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ENFORCING CONTRACTS 93 been reached on most of them. The 34 economies were chosen from the 189 covered by Doing Business in a way that ensures a representative sample across regions and income groups. One area explored through this research deals with the limitations imposed by national laws on consideration, traditionally defined as anything of value promised to the other party when concluding a contract. Consideration often takes the form of money, though it does not have to. In the sale of a house, for example, the selling party’s consideration could be the purchase price or a promise to pay this price, while the buyer’s consideration could be the house. The team investigated whether local courts can exercise any scrutiny on the adequacy of consideration and whether the determination of consideration can be left to a future agreement between the parties. If freedom of contract is not restricted, courts should exercise no scrutiny on consideration as long as the parties willingly and knowingly accepted the terms of the contract. But if freedom of contract is restricted, courts may rule on the adequacy of consideration to ensure the fairness of all transactions carried out in the marketplace. The inclusion of choice-of-law clauses in international contracts was also examined. These clauses specify that any dispute arising under the contract will be determined under the law of a particular jurisdiction. Economies limiting freedom of contract in this area usually do not allow such clauses or allow them only if the parties have a relationship with the chosen jurisdiction. Those without strict limitations on freedom of contract do not forbid such provisions. Other areas of research included in this year’s questionnaire are somewhat more controversial from a social, economic and philosophical perspective. Two research questions in particular provide an interesting example of this controversy: whether an economy has any regulations setting a cap on interest rates and what rules govern asymmetry of power. These questions go to the heart of whether usury laws and laws governing an imbalance in bargaining power should legitimately impose limits on freedom of contract. Both sides of the debate have been defended at length. Those arguing in favor of these laws conclude that without them, free markets would produce perverse incentives to take excessive credit risks, which drive up the cost of the welfare system as a whole. 18 Those arguing against them conclude that courts should enforce all voluntary contracts that do not produce negative consequences for others—while redistribution of wealth should occur through the welfare system, not through laws and regulations. 19 On the question of asymmetry of negotiating power, those who defend freedom of contract argue that if contracts signed between parties with unequal bargaining power were treated as invalid because of this asymmetry, those with more power would refuse to sign contracts with people with less power, leading to the exclusion of these people from the market. 20 To capture the differences in the legal treatment of asymmetry of power in contracts, the team collected data on whether local laws contain restrictions on terms that can be used in standard-form contracts or on provisions allowing termination at will. In both cases, as in all other cases covered in this study, it is assumed that both parties have full legal capacity and entered into the contract freely. After analyzing the laws addressing these issues in the sampled economies, the team counted the number of limitations to freedom of contract in each economy. The higher the number of limitations, the more limited the freedom of contract. The maximum number of limitations in the study is 10. Any limitation, even in the form of an exception to a general principle, is counted; no relevance is given to the intensity of the limitation. For limitations on contract provisions restricting land transfers, for example, 1 point is given even if the limitations are not imposed on all transactions but apply only to those involving foreigners. In carrying out this exercise the team does not intend to advocate in favor of more or less freedom of contract but instead aims to provide an overview of local regulations. Furthermore, in counting the number of limitations the team does not intend to suggest that a lower number—connected with greater freedom of contract in laws and regulations—is more desirable. The sole purpose in providing the number of limitations is to understand how the sampled economies regulate freedom of contract, without giving any judgment on the quality of the regulations or on their desirability. WHAT THE RESULTS SHOW Among the 34 economies covered, Tunisia has the highest number of limitations to freedom of contract, with 8 of the 10 limitations measured. At the opposite end of the spectrum is the Democratic Republic of Congo, with only 3 of the 10 limitations (figure 11.2). The results not only show that all 34 economies have struck a balance between the extremes of very limited and very extensive freedom of contract; they also reflect some consensus on the limitations that should be imposed. For example, none of the economies allow the parties to a contract to exclude liability for gross negligence or for damages resulting in personal injury. Similarly, none of them allow contracts concluded in contravention of public policy or under duress, fraud or coercion. And only 4 of the economies—the Democratic Republic
94 DOING BUSINESS 2015 FIGURE 11.2 The Democratic Republic of Congo has the fewest limitations to freedom of contract Number of limitations to freedom of contract 10 9 8 7 6 5 4 3 2 1 0 Congo, Dem. Rep. Nigeria Pakistan Philippines Singapore Sri Lanka Barbados Bhutan China El Salvador Italy Lebanon South Africa United Arab Emirates Bulgaria Cambodia Colombia Croatia Czech Republic France Germany India Macedonia, FYR Malta Mozambique Poland Romania Turkey Brazil Greece Taiwan, China Togo Uruguay Tunisia Source: Doing Business database. of Congo, Pakistan, the Philippines and Sri Lanka—set no statutory limit on interest rates. But there is less agreement on other limitations to freedom of contract. For example, there is great variation among the economies on whether the law prohibits covenants restricting alienation of real property. A clause of this type would, for example, forbid the buyer from selling the property for a certain number of years after purchasing it. Of the 34 economies, 14 explicitly prohibit this kind of covenant, though 9 of these 14 economies allow restrictions on alienation of real property when foreigners are involved in the transaction. The rest of the economies allow these contract provisions. Among the 7 regions covered, Europe and Central Asia is the only one in which no variation was found in the number and type of limitations imposed on freedom of contract. All sampled economies in the region have the following 6 limitations: • A cap is imposed by law on interest rates. • Courts can exercise scrutiny on the adequacy of consideration. • The determination of a contract price cannot be left to a future agreement, unless the contract already establishes how the price will be determined. • Limitations are imposed by law on clauses that can be included in standard-form contracts. • Liability for gross negligence cannot be excluded through mutual agreement of the parties. • A contract cannot be agreed upon if its terms are against public policy or if one of the parties does not have full legal capacity. The other 6 regions show more variation in the number and type of limitations. Sub-Saharan Africa is a good example. While the Democratic Republic of Congo has the smallest number of limitations in the overall sample, with 3, Togo has one of the largest numbers, with 7. Togo is the only Sub-Saharan African economy in the sample that allows the courts to deny enforcement of a contract on the basis of inadequate consideration. In addition, only 2 of the 5 Sub-Saharan African economies in the sample do not limit the terms that can be included in a standard-form contract, while all 5 allow termination at will, choice-of-law clauses and disclaimers on implied warranties as long as the seller was not acting in bad faith. Across all regions, only 3 economies forbid choice-of-law clauses in international contracts. All 3—Brazil, Colombia and Uruguay—are in Latin America and the Caribbean. Even where there is considerable freedom of contract, slow resolution of contract disputes can impose implicit limitations. Without reasonably expeditious dispute resolution, the meaning of freedom of contract is eroded; parties might be able to conclude most contracts on their own terms, but long contract resolution times would ultimately frustrate that ability. In Singapore parties not only have broad negotiating power; they also have the certainty that their contracts will be enforced promptly. The country imposes few limitations on freedom of contract, and resolving
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12th edition Doing Business 2015 Go
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12TH EDITION Doing Business 2015 Go
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Doing Business 2015 Going Beyond Ef
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32 DOING BUSINESS 2015 FIGURE 3.8 C
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36 DOING BUSINESS 2015 FIGURE 4.1 C
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Page 60 and 61: STARTING A BUSINESS 49 To implement
Page 62 and 63: STARTING A BUSINESS 51 FIGURE 5.4 C
Page 66 and 67: ZONING AND URBAN PLANNING 55 barrie
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Page 72 and 73: REGISTERING PROPERTY 61 HOW TO PROV
Page 74 and 75: REGISTERING PROPERTY 63 FIGURE 7.5
Page 76 and 77: REGISTERING PROPERTY 65 for losses
Page 80 and 81: GETTING CREDIT 69 FIGURE 8.2—How
Page 82 and 83: GETTING CREDIT 71 nonincorporated c
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Page 86 and 87: GETTING CREDIT 75 FIGURE 8.8—Econ
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Page 110 and 111: RESOLVING INSOLVENCY 99 FIGURE 12.1
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Page 122 and 123: REFERENCES 111 Aggregate, and How t
Page 124 and 125: REFERENCES 113 Rathinam, Francis Xa
Page 126 and 127: DATA NOTES 115 METHODOLOGY The Doin
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DATA NOTES 143 pay, night work, pro
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DATA NOTES 145 TABLE 14A.1 Cities c
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DISTANCE TO FRONTIER AND EASE OF DO
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ACKNOWLEDGMENTS 253 of Aart C. Kraa
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ACKNOWLEDGMENTS 255 ALGERIA DELOITT
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ACKNOWLEDGMENTS 257 Gerald Mittereg
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ACKNOWLEDGMENTS 259 Siarhei Khvasto
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ACKNOWLEDGMENTS 261 Muhidin Karši
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ACKNOWLEDGMENTS 263 Sydney Simonagg
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ACKNOWLEDGMENTS 265 Laurence Idelet
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ACKNOWLEDGMENTS 267 Aurora Barroso
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ACKNOWLEDGMENTS 269 Marius Doh CIE
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ACKNOWLEDGMENTS 271 Lars Lindencron
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ACKNOWLEDGMENTS 273 Astrud María M
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ACKNOWLEDGMENTS 275 Josette Cadie O
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ACKNOWLEDGMENTS 277 Ioannis Sarakin
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ACKNOWLEDGMENTS 279 Patrick Wong MA
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ACKNOWLEDGMENTS 281 Mirza Karim KAR
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ACKNOWLEDGMENTS 283 Enrica Maria Gh
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ACKNOWLEDGMENTS 285 Milly Jalega IS
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ACKNOWLEDGMENTS 287 Guna Paidere RE
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ACKNOWLEDGMENTS 289 Dragica Tasevsk
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ACKNOWLEDGMENTS 291 Cheikh Sall ETU
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ACKNOWLEDGMENTS 293 Vitalie Zama AS
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ACKNOWLEDGMENTS 295 Marcel Kettenis
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ACKNOWLEDGMENTS 297 Adeola Sunmola
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ACKNOWLEDGMENTS 299 Ernesto Velázq
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ACKNOWLEDGMENTS 301 Nuno Gundar da
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ACKNOWLEDGMENTS 303 Vadim Kolomniko
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ACKNOWLEDGMENTS 305 Ivana Ajdanic P
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ACKNOWLEDGMENTS 307 Paul Lategan SH
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ACKNOWLEDGMENTS 309 Tariq Mahmoud E
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ACKNOWLEDGMENTS 311 Kanok Jullamon
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ACKNOWLEDGMENTS 313 Begum Durukan O
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ACKNOWLEDGMENTS 315 Sreekumar Sivas
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ACKNOWLEDGMENTS 317 Bruno Paredes L
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Smarter Regulations for Small and M
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