Chapter 1

Annex 1.2

Commercial Courts in Transition

Previous studies have linked the effectiveness of the judiciary with the pace of economic growth and the cost of credit in liberalised economies.¹ However, many transition countries are yet to reap the economic benefits that an effective judiciary can generate. Over the 20 years of legal transition, commercial laws in the EBRD region of operations have improved substantially. Despite this, their implementation and enforcement in the courts have often been fraught with problems, deterring business from engaging in these markets for fear that their legal rights cannot be protected. While foreign investors can sometimes bypass the courts through international arbitration, local investors, particularly small and medium-sized enterprises (SMEs) need the means to resolve commercial disputes locally.

This annex reports on an analysis undertaken by the EBRD between 2010 and 2012 of judicial decisions made in the Commonwealth of Independent States (CIS),² Georgia and Mongolia. The objectives were twofold: to provide investors in these countries, including the EBRD, with an insight into key problems confronting commercial courts and the risks involved in litigation; and to produce data which could be used to encourage and assist reform.

Methodology

Local legal experts evaluated selected judicial decisions in respect of seven dimensions, or indicators, of judicial capacity (see Box A.1.2.1) and scored them on a scale of 0 to 5, with 5 representing the highest standard of fairness and efficiency.

All the dimensions are underpinned by international standards and are also reflected in the EBRD's Core Principles for Effective Judicial Capacity. In each of the countries under review, the local experts selected at least 20 decisions considered typical and representative of the broader case law for analysis in a purposive, rather than a random sampling, exercise.{

The decisions were drawn from three broadly defined commercial law areas: (i) protection and enforcement of creditors' rights, focusing mainly on enforcement of collateral and recovery of unsecured debt; (ii) disputes over proprietary (such as land title) and shareholder rights; and (iii) disputes with regulatory authorities over business licences, taxation and privatisation issues. These areas were considered important from the perspective of identifying systemic concerns about judicial capacity that transcend particular sectors. To ensure consistency in the evaluation process, all of the decisions, scores and comments of local experts were reviewed by an independent regional panel of three further experts.

Results

The overall results of the assessment in 12 countries are set out in Chart A.1.2.1.³ They identify different levels of judicial capacity in commercial law across the region. Nevertheless, some of the underlying challenges are similar and derive from the countries' common socio-economic history. This is borne out by an analysis of the seven dimensions, the various themes which pervade them and the relationships between them.

In Russia the general level of sophistication of judicial decisions was higher in most dimensions than in the other countries. This may reflect more developed markets (creating more complex disputes for the courts to deal with), better resources than the other countries and a more advanced stage of economic transition.

¹ See Laevan and Mojnoni (2003) and Sherwood (1994).

² Armenia, Azerbaijan, Belarus, Kazakhstan, the Kyrgyz Republic, Moldova, Russia, Tajikistan, Ukraine and Uzbekistan. Turkmenistan is an associate member.

³ In Turkmenistan decisions were not accessible and it was not possible to score the seven dimensions, although some information was gleaned from local counsel.

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