The Inter-American Development Bank says the weak enforcement of property rights and contracts which the private sector confronts is more likely the result of an “ineffective and overwhelmed” judicial system than inappropriate laws governing commercial activities and contract enforcement.
“Decisions are too often neither prompt nor transparent and often appear to be based on questionable jurisprudence,” the IDB says in its technical cooperation profile for the establishment of a commercial court and an alternative dispute resolution mechanism in Guyana.
To improve the enabling environment for the private sector, the Bank is funding the establishment of a commercial court and an alternative dispute resolution mechanism, both of which should materialize before the end of this year. The Bank has expressed the view that the inefficacy of the judicial system has led to weak enforcement of property rights and contracts, which in turn increases the legal, and other risks the private sector faces.
“This discourages most types of commercial activity, but in particular longer-term investments and financial transactions, as financial intermediaries cannot effectively secure collateral for credits. In addition, poor official property rights enforcement encourages informal business activity and discourages foreign investment,” the IDB argues.
The current backlog of civil cases at the end of 2002 exceeded 11 000, which is more than double the number of civil cases disposed of annually. The Bank points out that at least a third of the cases filed in 2002 were related to claims involving financial institutions.
In cases where decisions are rendered, the bank says enforcement can be “slow and cumbersome” and the accompanying reasons for decisions are often not published for months or years after a decision, preventing an appeal.
“This judicial environment increases substantially the risk of financial transactions, particularly with respect to property, fixed or moveable, as effective guarantees. Without an effective threat of judicial enforcement, there are limited costs to nonpayment of creditors and the consequent development of a weak payment culture. This weak legal enforcement of financial contracts is viewed as perhaps the greatest obstacle to more rapid financial market development (in Guyana),” the bank states.
The IDB posits that there are multiple causes for this poor performance with judges insufficiently trained in all aspects of law, particularly commercial law, and the lack of legal information and resources at their disposal which tends to facilitate delaying tactics by debtors such as requests for injunctions or stays of execution, inappropriate decisions and slow enforcement of decisions.
Additionally, the Bank says there is an insufficient number of judges and court administrative capacity to handle the backlog of cases and volume of new claims. The ability of the system to respond to demand is also insufficient as a result of outdated court administration systems and procures which includes the lack of automation in the registry, manual court reporting and handwritten decisions.
Low remuneration levels for court officials, including judges, are also seen as contributing factors to the problem which the private sector confronts and the low wages make it difficult to attract highly skilled human resources. This ends up having a deleterious effect on moral, the Bank notes.
“The establishment of a specialized commercial court, with strict case management practices and systems and well qualified and motivated judges, should provide an effective mechanism to improve judicial decision making and enforcement for commercial activities, including financial transactions,” the bank says, noting as well the benefits of an out of court settlement mechanism.
The technical cooperation project being prepared by the Bank would provide in the case of the Commercial Court, technical assistance to design the legal framework and jurisdiction for the Court to operate, its case management rules and a sustainable financing plan and mechanism.
The IDB had in 1999 funded another technical cooperation through the Multilateral Investment Fund to strengthen the legal framework and administrative procedures in Guyana as it related to transactions in movable and immovable property rights.
However, implementation of that project has been disappointing because of insufficient attention and resources devoted to it by the executing agency, the Ministry of Legal Affairs.
“The institutional strengthening component, including the safeguarding and computerisation of deeds documentation, which represents about 80% of the project’s cost (of US$1.3M) has not advanced beyond its preliminary stages, while the revision of legislation for securing financial transactions, has been prepared, but not yet presented to parliament” the IDB points out in the profile of the commercial court project.
The MIF project was to review the legal framework for secured transactions in movable and immovable property and develop a plan of action for reform. Laws were to be analysed including the Deeds Registry Act, the Bill of Sale Act and laws of evidence. That component was to also streamline procedures for creating security interests in movable and immovable property, revising existing notification procedures for perfecting a security interest in such property (including notification in daily newspapers); modifying procedures for enforcement of movable security interest and carrying out seminars with stakeholders and potential customers to explain the nature of the reforms.
The second component was to support activities to strengthen and improve the services provided by the Registry offices in Georgetown and New Amsterdam. This would include streamlining administrative procedures for the transfer of interests in movable and immovable property, creating and perfecting security interests; implementing training and staff evaluation programmes; conducting seminars with stakeholders and potential customers, increasing salaries of deeds registry staff, modernizing and computerising property recording among other issues. The final component provided for an initial baseline survey of Deeds Registry users, followed by an end of project survey to evaluate progress on both a quantitative and qualitative basis.
However, the Bank profile sees the office of the Chief Justice as the most suitable executing agency for the commercial court and alternative dispute resolution mechanism project.
In Guyana, USAID is the donor most involved in judicial reform in recent years. It has a Governance and Rule of Law programme schedule for completion in 2003 and is supporting initiative to improve the tracking and reporting of cases, the drafting of revised civil procedures and through the Carter Centre, is promoting the alternative dispute resolution to address the backlog of cases and weak judicial administration. That programme seeks to build support for the alternative mechanism and possibly implement a pilot project to test for its effectiveness and generate a positive demonstration effect.
Source: Land of Six Peoples