BizCLIR

The law of contracts governs the commercial relationships between parties, typically buyers and sellers of goods, services, and rights. The development of an efficient market requires a clear and predictable law that adequately covers such basic issues as contract formation, obligations of the parties, and available remedies when one party is in breach, as well as more complex issues such as force majeure (natural disasters and other “Acts of God”) and assignment of rights to third parties. However, other components of the legal system are just as critical. Contract law is of little practical use if the general legal, business, and government environments act to suppress the formation of efficient commercial agreements.

Ultimately, the law and legal support systems must be sufficient to allow parties to assess and allocate risk. Components of this support system include the legal community’s ability to understand and apply legal principles in the contract drafting and dispute-resolution phases; sufficient information that allows for an informed assessment of risks and obligations; the judiciary’s ability to resolve disputes; the existence of alternative dispute-resolution systems; civil society and the State’s roles in supporting and regulating the commercial sector; and the commercial sector’s willingness to seek legal advice.

Against a backdrop of State support for the needs of commerce, three distinct sectors are needed: a strong, responsible practicing bar; a commercial sector that is at least minimally knowledgeable in legal principles; and civil society support systems.

Though the written law on contracts (the Law of Obligations in the 1960 Civil Code) in Ethiopia is comprehensive and reasonably well thought out, most of the other components critical to an efficient culture of commercial contracts are either nonexistent or seriously underdeveloped.

Ethiopia’s traditional customary legal system is widely used by individuals and small commercial enterprises and is reported to be reasonably efficient. Individuals with commercial disputes often turn first to the customary system (usually the elders of a community or urban neighborhood), then to the courts only if the dispute cannot be resolved. Judges indicate that they review the findings of the elders as if they had come from a lower court. This state of affairs is not necessarily a barrier to the development of a domestic market system. It is, however, a system which will not be viable for business in the international market, and the dependence upon customary dispute resolution will need to be reduced by individuals wishing to enter the global marketplace.