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27 December 2020 Written by  Alemayehu Fentaw & Kefene Gurmu

General Orientation of the Ethiopian Commercial Code

 

One of the crucial issues that the draftsperson had to resolve before he set out to work on the project was as to whether the Commercial Code should be subjective or objective. A subjective Commercial Code is one which regulates a community of persons designated as “traders”. It considers above all the traders, but in order for the legislature to decide which persons have the status of a trader she must take into consideration the profession or activities which she deems to have a commercial character. Whereas, an objective commercial code regulates acts known as “acts of commerce”, as opposed to persons. The scope of application of such commercial code is determined entirely by the enumeration of these acts.

 

In this regard, it has to be pointed out that the expert draftsperson opted for the subjective system to be the basis upon which he would build the 1960 Ethiopian Commercial Code. The distinctly subjective features of the Code can be gathered from Articles 5 and 10, i.e., the definitional provisions of traders and commercial business organizations respectively, although Article 5 incorporates a list of commercial activities secondarily. The inclusion of this list under Article 5 is secondary, because although such inclusion in the law constitutes the basis for the objective system of commercial law, it does not appear here, as in any subjective system, except as an enumeration of commercial activities carried out by any trader. The subjective features can also be discerned easily from the logical organization of the Law of Trades and Business Organizations. The Law of Trades and Business Organizations, as found in Books I and II of the Commercial Code, regulates a group of persons called traders and business organizations.  According to Prof. Escarra, who opted for the subjective system, as he thought it to be, “it is the only logical system for determining the scope of coverage of the Commercial Code.” Prof. Jauffret also says that he followed Prof Escarra’s suit while drafting the text of Book I.

 

Nevertheless, we should bear in mind that such a watertight distinction between subjective and objective commercial law does not hold in practice and one could easily show that there is hardly any law which is exclusively subjective or objective. All the same, one has to choose between the two in order that the law has got a basis or a point of departure. Hence, the commercial law can be built upon certain acts known as “acts of commerce” or certain persons known as “traders.” The first belongs to the objective system while the second belongs to the subjective system.

 

Jean ESCARRA, PRELIMINARY REPORT ON THE PREPARATION OF THE COMMERCIAL CODE OF ETHIOPIA. SUBMITTED TO THE IMPERIAL COMMISSION FOR THE CODIFICATION OF ETHIOPIAN LAW, 18JANUARY 1954. (Excerpts, COMM. C. DOC. NO.1) in Peter WINSHIP (ed. & trans.), Background Documents to the Ethiopian Commercial Code of 1960, Artistic Printers, Addis Ababa, 1974

 

The first problem is to determine the scope of coverage of the future Commercial Code. On this point, there are series of controversies which, far from being only of academic interest, have many practical repercussions.

 

Given that in principle all citizens of a specific country must be subject to a uniform legal regime of civil law, usually contained in a basic Code called the Civil Code, must there also be special provisions promulgated for those citizens of the country who engage in commercial activities?  In other words, is there (or should there be) a “commercial law” distinct from the “civil law”?

           

Moreover, another question is grafted on this first question. Suppose that one decides that there must be a special law for traders, special provisions of commercial law within the general civil law, on what criterion does one establish the special category of persons or of acts to be regulated by the Commercial Code?

 

Two different answers can be given to this question. In the first place, the legislature which promulgates the Commercial Code can declare, by a sovereign act, that the Code will regulate a community of persons designated as “traders”. For example, the exercising of certain professions might automatically confer on those who engage in that profession the status of “trader”. It is a little as if one chose certain individuals from the mass of citizens who, by virtue of their professions receive an armband on which is written the word “trader” and who will automatically be regulated by the Commercial Code.

 

Conversely, the legislator may decide that the commercial Code will regulate not persons but “acts”, called “acts of commerce”, to which the commercial law applies no matter what the status of the individuals who carry out these acts.

           

The first method leads to the preparation of what one calls subjective commercial law i.e. it considers above all the trader, but obviously in order for the legislator to decide which persons have the status of trader he must more or less arbitrarily take into consideration the professions or activities which he believes have a commercial character.

 

During the ancient régime, French commercial law was fundamentally subjective. Traders formed castes or “corporations” and it is for these corporations that the commercial law had been created in the from of special legislation. Moreover, the traders sought to expand the scope of a law which was essentially favorable to them and the result was that, especially in the legal disputes between traders and non-traders, the latter were subject to the jurisdiction and procedure of the commercial courts.

           

Thus, when the French Revolution decided to suppress the corporations, it is interesting to note that this automatically entailed the disappearance of the “subjective” commercial law of the ancient régime. 

           

When immediately afterwards the new Commercial Code was being prepared, the authors of the Code were preoccupied with the desire not to revive a system which had been condemned and they decided in favor of an “objective” Commercial Code. They invented the theory of “acts of commerce” and decided that the scope of application of the commercial law would be determined entirely by the enumeration of these acts.

           

In reality, these far too theoretical concepts necessarily had to be corrected when applied in practice and by a singular paradox the French Commercial Code, which enumerates acts of commerce in the very last articles (Arts.632 and 633), begins triumphantly with Article 1, which defines “traders” as “those persons who perform acts of commerce as a regular occupation”.

           

In this roundabout way, the devotees of the objective system returned despite themselves to a subjective system, with the result that French commercial law has been constructed on a false foundation since that period.

                   

I recall these precedents essentially to show that the only logical system for determining the scope of coverage of the Commercial Code is the subjective system. Most of the major modern codifications have adopted this system.

 

Another general problem concerning the delimitation of commercial law touches on the very existence of this law as an independent discipline. One must note first of all that the creation of a special law for traders, as a supplement to the general civil law, is essentially a historical phenomenon. It is beyond the scope of this material to describe this phenomenon and its manifestations; but one should emphasize that there is a general movement in the world which questions whether the distinction between civil and commercial law is still justified at the present time and whether it is only retained by the force of inertia.

 

At the present time the dominant tendency seems to be to fuse more and more closely to civil and commercial law, or, more exactly, to “commercialize” civil law. To cite only one example, in France a contract such as the contract of pledge, is regulated by the provisions of the Civil Code when it has a civil purpose and by other provisions on pledge contained in the Commercial Code when it has a commercial purpose.  The rules of the civil law are much more formalistic than the commercial law rules, and the provisions on proof in civil matters are also much more rigid than in commercial matters.

 

The paradoxical result is that the creation and execution of a civil pledge, even where the amount in question is small, requires complex and costly formalities, while commercial contracts of pledge involving valuable amounts may be created daily with a minimum of formalities.

 

Consequently it is natural to make the rules of the civil law less and less burdensome and finally recognize legally only one type of contract of pledge as simple as possible which would be used by both traders and non–traders. In effect this is the tendency of numerous modern codes because the law of contracts and obligations tends to become a common general source used by all citizens no matter what their professions are/is.

 

For example, in Switzerland there is no Commercial Code but a general Code of Obligations which contains, on the one hand, the common source I mentioned above, and, on the other hand, a certain number of special institutions for traders, such as commercial business organizations.7 More recently still, Italy has promulgated a Civil Code containing not only a common law of obligations but also some institutions used only by traders.

 

Thus, one sees that the problem of the autonomy of commercial law and its fusion with civil law is not purely theoretical. At the same time, one should not give the question excessive importance. It is perfectly conceivable that a country could have two separate Codes and thus have a Commercial Code distinct from the Civil Code. All the more so because countries with a single Code still must regulate special commercial institutions within the general provisions. The only practical consequence of what has been said is that it will be necessary to synchronize the solutions in the Ethiopian Commercial Code with those solutions adopted in the Civil Code.

 

To regulate differently, the same type of contract in the two Codes would be bad legislative technique and the two French legal advisers called on to draft the Civil and Commercial Codes have certainly decided not to make this error.

 

Therefore, the future Ethiopian Commercial Code will contain, on the one hand, specifically commercial institutions, and on the other hand, by reference to the Civil Code, the general rules of law for those contracts and obligations which apply to both traders and non-traders with the exception of a small number of cases which will have to be determined.

 

Given that the Imperial Ethiopian Government has taken the decision to prepare two distinct codes, the principal general problem which will have to be resolved will be to determine the persons and the transactions to which the Commercial Code will apply.

 

In certain countries there are special courts for litigation between traders or concerning commercial transactions: here again the heavy hand of history is evident.

 

The creation of special courts for traders is in fact the result of historical phenomena which cannot be analyzed here. But in reality the existence or absence of specialized courts is no longer a very important question. Some countries have both a commercial law distinct from civil law or two separate Codes and commercial courts, the compositions of which varies, distinct from civil courts. Other countries have had separate laws and courts but have suppressed their commercial and civil law but nevertheless have kept the special for commercial affairs.

 

As I must prepare procedural rules as well as the fundamental provisions of the commercial law, my task naturally raises the question of the general judicial organization of the country and I will necessarily examine this special question taking into account the present state of affairs in Ethiopia.

Alfred JAUFFRET, REPORT ON THE COMPLETION OF THE DRAFTING OF THE AVANT – PFOJECT OF THE COMMERCIAL CODE OF THE EMPIRE OF ETHIOPIA (1 MARCH 1958) (EXCERPT)*, in Peter WINSHIP (ed. & trans.), Background Documents to the Ethiopian Commercial Code of 1960, Artistic Printers, Addis Ababa, 1974

General Orientation of the Commercial Code

In his preliminary Report of 18 January 1954, Professor Jean ESCARRA has set out in a masterful way the technical problems involved in the preparation of a Commercial Code. Without repeating this remarkable exposition, which I think is definitive, I will state very briefly the questions on the very foundations of the commercial law which have not yet been answered and must be answered in order to prepare the draft Commercial Code, especially Book I. Here are the questions.

 

  1. Will the Ethiopian commercial law be subjective or objective?
  2. If the Ethiopian commercial law is to be subjective, must the theory of acts of commerce be included?
  3. What will be the relation of the commercial law will be to the civil law?

 

Professor Jean ESCARRA explained definitively the differences between the two streams of commercial law which, following the German terminology, are called subjective and objective. In its simplest form this question can be rephrased as follows: will commercial law be applicable to traders and only to traders or will it be the law applicable to certain acts, called acts of commerce, no matter who the persons carrying out these acts are?

 

Of course such a clear cut distinction is by no means complete in practice and one could easily show that in substantive law there is hardly a law which is exclusively subjective or exclusively objective. Nevertheless, as a basis for the law or as a point of departure, one must choose between the two.

 

Professor Jean ESCARRA did not hide his preference for the subjective system, which he calls in his preliminary report “the only logical system for determining the scope of coverage of the Commercial Code.” Not all commercial law experts will agree with this positive affirmation of the principle, but it is true that this system is the most widely adopted in recent laws. This system also corresponds to the present tendency to have special laws for the various professions and, even in systems which are called objective, it is necessary to have a special status for traders.

 

In conclusion, I believe it very desirable to follow the intention of professor ESCARRA on this point. Thus Book I, which I drafted, is devoted to the subjective concept: the point of departure of the Code is found in the definition of trader in Article 5 and the definition of commercial business organization in Article 10 Book I, in sum, is devoted for the most part to the status of the trader, a status supplemented by the bankruptcy provisions of Book V. As for commercial business organizations, they are governed by Books II and V, which deal in the same way with the status of commercial business organizations.

 

Even in a subjective system which sees the essence of commercial law to be the creation of a special status for traders and commercial business organizations, there can be a theory of acts of commerce as a secondary concept. As secondary concept because, although an act of commerce corresponding to a series of activities listed in the law is the basis of an objective system, it does not appear in subjective systems except as being an act done by a trader in carrying out his trade. This is, for example, the concept of Section 343 of the German Commercial Code of 1897. It is, therefore, perfectly conceivable, even in a subjective system, that there could be special legal rules for acts of commerce: notably, special rules on judicial jurisdiction, special rules on the law of obligation (especially the proving of contracts), and even, as in German Law, special set of regulations for certain contracts when they are acts of commerce (commercial sale or commercial pledge, for example, which are not regulated, at least on certain points, by the rules of civil sale or civil pledge).

 

I believe the theory of acts of commerce can be ignored entirely. On the one hand, the absence of commercial courts in Ethiopia avoids any interest in a question which is very important in France, for example, where these commercial courts exist. In addition, as for the question of proof in the case of contracts, after several conferences with Professor DAVID, we have concluded that it is possible to arrive at a single rule on this question. Thus, the last amendment to the Title on Obligations, proposed last December by Mr. Rene DAVID, by incorporating in principle the freedom of proof, results in a general rule common to both civil and commercial law.

 

Finally, the regulation of contracts can be sufficiently adapted, perhaps, even to the more complete than that of the Swiss and Italian law, and the complete departure from a theory of acts of commerce governed by a special set of rules. This is a very great simplification.

 

There will probably always be some traces of the influence of commercial law on these acts. Thus, in the case of bankruptcy, certain special rules will be applied to contracts entered in to by a bankrupt trader; special rules will be necessary for the employment contract with commercial employees (Art. 29 ff. (29 – 32). Similarly, the right to the lease of the premises where a business is carried on (Art. 144 ff. (142-147) or the sale of a business (Art. 153 ff. (150 – 170) require special rules. But these are very limited exceptions.

 

The principle remains that there is no longer a distinction between civil and commercial contracts or between civil and commercial instruments. 

 

One might conclude that the Commercial Code should be reduced to Books I, II and V which deal with the status of trades and of commercial business organizations.

 

However, this conclusion would go too far. In fact, it is logical that a Commercial Code should contain the rules on instruments, contracts and transactions which, without being exclusively commercial (because this distinction is no longer applicable), nevertheless are interest of traders in particular.

 

This is the justification for the existence of Book III devoted to Carriage and Insurance: Subjects which are of particular interest to traders because, on the one hand, the carriers and insurers are traders and, on the other hand, traders are the most important clients of these carriers and insurers. Undoubtedly other contracts also interest traders, such as the contract of sale or of pledge. But these contracts find a more logical place in the Civil Code because they are also frequently used by non – traders. And, although the commission contract interests traders in particular, it is logical nevertheless to include the provisions governing this contract among the Civil Code provisions governing Agency because it is merely a variety of agency contract.

 

Similarly, Book IV should stay in the Commercial Code because negotiable instruments are used most often by traders, since bankers are traders, and because the most important clients of banks are traders.

 

In sum, the Commercial Code in its present draft appears as a Code regulating the special status of traders and of commercial business organizations and governing certain transactions or contracts which have particular interest for traders and commercial business organizations. 

 

What remains to be determined is the place of commercial law in relation to civil law – a question apparently not considered by Professor ESCARRA. A recent theory, which is still not widespread, maintains that the commercial law is autonomous.  I thought it preferable, however, and more in conformity with the preeminent place of the civil law in the future law of Ethiopia, in the theory of obligations, and in the regulation of contracts, to maintain the classic principle of the priority of civil law. Commercial law is thus only a law supplementing the Civil Code. This is the principle I have incorporated in Article I of the Commercial Code, which reads as, “Unless otherwise provided in this Code, the provisions of the Civil Code shall apply to the status and activities of persons and business organizations carrying on a trade.”

 

Scope of the Code

 

Central to the scope of the Code is the issue of the territorial scope of application of the Code: is it applicable in administrations that are directly accountable to the Federal Government only, or to the Federation? The problem is hypothetical rather than actual and hence is more of academic interest than a practical one. This is so because the Code was promulgated in 1960 at a time when the Ethiopian State was unitary. So, the real problem shall await the promulgation of the Revised Commercial Code. Only then shall it be addressed. A clue to this problem is to be found in Article 55(4) of the Constitution of the Federal Democratic Republic of Ethiopia, which invests with the House of Peoples’ Representatives the power to enact a Commercial Code. Besides, Article 52(1) stipulates that “All powers not given expressly to the Federal Government alone, or concurrently to the Federal Government and the states are reserved to the states.” Thus, if the power to enact a commercial code is given expressly to the Federal Government, then the states are automatically divested of the power to enact such a law. This implies that the commercial code must be a uniform code, like the Federal Criminal Code, that applies to the Federation as a whole.

 

With respect to the relation between the Civil Code and the Commercial Code, Article 1 of the Commercial code provides that “Unless otherwise provided in this code, the Provisions of the Civil Code shall apply to the status and activities of persons and business organization carrying on trade. :”Article 1 provides for the pre-eminent place of the Civil law. It encapsulates the classical principle of the priority of civil law in respect of the theory of obligations and the regulation of contracts. Hence, the only reason for the existence of the commercial law will be to supplement the Civil Code. Furthermore, Article 2 renders applicable in pertinent part provisions of the Maritime Code to persons and business organizations carrying on maritime Code to persons and business organizations carrying on maritime trade. Whereas, Article 4 excludes the application of the Commercial Code to bodies corporate under public law, as they are not going to be presumed to be traders even where they carry on activities under Article 5. sub-article (2) of the same renders the first paragraph in applicable is cases where the bodies corporate under public law only participate in the undertakings as partners or shareholders.