BizCLIR

The formal framework of contract in Armenia – the 1998 Civil Code and ancillary laws – is quite well developed but is not well understood. Several legal specialists opined that virtually no one understands the new Code. There are some obvious gaps in related laws. In real property transactions, for example, the cadastre process of land registration and the law governing contracts for the sale of land are consistent, but laws permitting secured lending have yet to be developed. Labor contracts, too (although outside the direct scope of this report), present problems. Many respondents were critical of the formalism and inflexibility of Armenian labor law. The informality of labor contracts has a direct bearing on the protection of intellectual property in Armenia, since the employer-employee relationship is one in which know-how and other forms of intellectual property are typically developed and applied.

Due to problems including a lack of vehicles for secured lending, insufficient contract enforcement, labor contract inflexibility, and confusion about intellectual property rights there are parallel worlds of contract operating in Armenia. As one foreign businessperson states, “There is no contract in Armenia,” by which he means that, despite the recent legal changes, almost all business transactions are done on a cash basis and contract informality (unwritten agreements) is the norm. Corruption is also a corrosive influence on contract in Armenia.

Without developing laws that allow secured lending, the growth of complex contractual transactions will be impaired. Secured lending is also an equity issue. One local lawyer explains it this way: “Eighty percent of our citizens are making contracts for credit, loans or collateral and no one understands what they are doing. This causes a great deal of trouble and [social] damage because of the lack of understanding and typically people come to a lawyer too late.”

To the extent that laws support development of contract practice, there is pervasive lack of legal information or continuing legal education to enable practitioners to understand and take advantage of the numerous legal changes underway.