solely dictated by the strictures of the deregulation credo. This of course should not hinder in any way a constant dedication to improving this very same system.

May you enjoy a happy New Year and may 2011 be for you the opportunity for great personal and professional satisfaction.

Interview with Nathalie Gilly, Director of Banking Services of the Caisse des Dépôts et Consignations

Interview with Nathalie Gilly,

Director of Banking Services of the Caisse des Dépôts et Consignations,

Treasurer of the Fondation pour le droit continental

Why did the Caisse des Dépôts decide to join the Foundation?

There are several reasons that explain the Caisse des Dépôts’ participation as a founding member of the Fondation pour le droit continental.

The Foundation was created to promote and develop civil law in order to contribute to the balance between legal systems within a context of competition between these systems, which are both reflections as well as tools of economic competition in a globalized world. Its primary purpose is to concretely explain the benefits of civil law as a vector of legal certainty and thus of economic competitiveness.

There is a real coherence between the support that the Caisse des Dépôts provides to the Foundation and its renewed identity as a long-term investor. It’s because we really feel that our legal system provides real competitive advantages for our country and that it contributes to the attractiveness of its economy, but also because it’s good in the long-term for legal certainty and for investments in particular.

Civil law is written, often codified, secure, protective and accessible to most people. Thus, for us, it is very closely associated with the transparency of our legal system and with the parties’ certainty. To use the very concrete example of real estate transactions, for which the ratio of disputed transactions is fifty times lower in civil law countries as compared to the rate noted in common law countries, this example indeed shows that litigation risks are minimized for property ownership rights, which are such an essential aspect of economic life.

By joining the Foundation, the Caisse des Dépôts is strengthening its general interest, economic development and long-term investor missions.

What makes the Caisse des Dépôts original compared with the various partners associated with the Foundation?

The Caisse des Dépôts’ missions are expressed in different terms, especially as the public service banker for legal proceedings and its partnership with the Ministry of Justice. The Caisse des Dépôts is obviously first of all a regulated provider of banking services to the legal professions that handle third party funds. In addition, it provides differentiated services and its know-how to the Ministry of Justice in the context of technology partnerships. Finally, and this is the third axis of this relationship, the Caisse des Dépôts co-invests along with the Chancellery and the legal profession in order to improve legal certainty and to defend civil law. This multiple partner relationship – Chancellery, Law professions – constitutes the Caisse des Dépôts’ originality, which is linked to both its institutional stature and its mission to serve the public interest and the country’s economic development, and, finally, to its capacity as a provider of services with recognized certainty and transparency. The purpose of the Caisse des Dépôts’ presence within the foundation is not to promote its own interests, but is related to this original multi-dimensional relationship with the major actors in our legal system.

What place does the Foundation occupy in the legal and economic landscape?

The Foundation holds an important place in the legal and economic landscape. First, by its original positioning, and then by its action.

The Foundation’s positioning makes it an original creation since it includes actors from very different backgrounds: the public authorities, the regulated legal professions, universities and private companies. Its statutory bodies, its permanent international presence and its extensive network of partners allow it to direct its focus beyond Europe’s borders; and it thus promotes the international presence of the legal professions that belong to the civil legal system.

Secondly, although it is a recent creation, the Foundation is important due to its activities and the visibility that these give to it. It functions as a spearhead in the struggle to influence the international balance of legal traditions. This struggle for influence is obviously not the lost cause that some would have us believe.

The Foundation’s contribution to the dissemination of, and training in, civil law is significant, through the training provided to students and experts or the chairs in civil law created abroad, by the translation of books, and through academic cooperation (thesis prizes in China, scholarships and summer schools). This activity is highly appreciated and very important.

Tomorrow, the Fondation pour le droit continental is seeking to expand its support in the business world. This seems to me to be essential if we want it to successfully develop in Europe’s direction. European institutions are in no way averse to civil law. But to get them interested will require a very pragmatic demonstration of the self-interest it represents for European economic players, especially in terms of legal certainty. This ability to recognize the economic value of civil law seems to me to be a very important part of the Foundation’s action plan for the coming years.

Economic Aspects of Law: A Partnership between the Foundation and HEC Paris

By Pascal Durand-Barthez, attorney

Even if one of the characteristics of civil law is the consideration it gives to moral and social values, one of the ‘raisons d’être’ for the Foundation is an economic finding: the importance of law as an economic instrument is not recognized in France and probably not in most of the other civil law countries.

The Foundation is thus involved in gathering information on “the legal industry’s” estimated economic weight in France. As might be expected, a review of the immediately-available literature revealed that although there is relatively reliable information on the main legal professions’ revenues, it remains fragmented and requires both a broadening (particularly in order to measure the impact of corporate and banking lawyers’ activities versus those of public legal aid services) and a serious in-depth study in order to make useful comparisons with other industrialized countries.

On the other hand, it is not clear that business fully appreciates the economic consequences of the law that is chosen by the parties to international contractual relationships. It is therefore important to better understand their motivations when negotiating applicable law clauses, which involves a qualitative rather than quantitative study.

For this, the Foundation has launched a unique initiative in partnership with the Law and Taxation of HEC Paris, the first business school in Europe[1]. Professor Lenglart agreed to devote a part of the Masters in International Law and Management curriculum to a project which, if completed satisfactorily, will meet the aforementioned objectives. This Masters program hosts forty students who have a 3rd cycle diploma, most of whom have earned a Masters of Law 2 and some of whom have some initial work experience. The project is part of HEC Paris’s approach, which is to provide an economical and practical addition to traditional legal education, in order to facilitate the students’ employment at major international firms and businesses. It is tentatively entitled “The Economic Aspects of Legal Services in Business Law.”

The students from the 2010-2011 promotion were divided into eight working groups to conduct research on subjects distributed as follows:

1. “The legal industry’s” share of French GDP

2. “The legal industry” share of GDP of industrialized countries

3. Comparative cost and effectiveness of legal services for an international sales or business contract under civil law and under common law

4. Comparative cost and effectiveness of legal services for an international merger and acquisition contract under civil law and under common law

5. Comparative cost and effectiveness of legal services for a syndicated loan agreement (multilateral AML type facility), under civil law and under common law

6. Comparative cost and effectiveness of legal services for an international project funding contract under civil law and under common law

7. Comparative cost and effectiveness of legal services for an international derivatives contract under civil law and under common law

8. Paris as an international arbitration venue.

Three institutions actively participate in the project:

– The French Association of Corporate Lawyers (AFJE)

– An informal group of general counsel from major banking and industrial groups

– The “Paris, Place of Arbitration” Association.

In addition, business or banking lawyers and professionals have been appointed to assist the working groups. With the assistance of these lawyers, questionnaires were prepared to serve as interview guides for students who will contact a maximum number of corporate lawyers and lawyers specializing in international business.

Each working group will prepare a report on the subject assigned to it. These reports will be evaluated by a jury chaired by Mr. Lenglart, which will include the Foundation’s representatives, as well as corporate lawyers or in house or private-pratice lawyers involved in the project. Following this assessment, the project steering committee will decide if the quality of the works justifies their publication, after the necessary modifications are made to ensure textual consistency. This publication will provide an opportunity to organize a speaking event involving the Foundation, HEC and AFJE.

Of course, this initial study will not provide definitive or complete answers to the questions it raises. Its only ambition is to clear a space in a still surprisingly pristine wilderness, and to encourage all the stakeholders, public authorities, researchers and legal professionals to explore these important issues and to act to preserve and develop this economic tool that civil law also represents.

[1] General ranking in the Financial Times, December 6, 2010.

Interview with Kathryn Zeiler, Professor of Law at Georgetown University Law Center (USA)

Interview with Kathryn Zeiler

Professor of Law at Georgetown University Law Center (USA)

Do you think that regulation would be a key factor in the attempt to improve efficiency in the field of healthcare?

This question is vitally important today in the U.S. The subject was vigorously debated during the past few months as Congress drafted the bills that eventually became the Patient Protection and Affordable Care Act, and we will continue to debate it. From an economics perspective, the answer is simple. Regulation is, indeed, a key factor given the long list of market imperfections that plague health care and insurance markets. Asymmetric information, for example, is prevalent and impacts the markets in a variety of ways. Consider the inability of patients to determine the quality of care they receive from health care providers. Patients cannot easily determine quality from the outcome because many variables impact patient outcomes. Negative outcomes regularly occur when physicians comply with or even exceed the legal standard of care. In addition, patients often lack information about the financial incentives faced by providers that are constructed by insurers to shift risk to providers or to encourage them to provide a particular type of care. These financial incentives can substantially impact the quality of care. While health care insurers have some incentive to disclose information about financial incentives—the high quality insurers want to distinguish themselves from low quality insurers—a stronger incentive exists to keep the details of the contracts secret, as these contracts can give insurers a competitive edge. When markets do not produce all the information necessary for buyers to evaluate whether the physician provided substandard care, policy makers can regulate information disclosure to increase efficiency. For example, regulators might require providers to disclose financial arrangements during the discovery phase of medical malpractice litigation, while requiring plaintiffs to keep the information confidential so that trade secrets are not revealed. If health care insurers know that injured patients will be able to obtain this information during litigation, under certain conditions they will have an incentive to alter the financial incentives to decrease the probability of harm, which decreases the probability of costly litigation. In this way, regulation of information can better ensure that the liability system will produce an efficient level of care.

Regulation design, however, is crucial. In addition to correcting market imperfections, regulations can also generate them. Many are concerned that the recent reform creates many imperfections that will generate inefficiencies. While the individual mandate to purchase health care insurance might alleviate the negative effects of adverse selection, moral hazard, and externalities that arise when the uninsured need health care, it also violates one of the assumptions of perfectly competitive markets: individuals have free choice over what they consume. The purchase mandate, coupled with regulations that forbid insurers from collecting higher premiums from those facing a higher risk of incurring substantial health care costs, also effectuates a massive wealth transfer from the healthy to the sick. Because this subsidy occurs off the government books, it is impossible for policy makers to analyze or report the opportunity costs of the massive subsidy, which will seriously undermine the ability of policy makers to determine the most efficient set of subsidies.

In short, regulation is a key factor in creating efficient markets, but policy makers must implement smart regulation to maximize the potential of markets to produce efficient outcomes.

How do you think that economics experiments can be useful to Law?

Law has the potential to substantially benefit from results produced by economics experiments. The benefits, however, are heightened when policy makers keep in mind the role of experiments in the science of economics, a claim upon which I expound in an essay titled, “Cautions on the Use of Economics Experiments in Law,” (published by the Journal of Institutional and Theoretical Economics). The essay describes the proper role of experiments in the scientific endeavor of economics to develop general theoretical models that accurately predict human behavior. Economics experiments are useful for Law insofar as policy makers incorporate insights only from theories that find widespread support in the empirical literature, which utilizes data collected both in the laboratory during experiments and from the field to test the predictions of economic theories. Relying on theories that are not well supported can cause policymakers to design legal rules using faulty assumptions. Similarly, relying on a small number of empirical studies rather than the entire body of evidence can bias assumptions upon which legal rules are based.

The PACL (Principles of Asian Civil/Commercial law) or Contract Law in East and Southeast Asia

Over the past year, the Foundation has been supporting the private initiative research of one of the working groups, the PACL (Principles of Asian Civil/Commercial Law), by partially financing its operating costs. Modeled on the existing PECL (Principles of European Contract Law) project, the PACL seeks to develop common principles in matters of contract law for Asian countries. After the first two forums on the basic principles and the interpretation of contracts in March and August 2010, for three days in Seoul, on December 13, 14 and 15 of last year, a third exchange session was opened on “Breach of Contract and its Sanctions as part of PACL Development.” The draft prepared by Professor Young June Lee (South Korea) was submitted for discussion based largely on European Contract Law Principles, the Common European Framework of Reference, the Vienna Convention on the Sale of Goods, and the UNIDROIT Principles of International Commercial Contracts. The draft’s main provisions are stated as follows:

– General provisions
– Specific performance
– Price reduction and correction of the performance bid
– Resolution
– Damages
– Exemption resulting from an obstacle
– Change of circumstances

The next PACL “discussions” are already set for March 2011 in Tokyo. The theme will be announced shortly.

Live from Brussels, 2011, January

By Anne-Catherine de Bruchard, Director of the Foundation’s Brussels Office

Consolidation of the Brussels I Regulation

The European Commission presented a proposal to consolidate Regulation 44/2001/EC, called “Brussels I”, which concerns the jurisdiction, the recognition and the enforcement of judgments in civil and commercial matters.

The main changes proposed include:

– Elimination of the intermediate procedure for acknowledgement and enforcement of legal judgments (exequatur), except for decisions in libel cases and class actions for damages;

– The extension of jurisdiction rules to disputes involving defendants from other countries;
– An increased effectiveness of the choice of forum agreements;
– Improving the link between settlement and arbitration;
– Better coordination of proceedings before the courts of Member States;
– Improving access to justice for certain types of litigation;

– Clarifying the conditions under which protective and interim measures can circulate within the Union.

Access to the full document:

Green Paper on Public Records and Civil Acts

In order to prepare two legislative proposals for 2013 provided by the Stockholm Program, the European Commission published a Green Paper entitled “Promoting the Free Flow of Public Records and Recognition of the Effects of Vital Records,” to facilitate administrative procedures for citizens.

A public consultation is thus open until April 30, 2011.

For the aspect of free movement of public documents, the questioning focuses on:

a) removal of administrative formalities for the authentication of documents;
b) cooperation between national authorities with jurisdiction;
c) the limitation of translations for public records;
d) creation of a European certificate of civil status;

and for the recognition aspect of the effects of acts of civil status, it covers:

a) assisting national authorities in the search for practical solutions;

b) the recognition of right in a Member State, situations of civil status established in other Member States;

c) recognition based on the harmonization of rules governing conflicts of law.

Access to the full document:

Cross-Border Divorce

Using the enhanced cooperation mechanism for the first time, which this time involves 14 of the 27 EU Member States (Germany, Austria, Belgium, Bulgaria, Spain, France, Hungary, Italy, Latvia, Luxembourg, Malta, Portugal, Romania and Slovenia), the Ministers of Justice of the European Union and the European Parliament approved new rules that provide greater legal certainty to couples in divorce cases across borders. These rules will enter into force in the second half of 2012.

The statement from the European Commission:

Criminal Procedures

The EU Ministers of Justice approved a draft regulation guaranteeing defendants the right to information in criminal proceedings. This law is now under review by the European Parliament (report by Mrs. Birgit Sippel). One of the key challenges that has emerged is how to take into account the differences between civil law countries and common law countries.

The statement from the European Commission:

Cross-Border Tax Barriers

The European Commission published a paper in which it announced its plans to address the cross-border tax issues that citizens of the Union face (double taxation on income and on capital, inheritance rights, non-deductibility of registration fees, etc.).

Access to the full document:

Sanctions in the Financial Services Sector

The financial crisis revealed to what extent sanctions in the financial services sector differed from one Member State to another. Starting with this finding, the European Commission published a paper promoting their convergence by establishing minimum standards so that sanctions would be effective deterrents, while leaving Member States some flexibility in order to apply them in a manner compatible with their legal systems. It invites interested parties to submit comments before February 19, 2011.

Access to the full document:

European Union and the United States

Several current topics have drawn our attention:

1) The U.S. Department of Commerce and the DG Enterprise of the European Commission have launched a joint Internet site devoted to intellectual property on both sides of the Atlantic to help SMEs to find and use the resources developed to enforce their rights in such matters. He suggests that “toolkits” be included with other countries (Brazil, China, India, etc..)

The joint site:

2) As part of a joint meeting of the Transatlantic Economic Council (TEC), the European Union and the United States decided to establish an early warning system to notify each other in advance of their respective legislatures’ laws (especially in the field of new technologies).

The text of the joint statement:

3) The talks between the EU and the United States on an agreement about personal data as part of the fight against terrorism and crime, began Dec. 9 in Washington.

The statement from the European Commission:

European Union and China

The EU and China held their 3rd “economic dialogue” on December 20 and 21 in Beijing. Among the many topics discussed, we should note in particular the desire to simplify the Chinese system of mandatory certification or even to guarantee the implementation of effective intellectual property rights in China.

The statement from the European Commission: