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1.1. Meaning of Law and Schools of Jurisprudential Thought

 There have been and will continue to be different definitions of law. Various renowned
scholars and jurists have so far been making their own assertions of what law is, and
almost none of them concur on the definition of law. Starting from Plato and Aristotle
down to the 21st century different scholars have tried to give their own definition of the
term ‘law’.
 For instance, the Greek philosopher Aristotle thought of law as a “pledge that citizens of
a state will do justice to one another”.
 Plato asserted that law was a form of social control.
 Cicero, a Roman philosopher, believed law was the agreement of reason and nature, the
distinction between the just and the unjust.
 The British legal scholar Sir William Blackstone described law as “a rule of civil
conduct prescribed by the supreme power in a state, commanding what is right and
prohibiting what is wrong”.
 The famous US Supreme Court Justice Oliver Wendell Holmes on his part contended
that law was a set of rules that allowed one to predict how a court would resolve a
particular dispute – “the prophesies of what the courts will do in fact and nothing
more pretentious …”.
One can easily notice that all these attempts of defining law are based on varied particularities,
even though a general observation may be inferred concerning the nature of law.
In jurisprudence, or the study of law, the broad statement concerning the nature of law is the
point of departure for all legal scholars and philosophers.
Now we come to the discussion of the most influential schools of thought that have embodied the
contentions in the discourse of defining law. Legal philosophers and scholars frequently disagree
on what the proper function of law should be and their disagreements have produced different
schools of jurisprudence, or philosophies of law.
The most important schools of thought are:-
1. The Natural Law School (theory)
2. The Positivists (Imperatives) School of thought
3. Realists School of thought (Legal Realism)
4. Marxian Theory of law (Marxist legal thinking)

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a) The Natural Law School

 It is the oldest of all schools of thought. It originated in ancient Greek.
 It was developed in Greece by philosophers like Heraclitus, Socrates, Plato and
Aristotle.
 It was then followed by other philosophers like Gairus, Cicero, Aquinas, Hobbes,
Locke, Rousseau, Kant and Hume.
 In their studies of the relation between nature and society, Plato and Aristotle
have arrived at the conclusion that there are two types of law that govern social
relations.
1. One of them is made by person to control the relations within a society and so it
may vary from society to society and also from time to time within a society.
Laws made by human beings as positive law.
 The man made law , although it differs from one country to another and
from time to time due to different conception of justice and morality of
societies at different times and places, must follow universal principles of
morality, justice and reason.

2. The second one is that not made by person but controlled all human beings of the
world. Such laws do not vary from place to place and from time to time and even
used to control or weigh the laws made by human beings. The laws do not made
by human being as natural laws.
These are Natural law which is eternal and unchangeable and the man made law
which differs in place and time.
 The natural law is a set of rules that are given by super natural power-
God- in the form of justice and morality and it is to serve as a standard
against which man made laws are to be tested for their validity.
 Natural law which is eternal and unchangeable and whose content is
justice and morality is once handed by God and the power of men in
making laws is to discover these principles of justice and morality by the
dictate of reason and logic

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 Natural law theory has served different societies in many ways. The Romans used
it to develop their laws as jus civile, laws governing Roman citizens, and jus
gentium, laws governing all their colonies and foreigners.
 At the late of the Feudalism stage, Locke, Montesquieu and others thought that
man is created free, equal and independent by taking the concept of Natural law
as the individual right to life, liberty, and security. Similarly, Rousseau’s
teachings of individual’s right to equality, life, liberty and security were based on
natural law. The English Revolution of 1888, the American Declaration of
Independence and the French Revolution of 1789 were also results of the Natural
law theory
Critic
It presupposes that law is a set of rules, which is just and morally correct.
But this is not always the case. We have ample of evidences and historical facts,
which illustrates that sometimes law may be contrary to logic and justice.
e.g. the extermination of millions of Jews by Nazi Germany and the 1975
proclamation in Ethiopia which nationalized without compensation major means’s
of production and distribution owned privately were done by issuing law, which
are by no means considered as logical, just and morally correct.

b) The Positivist School

Believed that there can be no higher law than a nation’s positive law- means that
significance and final validity would be placed in law created by a particular
society at a particular point in time.
In the positivist perspective, the law is the law and must be obeyed irrespective
of its content.
The merits and demerits of a particular law can be discussed and laws can be
changed in an orderly manner through a legitimate law making process.

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As long as a law exists, it must be obeyed; and whether a given law is good or
bad is irrelevant in so far as it has assumed its status following a duly constituted
procedure.

 A typical definition adopted by this school of thought is that: “law is a command

of a political sovereign backed by sanction”. In this definition we can see three
important elements. That is law is a command, that it is a command of a political
sovereign and thirdly that is backed by sanction.

1. Law is a command. In the context of this definition a command is the

sovereign’s expression, desire, order or imperative direction that a person act or
refrain from acting in a certain way. The political sovereign hands down all its
laws by way of commands to the subjects who are there to obey the law given by
the sovereign in the form of command without having regard to the contents, i.e.
whether it is just or unjust, right or wrong, moral or immoral.
2. “Political sovereign”. It is the political sovereign, which is the source of the law
according to the positivists. They defined the political sovereign as a person or
body of persons or politically supreme organ that the bulk of the society
habitually obeys and who doesn’t himself obey any person or organ.
3. Sanction: The command for the purpose of its enforcement it is backed by
sanction. The subjects have to obey the law not at their own wish but at the pain
of penalty.
- The positive side of this theory is twofold. I.e. requiring all laws to be written
and curbing judicial discretion.
- Defects of this theory are:
 First it equates all laws with commands, which is not always valid. There are,
for instance, right or power conferring rules which are not in the form of
command. Take the provision of constitution which states that everyone has the
right to life or the right to marry and found family, which are not commands
rather they are enabling rules. Nor a sanction is necessary in these cases. All
laws are not commands and nor all commands are laws. (Keep silent! Is a

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command but not a law). Only some categories of commands form a section of
the law, like do not commit theft!
 Another pitfall of this theory is that it associates all laws with a sovereign
political authority. But we do have laws which do not emanate from political
sovereign. These are customary laws that developed out of repeated practice and
International laws which meant to regulate relations between states and which
do not have an internationally recognized sovereign organ that legislate them.
 The final defect of this theory is that it views the sovereign as unlimited and
unaccountable to anyone where as today every government organ is legally limited and
accountable to the public.
c) Legal Realism
This theory has its basis in the common law legal system in which the decision
previously given by a court is considered as a precedent to be used as a law to decide
future similar case. Realist theory of law is interested in the actual working of the law.
Accordingly, rules not put to use to solve practical cases are not laws but merely existing
as dead words and it get life only when applied in reality. It believes that the
lawmaker is the judge and not the legislative body.
 This school is propounded by thinkers who were rebelling against some of the common
assumptions regarding law of the contemporary legal theorists and jurists.
 The discourse of the legal realists principally contained three-fold aspects:
I. Firstly, they were opposed to the assumption that judges, at least ideally, apply the law
impartially, logically and uniformly. The legal realists rather firmly believed that each
judge is influenced by the beliefs and attitudes unique to his/her personality.
II. Second, they claimed that each case is attended by a unique set of circumstances and
that no two cases, no matter how similar, are ever exactly the same. Therefore, according
to the realists, judges should modify their decisions to take account of the specific
circumstances of each case rather than rely on some abstract rule that may not
relate to those particular circumstances.
III. Thirdly, the advocates of legal realism constructively influenced legal thought in that
they called on judges to consider extralegal factors, such as economic and sociological

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data, in making decisions, to the extent that such non-legal sources illuminate the
circumstances and issues involved in specific cases.
 In general, the tenet of legal realism is the call for flexible application of laws in a
manner that conforms to the constant change in societal values and the recognition of
judicial activism.
Criticisms
 Highly violates the constitutional principle of separation of power and
functions. The theory of legal realism is violating this principle by advocating
judicial law making.
The Marxist Legal Thinking
The Marxian view of law is considerably associated with its politico-economic
paradigm. This conception of law is substantially different from other schools of thought
in that it questions the very origin and purpose of law and argued for its elimination.
 According to the Marxists, law came into existence as a result of the emergence
of a class society based on private property. The formation of a class society is
such that those who have appropriated private property constituted one class and
those with no private property constituted the other class (the lower class), and
law is an instrument of maintaining class differences and an oppressive tool by
the economically dominant against the have-nots.
 The political and economic object of the Marxist thought is the transformation
through socialist state of the society to communist society where classes do not
exist (and where private ownership of means of production dies out). If the
society is transformed to communist mode, there would be no more need of
laws and state.
While the Marxists regarded law, just like positivists and realists, as state-made,
they contended that such law would have effect only until communism is realized
and would wither away thereafter along with the state.
The existence of diversified notions regarding the definition of law
o The variations in ascribing a meaning to law are not matters of mere semantics; they are
critical and rather grounded on deep philosophical foundations. Nevertheless, the

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various schools of jurisprudential thought have had drawbacks that have subjected them
to critics.
o The major problem with these schools of thought generally is that no comprehensive
approach to define law is made. None of the perspectives would attempt to look into
law in its entirety; they are rather concerned with specific aspects of law. Naturalists, for
instance, limit themselves to the consideration of content of the law. Positivists, on the
other hand, prefer to treat law from formal point of view that law assumes validity if it
comes about by a legitimate process.
o Another problem coming up with an all convincing definition of law pertains to its very
nature. Law is a dynamic social norm. The society as a whole (whether ideologically,
philosophically, culturally, socially, economically, or politically) keeps changing and
law, as a norm of social regulation, accordingly would be subjected to a constant state of
flux. The law cannot refuse to change while the matters it governs change. If it does
refuse, it would no more be legitimate and would be thrown to disuse. Changing societal
circumstances demand the continued modification of law in terms of its content, form,
scope and nature. Therefore, providing a consensual definition of law in terms of these
latter factors is virtually impossible because these yardsticks would considerably differ
from time to time, and it is partly no surprise that the various jurists have not concurred
on what law is.
 All the above failures do not mean, however, that law is without any generally accepted
characteristics. The problems reveal the apparent difficulty in telling what law directly is,
but law can be regarded as possessing certain universally recognized features. These
features or attributes are very important in that they provide indirect descriptions of law.
Below are the base characteristics of law along with their brief explanation.
1.2. Basic Features of Law
i) Generality
The most obvious feature of law is its generality. Law is a general statement regarding a possible
human conduct. Any valid legal norm is applicable to all the subjects in the author’s territory.
Law is not meant to shape the behavior of a certain category of persons and leave others;
everyone is subject to the application of any duty existed law, saving extremely exceptional
circumstances (such as exemption from legal liability to a certain degree because of immunity

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provisions). For instance, laws passed by the Ethiopian legislator (the House of Peoples
Representatives) demands all Ethiopians to comply with it, irrespective of race, language,
religion, social status, sex and political outlook. The generality of laws also implies that a law is
applicable to all similar cases, and it does not leave others and govern some. However, the extent
of generalities decreases from universality to an individual person. Consider the following
illustrations.
1. “Everyone has the right to life, liberty and the security of a person.” Article 3, United
Nations, Declarations of Human Rights. This law is made to be applicable to every
person in the world.
2. “Everyone has the inviolable and inalienable right to life, the security of person and
liberty.” (Article 14 of the FDRE Constitution). This provision is made to be applicable
to every person in Ethiopia. So, the extent of its generality is national.
3. “Every Ethiopia national, without any discrimination….has the following rights…
b) On attainment of 18 years age, to vote in accordance with the law.” (Article 38(1)(b)
of the FDRE Constitution). This law is made to be applicable only to Ethiopian nationals
who attain 18 years of age.
4. “Whosoever intentionally spreads or transmits a communicable human disease is
punishable…” (Article 503 of the 1957 Ethiopian penal code). It is made to be applicable only
on one who committed the crime.
5. “The term of office of presidents shall be six years”. (Article 70(4) of FDRE Constitution).
This law is to be applicable only on a person who becomes a president of Ethiopia.

Generality of the subject of the law may serve two purposes. Firstly, it promotes uniformity and
equality before the law because any person falling under the group governed by the law will be
equally treated under the same law. Secondly, it gives a relative permanence to the law. There
is no need of changing the law when an individual leaves the group.
ii) Normativity
Another basic feature of law is its normative aspect. This accords with the philosophical
discourse on the dichotomy between the “is” and the “ought”. The characterization of law as a
normative statement refers to the “ought” aspect of the discourse, the statement of what should
be rather than what is. Law is not a factual statement (description is not in the nature of law); it is

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rather a prescriptive tool which purports to shape human behavior in the future. In other word,
law does not simply describe or explain the human conduct it is made to control. It is created
with the intention to create some norms in the society. Laws create norms by allowing, ordering
or prohibiting the social behavior. It is interested in stating what ought to be done or what must
not be done in the future. The law describes a certain human behavior and takes position towards
that behavior.
Based on the position that they take towards specific behavior legal norms or laws are classified
into:
A. Permissive norm: - such rules allow or permit persons to do certain act. I.e. it is the
choice of the individual whether to do such behavior. No obligation is imposed.
B. Directive norm: - this type of legal norms command individuals to something. It imposes
a positive obligation. Refrain from doing such acts results in penalty.
C. Prohibitive norm: - it prohibits a person from acting a certain behavior. It states what
individuals must not do. Refrain or abstain is required here. There is punishment if
individuals performed these acts.
D. Rewarding norm: - these kind of legal norm entitle a person to receive some benefits in
return for the useful activity that an individual performed.
iii) Establishment in Permanence
The coming into force of law presupposes, at least presumably, its indefinite existence in the
future. It is unusual to fix a time-limit for the application of law. A frequently changing law
creates social instability and more prone to losing legitimacy. This does not mean, however, that
laws live forever. They have to be reasonably flexible to accommodate changing social realities.
Change in societal circumstances is normally a gradual process and the corollary gradual
remolding of laws cannot be regarded as resulting in an unstable phenomenon. Laws violate the
virtue of permanence and create instability when they change quickly and unnecessarily without
having regard to the status of the situation it is meant to govern.
Law might exist exceptionally for temporary application. The possibility of the declaration of
state of emergency explains such a circumstance. The law declaring the emergency situation
remains in force until the matter that called for the declaration of emergency secedes. But
overall, law is to be established in permanence and a time frame would be fixed only in
exceptional circumstances.

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IV) Intimacy with Human Behavior and State

Law is a social norm and its ultimate concern is regulation of the social behavior of human
beings. The claim of law would naturally be made by men with respect to or as against each
other. Law cannot be employed to govern relationships of other animate or inanimate things as
among themselves; it is not concerned with a claim between humans and other things either.
The intimacy of the law and the state is far from question. In reality, one cannot conceive of one
without the other (they are two inseparable aspects of the same system). One cannot have
validity or legitimacy without the other. Indeed, the state is itself brought into life by law and
cannot continue in that status without using law. The law on the other hand would have life and
produce the desired effects only by the backing of centrally organized state machinery.

v) Strongly Institutionalized
We have said above that law is backed by an established system of a state. The state is known for
its strong institutionalization and this provides the law with institutionalized system of
enforcement. The state is constituted by centrally established institutions of legislature, executive
and judiciary entrusted with the tasks of law making, law enforcement and interpretation of laws
respectively. The combined operation of these organs sanctions the law by a strong force.

1.3. The Distinction between Law and Other Category of Social Norms
Law is a social norm, but not the only one. There are also other values of normative significance
in a society. The features we have seen in the forgoing sub-topic generally characterize law as a
social norm. Some of these features are exclusively concerned with law while some are shared
by other social norms. Now we came to the questions: what are these other social norms? And
what makes law different from them?

This “other social norms” category is filled perhaps by ethics, morality, culture, religion, and the
like. These ethical, moral, or religious values are normative in the sense that they, just like law,
prescribe what should be and what should not be and accordingly shape the social behavior of
man. To this extent, law possesses an identical attribute to that of ethics, morality or religion.
Nevertheless, there are conspicuous differences between law and other social norms, as provided
below.

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One important issue that differentiates law from the other social norms is mechanism of their
enforcement. Law is backed by a strong sanction of the state and would be institutionally
enforced. Ethical/moral/religious norms on the other hand lack such external and effective
enforcement mechanism. Their observance is more often than not demanded in point of
conscience than through external organ. Individuals can breach these norms with impunity and
the most they would suffer is moral guilt.

Second, scope of application is a distinguishing mark between law and the “other social norm”
category. Law enjoys uniform and nationwide application. But the other social norms are
peculiar to particular groups and therefore suffer from extremely localized (restricted)
application. There could be a number of religions, cultures or customary practices in a state;
none of them would have norms that apply beyond their own peculiarities.

Law can still be identified vis-à-vis other normative values of the society on the basis of the
mechanism by which it is created and changed. Law originates from a centrally established and
clearly defined institutional framework. The existence of clear institutionalized system would
make it easy to bring law into effect and to amend it. Non-legal norms, on the other hand, do not
normally have an easily traceable institutional origin for they are not made in an organized way.
They come into existence through a practice by a concerned group over a relatively longer time
in a scattered and uncentralized manner. The development of these non-legal norms out of
unclear and gradual process makes it equally difficult to amend them. They are not amenable to
easy and fast amendment for they are rigidly established.

A further important factor that can be regarded as a virtue of law over non-legal norms is the
exhaustiveness and clarity embedded in law. Law would be exhaustively proclaimed (mostly
written) and sufficiently clear. The conduct it purports to command or prohibit and the
consequences of behaving otherwise would be fixed in advance. Normative rules of ethics,
morality, or religion are, on the other hand, barely exhaustive and known for their manifest lack
of clarity. And mostly non-legal norms do not determine consequences of breach in advance.
Since they are mostly unwritten, they are surrounded by a cloud of vagueness and obscurity.

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Hence, it is possible to summarize the differences and similarities between legal norms and non-
legal norms.

Legal Norms Non-legal Norms

- General statement - General statement
- Normative - Normative
- Regulate social behavior - Regulate social behavior
- Supported by centralized and institutionalized - Lack centralized and institutionalized
mechanisms of enforcement mechanisms of enforcement
- Nationwide and uniformly applicable - Local in application
- Made by a centrally organized institution - Originate from the practices and beliefs
(parliament) (Centralized) of the society (Decentralized)
- Can be easily amended or modified - Cannot be easily amended
- Exhaustively written - Almost unwritten

1.4. The Functions of Law

Dear student, have you ever doubted the importance of law in a society? Do you think that the
secure condition in which you accomplish your tasks would be there had law not been there and
prevailed? I hope you say not! Yes, laws perform various functions in a society. They are the
powerful weapons to attain diversified societal needs. Laws are not ends in themselves, but
rather they are the most effective and reliable means at the disposal of the society.

The simple and common sense response you might make is perhaps that law is an instrumentality
for maintaining order and security. Imagine what would happened if there were no law to curtail
the conduct of gang of robbers breaking into your abode and taking away the property you have
gained over time through exerting your energy and investing your money. Think also of a
reckless conduct that sets fire to a building in which you run your business affairs which results
in a looting of essential documents. I hope you openly unwelcome such a situation. In the

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absence of law, persons might excessively and arbitrarily behave and you would also be
discouraged to undertake proper business activities for fear of the risk of losing it someday. So,
laws, especially criminal laws, would become indispensable tools to stop unwelcoming conducts
and to create peace and stability for proper life of the society.

It is important to note that haw delves into almost every social interaction. It regulates the way a
particular relationship is to be created, maintained and broken. Law is not limited to mere
maintenance of peace and order; it also steps in to govern detailed individual interactions. Laws
of family for instance are concerned with the regulation of the institution of marriage and
matrimonial affairs. Contract and property laws administer contractual bonds and property
relationships of individuals respectively. Business laws, on the other hand, intend to shape
behavior in commercial transactions and ensure the interaction is conducted in healthy and
effective manner.

Law protects citizens from arbitrary and excessive governmental actions. That body of law
which sets out structure of the state and the relationship the government of that state would have
with citizens is referred to as constitutional law. The powers and functions of the government are
usually defined by a constitution, and this law restrains undue governmental encroachment in the
affairs of subjects. Human rights provisions are typical examples in this regard – that they call
upon the government to either act or refrain from acting in the protection and enforcement of
human rights. Law of constitution can function in such a way that the various organs constituting
the government discharge their tasks in an atmosphere of harmony and transparency. The
principle of checks and balances incorporated into most republican constitutions reveals the
possibility of review of actions or decisions of the legislative, executive or judicial bodies by one
another.

Laws are also instrumental in fighting harmful traditional practices (HTPS). Early marriage has
been the widespread practice in many parts of Ethiopia. Marriage is a big affair upon which
family, the fundamental unit of the society, is found. Yet, such purpose is served only if spouses
are psychologically and biologically developed enough. Ignorant of such fact, most Ethiopian
parents force their teenage children (especially girls) to marry while they are in fragile mental

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and physical conditions, exposing them to various economic, social and biological problems. The
same is true of Female Genital Mutilation (FGM). The law is a typical tool in reducing, and
ultimately eradicating, these harmful traditional practices.

Law also pays a prominent role in improving the life of the society through the encouragement of
innovation and creativity. Law encourages individuals to engage in innovative tasks by granting
those rights to exclusive enjoyment of their inventions via issuing patents, copyrights,
trademarks and the like. These mechanisms bestow inventors and authors of new ideas with
economic and moral benefits, thereby helping society to make use if better means of life.

1.5. Classifications of Laws and Nature of Business Law

The body of law is huge. To study it one must break it down by means of classification.
Classification of laws is the systematization of the law based on the subject matter for the
purpose of finding the relevant law more easily and determining whether different legal rules
were required depending on their area of application.

No single classification system can cover the large of mass of legal information. Consequently,
those systems that have been devised tend to overlap. Moreover, they are, of necessity, arbitrary
in some respects. A discussion of the best known classifications of law follows.

Public versus Private Law

Public law addresses the relationship between persons and their government, and between
various governments. It regulates the legal relationship in which a state as a public power
involved. They are public in the sense that the interest of the public at large is at stake as
represented by the government. It determines the organization and scope of public powers and
their exercise in relation to those who are governed. It defines a person’s rights and obligations
in relation to government. Furthermore, it also describes the various divisions of government and
their powers. Criminal law and constitutional law, for example, are generally classified as public
law, because they deal with persons and their relationships to government. Criminal acts, though

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they may involve only one victim, are seen as offenses against the society as a whole and
prohibited by governments for the purposes of protecting the public. Constitutional law is a
public law because it involves question of whether the government (federal, state or local in a
federal setting, or the central government in a unitary system) has the power to act in a particular
fashion. Often the issue is whether a law or a decision of a governmental authority, duly passed
and made, exceeds the limits set on the government.

Private law governs direct dealings between persons. In other terms, private law regulates the
relationship between two or more private individuals. When persons deal or affect other persons,
such as in a contractual relationship, the law governing these relationships is classified as private
law. Private law may ultimately advance societal interests as a whole, but its immediate concern
is with individual transactions that affect the legal positions of the transacting persons. Agency,
law of commercial paper, trade and business organizations, sales, torts, insurance and any other
area of business law is essentially classified as private law.

Substantive and Procedural Law

Substantive law includes all laws that define, describe, regulate and create legal rights and
obligations. This body of law establishes acts and situations producing effect at law. For
instance, a rule stating that promises are enforced only when each party has received something
of value from the other party is part of substantive law. So, too, a rule stating that a person who
has injured another through negligence must pay damages. Most of the bodies of law we have
highlighted above, both public and private, are substantive laws. Substantive law tells us what
our rights are.

Procedural law sets out the methods of enforcing the rights established by substantive law. It is
the method or system or means by which claims of persons are adjudicated and by which rights,
privileges and duties are determined and enforced by the appropriate legal tribunal. Questions
about how a lawsuit should begin, what documents need to be filed, which court will hear the
suit, which witnesses can be called, how the judicial proceedings is conducted, and so on are all
questions of procedural law. In brief procedural law tells us how to exercise substantive heights.
Civil procedure, criminal procedure and evidence are typical examples.

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Dear student, you have to bear in mind that the importance of the distinction between substantive
and procedural law is more than academic. This is so because the result of a case may well
depend upon the determination that the rule is substantive rather than procedural.
Civil versus Criminal Law

Civil law is concerned with the duties that exist between persons or between citizens and their
government (the latter as a ordinary legal person), excluding the duty not to commit crimes.
Contract law, for example, is part of civil law. It is concerned with the rights and duties of
individuals towards each other. The whole body of tort law, which has to do with the
infringement, in the absence of contract, by the person of the legally recognized rights of another
is an area of civil law. In addition to these law of property, law of succession and family law are
civil laws. Criminal law, in contrast to civil law, is concerned with wrongs committed against the
public as a whole. It is a part of the law which characterizes certain kinds of wrongdoing as
offences against the state, not necessarily violating any private rights, and punishable by the
State. Criminal law is always public where as civil law is sometimes public and sometimes
private. In a criminal case, the government seeks to impose a penalty on an allegedly guilty
person.

Dear student, I hope you have understood the nature and purpose of the above classification
attempts. I would like you to have thorough look to the classification once again and identify the
position of our subject matter, business law. You see that the various areas of law that greatly
touch with business (such as contracts, partnerships, commercial instruments, traders and
business organizations, agency, sales and insurance) constitute the private legal regime rather
than public, substantive rather than procedural, and civil rather than criminal.

1.6. Out-of-Court Dispute Settlement and its Virtues in Business

Traditionally, every dispute involving legal questions, civil or criminal, has been determined
formally by the regular law courts. Nowadays, however, this trend is a bit changing, for variety
reasons, in favor of what we call alterative dispute resolution (ADR) for civil cases. ADR

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techniques provide a viable and preferable alternative, as its naming can tell, to court
proceedings in the swift disposition of legal matters.

Business-persons prefer one or the other of the two dispute disposition alternatives for a couple
of reasons. In particular, they indulge themselves in using out-of-court settlement mechanism
because of certain virtues. Court settlement is conducted in an extremely formalistic manner and
is surrounded by legal/procedural technicalities. Entrepreneurs would choose simple means of
dispute disposition and such is effectively provided by ADR. Secondly, adjudication by courts
entails greater cost litigation and consumes time and energy because the number of court cases
filling the dockets (court schedules listing the cases to be tried) grows every year and continues
to grow. Such a backlog of court cases awaiting trial and subsequently accompanied by delayed
resolution is very unwelcoming to business world that deals in the fast-paced commercial
transactions. Third, a final judicial disposition of a legal dispute is usually accompanied by a
winning and losing spirit. Court settlement is solely driven by letters of the law and never admits
give and take circumstances. So, ultimately a judgment that satisfies one of the litigants and that
disappoints the other is rendered. This in turn will create an adverse relationship between the
disputants and potential beneficial relationship between these very disputants would be
jeopardized. Out of court settlement, on the other hand, is based on the concept of reciprocity
(give and take) so that both litigants would go home satisfied and future relationship is possible.
So, out-of court settlement is non-adversarial in nature. Methods of ADR range from neighbors
sitting down over a cup of coffee to work out their differences to huge multinational corporations
agreeing to resolve a dispute through a formal hearing before a panel of experts. In what follows,
we look at the numerous methods used for settling disputes outside the court system.
1.6.1. Negotiation, Conciliation and Mediation
Negotiation, mediation and conciliation possess certain important common characteristics when
seen vis-à-vis arbitration. These are all forms of ADR that are non-adversarial in nature. In other
words, the primary goal in these procedures is not to determine which side is more at fault or
which side should win or lose but to search for common grounds of agreement. Still, each has its
own features that distinguish it from the other. Let us see them one by one in brief.

i) Negotiation

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In this process, the parties come together informally, with or without attorneys to represent them.
In such an informal setting, the parties air their differences and try to reach a settlement or
resolution without the involvement of independent third parties. Because no third parties are
involved and because of the informal set-up, negotiation provides the simplest and swift
opportunity of dispute disposition outside the court structure. It has to be noted here that the
presence of an attorney to represent one or both of the parties dose not in any way imply the
involvement of an independent third party. Attorneys, if any at all, get involved in the dispute by
representative capacity stepping into the foot and taking the place of the party they represent and
hence they are regarded as parties to the dispute. Even if a lawsuit has been initiated, the parties
may continue to negotiate their differences at any time during the ligation process and settle their
dispute.
ii) Conciliation
Conciliation is a mechanism of dispute resolution in a friendly and unantagonistic manner in
which a third party, the conciliator, assists the parties to a dispute in reconciling their differences.
Conciliation is often employed when disputants refuse to face each other in direct negotiations;
accordingly, the conciliator plays a facilitatory role in that he/she helps to schedule negotiating
forums and carries offers forth and back between the parties. Technically, conciliators are not to
recommend solutions; practically, however, they often do. But the final decision is taken up the
parties themselves.
iii) Mediation
In this process too, it is the parties who must reach a final agreement but being assisted by the
influential role of an independent third party, the mediator. The procedure of mediation allows
the mediator to propose solutions for the parties to consider. The parties may select the mediator
on the basis of the person’s reputation for fairness and impartiality. The mediator may by a
volunteer from the community and need not be a lawyer. Usually, a mediator will charge a fee
for his or her services (which can be split between the parties).
In mediation, the mediator talks face to face with the parties and allows them to discuss their
disagreement in an informal atmosphere. There are a few procedural rules established flexibly by
the mediator and/or the parties for the proper conduct of the mediation proceedings. The absence

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of legal procedures and the unattractiveness of the service fee discourage lawyers from
participating in most mediation programs and thus legal terminology is frequently avoi

1.6.2. Arbitration
Arbitration is a bit more formal and court-like method of ADR. The peculiar feature of
arbitration is that a third party hearing the dispute decides the issue. Unlike in the above three
cases where the parties themselves settle their dispute although a third party may assist them in
doing so. Depending on the circumstances and parties’ wishes, the decision rendered by an
arbitrator may be legally binding on the parties, or it may be non-binding. This implies that
arbitration proceedings make use of ordinary laws of the land (Art.3325(1) of the Civ.C) but
such use is compromised with the ultimate end of reaching an amicable solution. The arbitrator
may also be called upon to prove something without deciding the legal questions involved in the
dispute (Art.3325 (2), Civ.C). In arbitration, the arbitrator practically becomes a private judge
even though he/she does not have to be a lawyer. Frequently, arbitration proceedings are
conducted by a panel of experts from different walks of life.

Any commercial matter can be invariably submitted to arbitration. Parties may present their
dispute to arbitration on the following two possibilities. The parties can agree to settle their
differences through arbitration rather than the court system when a dispute arises (Art.3328 (1)).
In the majority of cases, however, disputes are resolved via arbitration because of an arbitration
clause in a contract entered into before the dispute arose (Art.3328 (2)). An arbitration clause
provides that any disputes arising under the contract will be resolved by arbitration.

The arbitration process – The arbitrator may be give the power at the beginning of the
arbitration process to establish rules that will govern the proceedings. Typically, these rules are
much less restrictive than those governing formal litigation. Regardless of who establishes the
rules, the arbitrator will apply them during the course of the hearing. In the typical hearing
format, the parties begin as they would at a trial by presenting opening arguments to the
arbitrator and stating what remedies should or should not be granted. After the opening
statements have been made, evidence is presented. Witnesses may be called and examined by

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both sides. After all the evidence has been presented, the parties give their closing arguments. On
the completion of closing arguments, the arbitrator closes the hearing.

After each side has had an opportunity to present evidence and to argue its case, the arbitrator
will reach a decision. The final decision of the arbitrator is called an award, even if no money is
conferred on a party as a result of the proceedings.

The role of the court in arbitration proceedings can be noticed at both pre-arbitration and post-
arbitration stages. In pre-arbitration stages, the court may involve to resolve issues of
arbitrability – the determination of whether the dispute can be brought to arbitration, not the
consideration of the dispute on its merits. The court usually settles the matter by compromising
public policy and freedom of contract. At the post-arbitration level, the court would have its
hands in the arbitration for setting aside an arbitral award when that is warranted. The court may
nullify or render an award ineffective when it violates public policy, contravenes public morality,
or where similar public interest is at a stake.

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