BizCLIR

While there has been much progress in Uganda in the establishment of a legal environment in which contracts can be reliably and efficiently enforced, much is yet to be done in this area. As stated by one stakeholder, “People in business are frustrated.” Indeed, contracts, whether they are loan agreements or other contracts entered into by parties engaged in commercial transactions, are only as good as the ability of the parties to enforce them. The ability to enforce a contract is dependent on the certainty of legal rights of borrowers and creditors and the predictability and speed of their fair and impartial enforcement.  Simply put, the contractual institutional framework – that is, the laws governing contracts and the institutions enforcing these laws—has an important impact on the efficiency of private sector lending and entrepreneurial investment in Uganda.

Fortunately, it appears to be recognized in Uganda that overhauling the commercial framework laws and increasing the capacity of the institutions that implement those laws can strengthen creditor rights, reduce the risks that form a barrier to investment, expand the entrepreneurial willingness to invest in the Ugandan economy, reduce the cost of credit, and expand the borrower population. To achieve this, however, continued reform is needed in several aspects of the commercial law system.

First, there are the substantive, or framework, laws of contracts. The laws must fit the current economic environment. They must be understandable to the legal community. They must be accessible. And they must reflect international and regional best practices. The current law on contracts, based on the English common law, does not accomplish these objectives.

Next, there are the courts. They are the primary institutions in all countries for implementing and enforcing the rights given to parties under contract laws. No more important link exists in the chain of contract enforcement than the courts. They determine the predictability and consistency of outcomes in contractual disputes. Without predictability and consistency, the business community cannot rely on their contracts being enforced as the parties had agreed.

The courts also determine the speed and cost of enforcing loans and contracts. Interminable court delays can deny justice and contribute greatly to its financial cost. More important, even the perception inappropriate external influence could emerge in the process of adjudicating disputes can have a profound effect on the willingness of the business community to risk capital investment and loans. On the other hand, the perception that a dependable process exists for resolving commercial disputes within a working legal system reduces dependence on that system as parties are more likely to resolve matters without court involvement. Much progress has been made in this area through the implementation of a commercial court. This progress needs to be extended to the magistrate court system which adjudicates most of the cases in the country.

Finally, another important link in enforcing loans and contracts is the process following the entry of a judgment. Once a judgment is entered, it is worth only the paper it is printed on if efficient and predictable methods of enforcing payment of the judgment do not exist. Bailiffs who are responsible for enforcement of judgments must not be subject to external influences. They should be beyond reproach in the exercise of the powers they have in their important role in the enforcement of judgments. There is currently a perception of problems in these areas among bailiffs. Work is, therefore, needed to improve the administration of the bailiff system.

While continued reform is needed, the BizCLIR scores for Enforcing Contracts suggest a more promising environment than Uganda’s most recent Doing Business ranking would suggest: all four facets of the review tend toward finding more positive attributes within the courts than negative. The supporting institutions for Enforcing Contracts receive the highest cumulative score in this diagnostic.