Which Law Governs “bond” in Ethiopia? Insurance Provisions of the Commercial Code or Guarantee articles of the Civil Procedure Code of Ethiopia?

The issue of which Law Governs “bond” in Ethiopia is not an easy one as it seems. There are different views about it. Some say “bond” is governed by the Insurance Provisions of the Commercial Code of Ethiopia while others say Guarantee articles of the Civil Procedure Code of Ethiopia are the ones that should govern this issue.

Regarding this issue the cassation bench of the Ethiopian Supreme court has rendered a decision on May 11, 2004 E.C. The applicants in their claim stated that the Federal Supreme Court gave undefined explanation of laws and dismissed the decisions of the arbitration board knowing the fact that the contractor concluded a contract of a third person guarantee and the main aim of the performance bond is to make sure that the premium is paid.

In its defense the respondent stated that the construction company by their construction contract concluded a performance bond of 1,101,890.00 Ethiopian Birr for any failure of performance on the road construction with the applicant on October 10, 1989 E.C. Because of the failure of the contractor to perform the duty as precluded in the contract, the Federal Supreme Court Appellate division revoked the decision of the arbitration board and decides that their contract on the performance bond should be governed by guarantee contract provisions as mentioned in the Ethiopian Civil Code.

In adjudication the claim, the cassation bench found it reasonable to observe what performance bond mean. The Stamp Duty Proclamation number 110/1990 article 2(2) gives the definition of “bond” in a broad manner which can also include performance bond, and this instruments can be used us guarantee instruments or instruments showing that there is some amount of financial guarantee.

Having said this, the Cassation bench raised the Ethiopian Civil Code from article 1920-1951 stating that the insurance contract is a relation concluded between the insured and the insurer and in their contract another third party will guarantee the completion of the contract.

Therefore, the applicant contract of performance bond is guided not by the insurance contract of commercial laws but by the guarantee contract under the Ethiopian Civil Code.  

Thus as per this cassation decision one can say that the performance bond is a guarantee contract, and it shall be governed by the Guarantee provisions of the Ethiopian Civil Code of Ethiopia as mentioned by article 1921 and the followings of the Ethiopian Civil Code.

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Related notes

Note: This guide provides vital information on Ethiopian law, especially Ethiopian insurance law and practice and is not intended to substitute professional advice given with full knowledge of the specific circumstances of each case and proficiency in the law of Ethiopia. Any pertinent information on the subject can be available from an Ethiopian Lawyer or Ethiopian Attorney working on Insurance, contract.

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