No field of law is more essential to the operation of a free market than the law of contract. A consistent, predictable set of principles binding parties to the terms of their agreements underlies all of commercial law. It is, thus, an obvious and indispensable component of this analysis of commercial law reform in the CEE/NIS.
The countries examined in this assessment are at various degrees of transition from a system of state planning where contract law played only a peripheral role. Normal contract law did not exist in the planned sector of the economy. It did exist, however, in two limited areas including foreign trade relations (conducted by a limited number of state agencies) with non-communist countries, and in non-business agreements between private citizens (e.g., sale of a house with payment in installments). With these and a few other minor exceptions, it was forbidden to make all types of business agreements.
With the end of communism, laws were passed allowing contractual agreements. The starting point in our research is the nature of this basic Contract legislation. Some elementary questions concerning these laws include:
- Whether the Framework Law embodies a market-oriented approach to contractual relations based on freedom of contract;
- Whether economically (or commercially) significant types or classes of contract, such as those for buying and selling land, prohibited or unenforceable;
- Whether imperative rules limiting the freedom of parties to set terms exist (e.g., as in Russia where some critics have claimed that the imperative rules on franchise law are so slanted toward the franchisee that they discourage the use of franchising);
- Whether parties are free to agree on customized terms relating to liquidated damages, arbitration, choice of law, and related matters; and,
- Whether adequate enforcement mechanisms are available in the event of breach (e.g. penalties, money damages, specific performance).
A major area of inquiry will concern contract enforcement. This involves four issues:
- Quality of court personnel;
- Training of court personnel;
- Independence of the courts from government intervention, and,
- Enforcement powers.
Given that the institutional capacity of the commercial courts cuts across most of the areas under study, it will be dealt with separately below.
