Chapter 1

Adequacy of legislative framework

There is no doubt that incomplete, ambiguous and poorly drafted legislation is detrimental to judicial decision-making. It is also conducive to corruption in the judiciary, as suspect or unlawful judgments are harder to identify.

Some legislative problems identified in the decisions reviewed related to the substantive law. In Russia and Ukraine local experts considered that existing legislation did not adequately proscribe sham bankruptcies, in which debtors siphon away assets and then have themselves declared insolvent. Courts' decisions in many such instances were considered of good quality, but could not compensate for shortcomings in the law.

However, in some cases it was legislation governing general civil litigation and its interaction with sector-specific laws that caused particular problems. For example, in Russia and Ukraine the law made it too easy for parties to re-open and undermine previously determined bankruptcy cases based on newly discovered circumstances. In such cases, the civil procedure legislation sometimes appeared ill-adapted to the relevant specific law, which might usefully have precluded or limited the reopening of litigation. In other cases, legislation had not kept pace with market developments, leaving gaps that courts struggle to fill through interpretation courts at a disadvantage. More positively, legislation in Russia governing disputes over the recovery of simple debts was identified by local experts as very straightforward and conducive to effective court proceedings.

Secondary legislation has also caused certain problems for courts. In one case, ambiguity over the land register rules in Mongolia led the parties to litigate a point where there was no apparent commercial dispute and to use the court to clarify the law in the abstract. Meanwhile in Ukraine, following extraordinary decrees of the National Bank issued during the financial crisis, it was not clear whether a temporary moratorium on creditor claims against banks covered retail depositor-holders. Ultimately the courts interpreted it broadly which, according to experts, was not how the decrees were supposed to work.

Legislation governing dealings between business and government agencies was often considered vague, in effect conferring substantial discretion on the regulators. This was especially so in Armenia and Azerbaijan, in respect to taxes and business licences, where the relevant law very broadly defines the powers of the authorities to conduct inspections and to demand information and documents. In such cases, judicial decisions in favour of the authorities are the consequence of the legislation rather than judicial deference to authority; it can be difficult for courts to fault the actions of a regulator or authority conferred with such broad discretion.