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Institutional Reform and the Judiciary
Which Way Forward?
Roumeen Islam1
World Bank
This paper presents some general lessons in institution building that has relevance for
reform of the judiciary. The paper emphasizes the value of simplicity in design
commensurate with country capacity, the importance of innovation/experimentation, and
of economic openness in effective institution building. It underscores how the incentives
of individuals depend on both the details of institutional design within the judiciary itself
but also some critical institutions external to the judiciary. Finally the paper argues for
the need to ground reform initiatives on a solid empirical and comparative approach. It
illustrates some of these issues by drawing on a recent project conducted by the World
Bank and others.
World Bank Policy Research Working Paper 3134, September 2003
The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the
exchange of ideas about development issues. An objective of the series is to get the findings out quickly,
even if the presentations are less than fully polished. The papers carry the names of the authors and should
be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely
those of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors,
or the countries they represent. Policy Research Working Papers are available online at
http://econ.worldbank.org.
1 This paper is based on work done for the World Development Report 2002, Building Institutions for
Markets., World Bank.I am grateful to Rafael La Porta for reviewing parts of this manuscript and offering
helpful suggestions and to Rick Messick for comments on an earlier draft. Juan Botero kindly provided
helpful suggestions. I thank Theodora Galabova for excellent research assistance.
2
Introduction
All societies need institutions to settle disputes and mechanisms to enforce
property rights and contracts. Without these mechanisms commercial transactions are
limited to the simplistic and high risk constrains many productive investments. The
systems that nations develop to fill these needs take myriad forms ranging from family-
and community-based norms and networks to formal state-sponsored judicial systems
enforcing complex laws. In each country, the relative importance of state-sponsored
formal enforcement mechanisms versus informal methods depends on the nature of the
transaction being disputed, the nature of the parties involved in the dispute, the particular
conditions of each country (such as income level, literacy, and technology), and how well
(swiftly, cheaply and fairly) each of these mechanisms provide or are perceived to
provide what the disputing parties demand.
Well functioning, state-sponsored justice provides a complement to other, more
informal, systems. Together these systems, when they work well, keep the costs of
enforcement low for both small and large participants in markets and for small and large
transactions. But in many countries formal, state-sponsored courts and the laws and
regulations that they attempt to propagate and enforce bear no relation to private informal
systems. That is, the two systems are viewed as complete substitutes for justice and
contract enforcement because formal judiciaries are not relevant or are not perceived to
be relevant for many citizens. For example , while large agricultural corporations and
wealthy landowners may use formal courts to resolve disputes, small family firms and
farm labourers not only may not use the courts but may consider the rules that courts are
enforcing alien to their way of life.
3
Governments in many countries around the world are designing reforms in their
judicial systems or thinking about how to build consensus or coalitions for reforms. Some
interesting policy questions arise –why is the legal and judicial system not relevant for
some citizens and in some countries? When and how should one strengthen the roles that
judicial systems play in economic development? What does the study of institutional
reform in general, and judicial system reform in particular, teach us about the design of
systems in various countries?2 To answer these questions, it is necessary to think not
only about the final goal but, the capacity of countries to implement certain reforms and
the possible need for a graduated approach.
This paper presents some general conclusions regarding institutional development
(see World Bank, 2001), which are also relevant for the judiciary and some of the
evidence which indicates how critical a role the formal legal system can play to support
the development of private business.3 It discusses why it is important for governments
and citizens to take an active and practical approach to judicial system development, and
the value of a comparative and cross-country, empirical approach for reformers,
illustrating this point by drawing upon a recent project undertaken by the World Bank
and others. 4
One of the main conclusions that has emerged from the study of institutional
design and institutional change is that despite the prevalence of international norms and
the popular notion of “best” practice, a great part of effective institution building relies on
2 Recent thinking underscores how looking across different types of institutions rather than confining
oneself to the study of one particular institution yields useful lessons.
3 Institutions are the informal and formal rules that guide behaviour. Sometimes “institutions” is also used
to refer to organisations and organisational structure.
4 Parts of this paper are based on the WDR 2002, and on a project conducted jointly by Harvard University,
Lex Mundi and the World Bank. This project is described in Djankov et al, 2003.
4
the capacity of those establishing and using these institutions. New institutions need to
complement existing conditions in a country—that is, it needs to be consistent with the
country’s income level, skills and education levels, available technology, the distribution
of income, geography, and other institutions (e.g. court performance depends on how the
laws are written in the country, how lawyers associations work, the presence of
alternative dispute resolution systems etc.). While this “lesson” may seem obvious, it is
sometimes hard to reconcile with the concept of international “best” practice. This is not
to say that nothing can be learned from looking at international or foreign norms and
practices. To the contrary, as is argued later.
A key question is how do we adapt institutions which are effective in high income
countries for the needs of low income countries? Courts are only relevant to the extent
that they approach dispute resolution in a manner that is understood by the people they
serve and that meet their needs . One answer might be “ simplicity” in design.
Second, both state and private entities can benefit by being allowed to experiment
/innovate in terms of finding the institutional design that “fits”. Study of different
systems, however distinct in history and origin, is important because it gives us ideas and
enhances the realm of the possible: moreover, some of these ideas may bear fruit.
Third, some degree of competition provides incentives for improving institutional
design. The desire to do better than a peer group is often a healthy driver of change in
private business—so can it be in the public domain for both individuals and
organizations. 5 Fourth, economic openness, for example trade in goods, and services,
information sharing across and within countries, can go a long way in facilitating
institutional reform by creating demand for change.
5 World Bank, 2001.
5
Finally, embedded in the above, is the notion that how institutions function
depends very much on the incentives provided to the relevant agents. People’s incentives
depend on the whole institutional system; to understand how various institutional features
work together, it is necessary to understand the details of each institution.
This paper starts with a general introduction which reviews some of the existing
empirical evidence on the importance of formal courts to economic development. The
second part of the introduction discusses some examples of the process of change
drawing on the limited literature on this subject.6 The second section is devoted to a
discussion of the various institutional features that must be considered when designing
court reform. A final section of the paper is devoted to one particular type of institution -
procedural law. It draws on a recent project conducted jointly by Harvard University,
Lex Mundi and the World Bank, that looks at examples of procedural law in countries
around the world. The purpose of the discussion is to illustrate , in light of what recent
studies have shown, and the lessons mentioned above, how countries may think about
judicial reform going forward.
The paper also highlights systematic differences among different regions of the
world. This type of regional classification may be a purely spurious one—that is one
might argue that contiguity does not necessarily imply similarity of either outlook,
culture, or experience. However, it is almost universally true that countries are keen to
learn about institutions in neighbouring countries. A regional perspective can highlight
in what way neighbouring countries may learn from each other but also the limitations of
merely looking regionally.
6 This discussion is based on World Bank, 2001, and background work done for the report.
6
How Much Do Courts Matter?7
Increasing evidence from around the world suggests that when court performance
improves, it can support economic development by facilitating market transactions.8 To
take an example, China, in 1979 undertook an economic reform program that provided
incentives for new enterprise creation, increased inter-provincial trade, and allowed the
entry of foreign investors. With business expanding, the number of cases filed in
commercial courts increased dramatically. Between 1979-82, and 1997 there has been
more than a 100-fold increase in the average number of commercial disputes filed in the
courts. Beginning from around 14,000 a year; by 1997, 1.5 million new cases had been
filed. What is telling is that at about the same time, the number of commercial disputes
arbitrated by community committees, the traditional mediation mechanism, hardly
increased. 9 Liberalisation, more trade within the country and business with foreigners
meant an increased demand for formal dispute resolution mechanisms. In this context,
community mechanisms were not appropriate for resolving disputes with non-community
members.
Poland and Slovakia in the early 1990s also demonstrate how regime change can
render existing dispute resolution mechanisms ineffective and how the state can step in to
promote business in a new economic environment. During these early years, farmers
faced long delays in payments for produce delivered upstream. They had difficulty in
enforcing contracts with outside business partners. Responding to this challenge, small
farmers, and later, firms processing produce, changed their strategy and integrated their
7 See also World Bank, 2001.
8 In this paper, I focus on the effectiveness of the judicial system in the commercial function of courts-
enforcing contracts between private parties.
9 WDR 2002, “Building Institutions for Markets”, World Bank, 2001; and Pie (2001).
7
businesses vertically. Through vertical integration contracts outside the firm were
minimized- a preferred solution given the cost of enforcement. The government
recognized the importance of court development- in the late 1990s a strengthened court
enforcement system meant that industry no longer had to devise alternative methods of
reducing risk and could diversify business dealings.10
Another study (Kumar, Rajan and Zingales, 1999) shows that when judicial
systems are strong, countries tend to have larger firms. Firms can rely on courts to protect
their property rights and enforce increasingly sophisticated contracts, for example
property rights associated with intellectual property. Pinheiro and Cabral (1998) discuss
how states in Brazil with better performing courts have more developed credit markets.
As is intuitively obvious, creditors are loath to advance credit when they lack the means
to enforce repayment. For the post communist countries, Johnson, McMillan and
Woodruff (2000) discuss how well functioning courts support the development of new
relationships so that entrepreneurs are encouraged to contract with new suppliers.
Without well functioning courts, firms are forced to rely only on “relationship
business”—that is, contracting with those with whom they already have well established
relations. In a rapidly changing economic environment such constraints prevent firms
from venturing into potentially very profitable opportunities. They also limit the extent to
which they are able to protect themselves from relationships that are no longer profitable.
Foley (2000) shows how the development of formal bankruptcy proceedings, in
which costs play a key role, make both debtors and creditors better off. Bigsten et al
(2000) and Collier and Gunning (1999) analyse countries in Africa. They find that
ineffective courts and weak legal systems prevented the growth of small firms or limited
10 World Bank, 2001, Gow and Swinnen 2001.
8
investment. In Zimbabwe, a country with a better legal and judicial system than many of
its neighbours, firms are more likely to take disputes to court and at the same time more
likely to engage in more risky (and potentially more productive) activities than in these
neighbouring countries.11
Each of these experiences shows the importance of a sound court system for
commercial transactions and explain the words of Douglas North (1990) who claimed
that the absence of low cost means of enforcing contracts was “the most important source
of both historical stagnation and contemporary underdevelopment in the Third World”.12
Indeed, the evidence suggests that providing better courts – more accessible, faster,
fairer13 and predictable courts can support the development of economic activity.
Reform in many countries today could bring definite benefits in terms of stronger market
activity.
Developing countries have been undergoing vast economic and social changes.
The advent of more open and larger markets have presented opportunities, but also, in
many cases rendered less efficient, community mechanisms for contract enforcement
(World Bank, 2001). This is to be expected. As economic transactions become more
distant in time and space, as the transactions conducted with those outside of one’s
normal social or kin group extends, monitoring becomes difficult. Reputational and
social bonds weaken and cannot be used to enforce contracts. In these situations, a third
party system such as an unbiased and effective state-sponsored court, acceptable to
11 Bigsten et al (2000).
12 North 1990, 1999.
13 As is well known, these dimensions of quality are not independent of each other. Improvements that
increase access could increase delay and improvements which reduce delay temporarily could increase
demand and therefore increase delay again.
9
agents from different groups is needed to enforce contracts.14 15Another issue with
community mechanisms is that they can also be exclusionary. For example, they may not
be available to women, or the truly indigent.
How Do Sound Courts Develop?
It is relatively easy to find examples which show the critical role that formal
courts have played in market activities. Similarly, there are many examples of how
private mechanisms of property rights enforcement have been critical to the development
of business. Bernstein (2001) discusses how private dispute resolution mechanisms
facilitated grain trade in the United States. What is more difficult is understanding how
the two systems fit together, how they support each other and what provided the
incentives and impetus for development.
Study of economic history does not easily help identify the sequence of events
that led to the development of formal courts. Typically, strong states with a desire to
encourage commerce or alternatively, to limit feuds over land and inheritance,
established courts funded and/or managed by the state. These systems often competed
with existing private institutions and over time as the state became stronger and
performed better, replaced some of these mechanisms.
The establishment of the royal courts after the Norman invasion of England
provides lessons for countries today. At that time, disputes in England were generally
settled by feudal or local courts. However, the Norman invaders did not consider these
courts to be effective in terms of sustaining social stability and in ensuring productive use
of the land. Disputes took a long time to be settled and this was both socially and
14 See Messick (2001), and Milgrom, North and Weingast, 1990, and Greif, 1994.
15 The Genoese in the tenth century recognized this, as did the old English and French empires.
10
economically costly. Thus, they established royal courts to handle disputes as an
alternative to the traditional courts: the two systems co-existed and in a sense competed
with each other . Over time, disputes that were once heard by feudal courts or local courts
were increasingly brought to the royal courts because of the latter’s streamlined
procedures and more effective remedies. In cases arising from the seizure of land, a
common problem in 13th century England, the royal courts offered a speedy and
uncomplicated method for restoring the land to the rightful owners. By contrast, it could
take other tribunals decades to restore possession to the rightful owner as the trespasser
took advantage of various procedural devises to delay a decision being reached.16 The
English experience shows that by providing better rules and fostering competition the
new state established a system that people chose to use.
In more recent history, the development of a specialized commercial court in
Tanzania was spurred by a coalition of the domestic and international community. Strong
leadership, which responded favourably to business needs played a key role (Finnegan,
2001). The main incentive of business was to compete effectively in an open economic
environment.
Development history teaches that changes in politics and economics can create
demand for new institutions among private citizens, but also that supplying or
introducing new institutions (as the English did) can change behaviour- as long as it is
done the right way. Competition and openness are among two strong forces that have
worked in favour of judicial system strengthening. But the incentives to behave
differently must be embodied in the design of the new institutions not just the
environment in which they operate. Rewards for using and abiding by new rules (in this
16 Stenton (1964), Pollack and Maitland (1968); Van Caenegem (1988).
11
case faster dispute settlement at low cost) and penalties for not doing so (in this case
protracted disputes with high cost) were sufficient incentives.
Of course the question immediately arises, how much do we want people to use
state sponsored justice - the formal courts? Do we want all types of disputes to end up in
court? While most disputes are settled away from courts through negotiations, mediation
or arbitration (or sometimes by fiat, depending on the system), how much access is
warranted? And, how inefficient does a court system have to be before reform is
warranted?
A court system (and associated legal system) that serves the population is not one
such that every citizen will have incentives to come to court for every dispute large and
small. Neither is it one that barely has relevance for most of the country’s citizens. It
means identifying some ideal level of relevance such that people have faith in the system
and believe that it upholds justice and does it efficiently – this faith will help resolution of
disputes outside and inside the courts. It means structuring the legal and judicial system
such that the incentives for appropriate behaviour are there while the costs to society are
kept as low as possible. There are no ideal ratios of formal versus informal mechanisms
that one should aspire to; neither is there an absolute standard of efficiency. So answering
these questions is a difficult matter- with the judgment to be made by each country’s
government and citizens, with the help of evidence and data. Data gathered on the system
will help stakeholders form judgments about where they are and where they should strive
to be.
In a country where the majority of the population operate outside the system,
12
access to the courts is probably too low and courts too slow, biased, or unpredictable. 17
Access may be hampered by financial reasons or because there may be little
understanding of the formal system. Courts may be “too slow” because of the incentives
provided to various participants or lack of resources/capacity. Governments, and citizens
broadly agree that in these countries, constituting much of the developing world, reforms
which increase efficiency in terms of speed, make courts fairer and more accessible, are
necessary to make the formal legal and judicial system relevant for most of the people,
and are therefore highly desirable. Such reforms can change what is often called the
“culture” of the business community. Businesses respond to incentives: clear definition
and enforcement of property rights provides incentives to act that are different from a
situation in which these two factors do not exist.
The need for reform of judicial systems becomes even clearer when we look at
what citizens think of their systems. While it is a difficult matter to evaluate how
efficient18 judicial systems really are, indices have been constructed which reflect
people’s perceptions of their judiciary’s performance. As the charts below show for a
sample of countries, high income countries have judicial systems that are perceived to be
much more efficient, to enforce contracts better, to give more access to people, and to be
less corrupt than those of the lower and middle income countries.19 The differences
between the latter two groups are small except for access to justice.20 21
17 By unpredictable I mean that there is little faith in the ability of the justice system to render consistent
solutions to disputes. An unbiased or fair system is meant to be one where the law is applied as written and
people perceive the adjudication processes to be generally fair.
18 I am using the term “efficient” in a broad sense to cover the concepts of cost, speed and fairness.
19 Note that the corruption indices refer to overall perceptions of corruption in the country and not just in
the judiciary.
20 Sometimes perceptions of overall corruption may be different from perceptions of how corrupt the
judiciary is.
13
Perceptions of access to justice - that is whether you are actually able to use the
courts are much worse in low income countries relative to middle and high income
countries. Access may be affected by a number of things but cost (both financial and
non-financial) is probably a key factor. It is important to remember that these scores do
not give us absolute standards- there is always room for improvement. A closer look
reveals that within the low income group, none of the measures of judicial performance
vary much with income. In other words, either income has to reach some threshold level
before the performance of the formal sector is affected or factors other than income play
a key role in establishing effective judiciaries for these countries. Probably both reasons
are valid. Formal government structures that are efficient are also expensive to establish
and maintain and they strain government’s non-financial capacity- which is limited in
many developing countries.
Perceptions regarding judicial performance matter since one can expect that at
least to a certain extent, they reflect actual performance. Moreover, the behaviour of
individuals will more likely be affected and they will more likely follow the law and use
their judicial system if they perceive it to be efficient. It follows that if people believe
that the formal judicial system is not efficient, that it does not deliver benefits
commensurate with the costs of using it, then they will use it less and it will tend to be
less relevant for the majority of the people.
The situation depicted in Figure 1 suggests that there could be substantial benefits
in redesigning judicial systems so that people’s perceptions improve and so they induce
people to behave as intended by substantive law.
21 Note that the sample (see annex 1) is divided in the following manner: the top 25% are considered rich,
the next 50% are considered middle income and the bottom 25% poor.
14
Figure 1
Judicial Sys tem Indicators
(averages in income groups )
0
2
4
6
8
10
Judicial
Efficiency
Index
Citizen's
Access to
Jus tice
Enfor cement
of Contracts
Index
Control of
Corruption
Index
Low
Medium
High
Source:Judicial Efficiency from ICRG; Citizen’s Access to Justice from World Business
Environment Survey; Control of Corruption from ICRG; Enforcement from Business Environmental Risk
Intelligence; GNP from World Bank.
The Value of a Comparative Approach
How can governments build legal and judicial systems that serve the population
while minimizing the costs of such an undertaking for society? In which direction should
court reform go- which institutional structure / design should be adopted? The manner in
which the judiciary is organized and the rules and regulations that different individuals /
entities in an economy follow vary tremendously from country to country. The diversity
jumps out by just considering simple numbers on how may lawyers and judges there are
in a given country (see Table 1). It is clear when one considers the different ways that
judges’ benefits and tenure (La Porta et al 2001) may be determined, and how lawyers
may be rewarded. For example lawyers may be paid by the hour regardless of the
outcome of the case or they may be paid only if the outcome settles in the client’s favour.
Or they may have fixed fees depending on the nature of the transactions. The market for
lawyers’ fees may or may not be competitive.
15
Just noting the diversity in institutional design, and attributing it all to social
conditions and culture while interesting in itself, does not take the work of policymakers
very far. For example, Germany has a very high ratio of professional judges relative to
the number of incoming cases in first instance courts. The question is why do the
numbers for Germany vary so much from England which has a much lower number? Is
one system more efficient (in terms of speed) than the other, or cheaper, and might the
countries learn from each others’ experience? Is it because cases are screened before
coming to court in England and only some come to these courts and is this a better
solution in some circumstances? Are there fees which make the difference—and what
economic /social benefit does the structural difference confer?
To bring about change we need to understand what might be the reasons for the
diversity (e.g. which social and economic factors prompted the adoption of particular
institutional features) and what might be the relative advantages and disadvantages of
each system for different people and for society as a whole. Until the existing data on
judicial systems and new data collected across countries are analysed in this manner,
unless the impact on welfare and the costs to society are analysed, such data will be of
little use to those seeking for a better way of doing things.
Table 1: Inputs Into the Judicial System for Selected Countries, 1995
(per 100,000 population)
Country Professional
judges
Other judicial
staff
Incoming cases in first-
instance courts
Austria 21 117 2
9,
2
9
4a
En
g
land and Wales 5 4 4
,
718
France 10 41 2,242
German
y
27 69 2
,
655
Ital
y
12 60 1,227
N
etherlands 10 n.a. 2,031
Portu
g
al 12 70 3,719
S
p
ain 9 83 1,898
a. Including summary cases.
Source: Contini 2000
16
Designing reform however, is complicated by the fact that there is little available
data and research on many countries, particularly poor countries. Second, there are few
systematic comparisons on how judicial systems actually operate around the world and
what might account for differences in performance between countries, and even different
localities within the same country. Even when the data exist, are kept together and
analysed, they may not be used in the design of reform; reformers having shown a
preference to basing their strategies on theories. Such an attitude can lead to reforms
being chosen which, with the help of more systematic analysis would not have been
implemented (Murrell, 2001).
As legal and economic scholars have noted, each country’s particular political and
economic development process has affected the evolution of the legal and judicial
system. Many scholars believe that the law reflects the spirit and social codes of the
people. Others point out that people with very different social codes have developed
greatly similar legal systems - at least regarding specific rules of contract law (Watson
1993)22 and Shapiro (1999)). As Epstein (1995) suggests “Every system of law must
address the acquisition of property, the limitations on the use of force, the enforceability
of promises, the creation of state franchises and privileges, and the collection of taxes
and the expenditures of public revenues”. Certainly, if one considers the increasing
formal demand for court-led dispute resolution in countries as diverse as China and
Slovakia, or Brazil, one would tend to agree.
Given that the nature of the legal and judicial system is to some extent particular
to a country and to some extent not, the important empirical question is: what do we gain
by researching and studying the judicial systems of other countries? Should policymakers
22 See also Cohen and Cohen (1951) Readings in Jurisprudence and Legal Philosopy.
17
and scholars focus only on studying their own systems? One cannot argue with the
proposition that knowing oneself is essential. But knowing oneself only leads to a very
limited view of what might be the whole set of possibilities. Moreover the world is
changing and all countries want to keep up.
In an increasingly international world, the businessman who needs to contract
with partners in foreign countries obviously would prefer to do so in a country with a
sound legal and judicial system and one he understands. Both host and foreign country
entities will benefit from this knowledge. Third, governments and those involved in
building legal and judicial systems have, throughout history, used their knowledge about
other systems to improve their country’s institutions. This might be one of the reasons for
the similarity in laws observed across many countries, as noted by Watson and Shapiro. It
is easily argued that systematic study will probably lead to better solutions. Fourth, many
developing countries today have been forced to adopt legal and judicial systems from
colonizing powers. To understand how these systems may work better in their own
countries- some research would help. Fifth, multilateral companies and organizations are
busy constructing international agreements which depend on strong domestic legal and
judicial systems for their enforcement: a knowledge of how one’s country fits in with the
rest of the world is becomingly increasingly important in this complex world. The
implementation of rules set by the World Trade Organisation in the biotechnology area is
one example.
What research and study can offer is a better way to integrate with the outside
world and a better way to embark on a reform process within one’s own country: the
knowledge base to make the best choices for a country. To quote esteemed scholars of
18
comparative law “Legislators all over the world have found that on many matters good
laws cannot be produced without the assistance of comparative law, whether in the form
of general studies or of reports specially prepared on the topic in question” (Zweigert
and Kotz, 1987). Similarly, the great German jurist Rudolph Jhering states that: “The
reception of foreign legal institutions is not a matter of nationality, but of usefulness and
need...” 23
While accepting that study of law in other countries can help lawmakers and the
judiciary develop their own systems, a relevant question is to what extent should
domestic institutional design24 be affected by those abroad? To quote Zweigert and Kotz
(1987) : Should one, in using the comparative law method of interpretation, consult only
related systems like those of Switzerland and France, or also systems that are quite
different in style, such as the Common Law or the law of socialist states? Can the judge
choose whichever of the foreign solutions seems to him the best, or can he choose only a
solution which is common to a number of other systems? May we, with the help of
comparative law, reach an interpretation of our legal rules which is independent of ,
perhaps even at odds with , the conceptual structure of our own system? These questions,
with the possible exception of the last one, should receive a bold rather than a timid
answer.”
Details Matter
Looking at the judicial system in its entirety and comparing the whole set of
institutions affecting judicial performance across countries is a major task and not within
the scope of any single project. In making any comparison, the first step is to think about
23 (in Zweigert and Kotz, 1987).
24 By institutional design I mean both the design of laws, and the organization and rules that make up the
whole legal and judicial system.
19
which functions (and which transactions) of the judiciary should be the area of focus.
First, there are the general broad categories to choose between such as commercial
transactions, family and inheritance related legal issues, or criminal issues. In this paper I
will discuss commercial transactions though much of what is written may be relevant for
other areas of dispute as well.
Second, it is necessary to choose particular transactions on which to focus. The
most basic transaction in any economic sphere is the extension of credit and the
repayment of debt. There are several additional considerations. For example, should one
consider debt of all sizes or limit the number of cases and enhance comparability by
limiting the magnitude? Should one look at debt due to banks or to any agent? Should
one focus on rural or urban areas? Should one consider disputes that entered the appeals
process or not?
Even after having narrowed the focus of attention, for each transaction there are
several potential institutional elements25 which may affect the performance of the
judiciary in adjudicating disputes and in enforcing decisions/judgements. How each
institutional arrangement performs depends on the incentives it provides to various
actors, the resources available to these people and the skills/education of the agents who
operate within the system. It depends on the ability of others to monitor actions and
consequences as well as on the magnitude and scope of the associated rewards and
penalties for actions taken. For example, if there is no way of knowing that judges in a
given jurisdiction take longer than all the others to adjudicate similar cases, and if there is
no way of knowing why this is so, then regardless of any injunctions in the law or moral
25 By institutions I mean rules and regulations including their enforcement mechanisms. This definition is
broad enough to cover formal laws and social codes.
20
exhortations aimed at reducing delay, there will be little incentive to change behaviour.
Yet monitoring alone is not sufficient. If there is no one to penalize poor performance
once it becomes known, then information only serves to the extent that reputational
penalties matter. Monitoring mechanisms, reward, and penalty systems vary between
countries; yet effective institution building means explicitly considering how these
elements fit together. There are broadly six groups of agents who are directly responsible
for the performance of the judicial system in each transaction: judges, those who assist
them (e.g. clerks), lawyers and legal aides, litigants, the state and external agencies.
External agencies are those which are not related to any other parties mentioned.
These are entities such as domestic and international NGOs, media companies/
journalists, and research or policy institutes studying the judiciary. Examples include
Transparency International, the Center for the Study of Democracy in Bulgaria, or the
Policy Research Institute in Hong Kong. External agencies affect the performance of the
judiciary in two ways: First they monitor information on processes and outcomes and
disseminate it. Second, they analyse the information they obtain and present this to
interested stakeholders. These actions have two effects: first, they allow stakeholders to
evaluate performance, including comparative performance and take action / impose
sanctions; second, they have an impact on the reputation of those involved, such as
judges, litigants or particular government officials. Each of these individuals cares about
both their reputations in both professional and social spheres (see Bernstein, 2001 and
Dyck, 2002), and may adjust their behaviour to “safeguard” their reputations and avoid
the possibility of public humiliation.
21
Both public and private institutions play a critical role in affecting the incentives
and the abilities of each of these agents to perform efficiently. For example, the
government sets rules for judges’ promotion and penalties for underperformance. Private
business such as the media may affect reputation of judges and lawyers and therefore
performance. Government regulations can affect the market for legal services but so can
private lawyers’ associations. These associations may determine the degree of
competition in the economy or standards for legal education, or moral /ethical standards
for lawyers. These arrangements can affect how litigants behave and how court cases are
conducted. They can affect perceptions of access to, and fairness in, the courts.
Institutional arrangements which determine how courts are funded (such as court fees) or
how lawyers are paid can affect which agents choose to use the courts, how long they
remain in court and how often they use them. Therefore they also affect measures of
judicial performance such as access or delay.26 Table 2 shows the myriad institutional
factors which may affect the incentives of some of the various players and thus judicial
performance.
Table 2 also leaves out some important elements which affect judicial
performance. First, it does not completely address the incentives of the state to let the
judiciary operate independently. Judges may “do the right thing” but their actions may
be overturned by government . The institutional arrangements guaranteeing the
accountability of the state to its citizens are a critical complement to rules governing the
judiciary.
26 Some of these issues are discussed in Botero et al (2001) and Messick (1997).
22
Table 2: Elements of Institutional Design Which Affect Court Performance
Incentives for Judges
Incentives for
Judicial Staff:
Incentives for
Lawyers
Litigants *
Mechanisms which affect reputation: ex
post evaluation mechanisms within the
judiciary for specific aspects such as
delay (individual calendars and keeping
of statistics on performance); external
monitoring and evaluation mechanisms
(NGOs, media, academia);
Wages, other benefits;
Promotion criteria,
Direct constraints or rules, such as
mandatory time limits, case
managements
Independence from state (budgets,
allowing judges to declare acts of the
executive and legislative branches to be
in violation of the constitution or laws,
selection and dismissal of judges)27
Legal clarity: Substantive and Procedural
Law
Rules regarding who may provide what
service: competition with other providers
How budgets are allocated (e.g. whether
they depend on performance?)
Wages
Promotion criteria
Monitoring
mechanisms and
reputation
Direct constraints
on activities.
How legal fees
determined
Regulations and
restrictions on the
markets for legal
services
Requirements in the
law for legal
representation
Clarity in the law
and procedures.
Reputation
Legal/lawyers’
association rules
Legal fees;
Court fees;
Difficulty of process;
Size of claim.
* Most aspects affect incentives to go to court in the first place.
Second, there are myriad systems of alternative dispute resolution (ADRs), formal
or informal, which may substitute for or complement the courts. These too will typically
affect both the incentives of agents to go to court and their behaviour while there. When
courts are predictable and accessible, the formal legal system provides a baseline for what
the parties may achieve in any substitute system and litigants may use other ways to settle
disputes before coming to court. If these methods are effective there may be fewer court-
led disputes and therefore faster time to adjudication. ADRs are important because they
also provide competition for the formal courts when they work well. Finally, the table
27 Others are rules that determine the tenure of supreme court judges and whether citizens can freely ask the
judiciary to review administrative acts of government (see World Bank 2001 and La Porta et al, 2001)
23
does not address the incentives of third party monitoring mechanisms (such as NGOs and
the Media).
Even when incentives (determined to a great extent by institutional design) are
aligned to produce effective justice, other factors affect the ability of the judicial system
to deliver. For example, the magnitude of the budget determines how many
administrative staff and aides each judge has and how many computers he has at his
disposal. The training and education level of judges and lawyers affect how well a law is
understood and applied. Training of legal aides influences how effectively judges do their
work. Income and education levels affect people’s understanding of the formal legal
system. The general flow of information that is available to citizens in an economy (e.g.
through the media) also determines their understanding of their legal and judicial
systems.
Table 2 illustrates some key institutional features which affect the incentives of
various parties to take their cases to court and their behaviour while there. However,
enforcement of judicial decisions may be the critical factor negatively affecting
perceptions of judicial performance and the responsibility for ensuring enforcement
usually resides with the police and/or other state institutions. Scandinavian countries have
a special Enforcement Commissioner, Germany relies on a bailiff. In common law
countries the court order may be delivered privately to the debtor whereas in civil and
socialist law countries the order is delivered by a bailiff or another officer of the court.
Usually, the actual execution of the court order – seizing property, auction, garnishment,
is performed by law enforcement authorities (police, sheriff’s office, etc.) although some
24
countries have dedicated judgment enforcement agencies (sometimes part of the fiscal
authorities).
Table 2 does not set priorities for reform – it lists the different areas in which
judicial reform may lead to improved judicial performance. The priorities for reform will
differ from country to country, with the priority areas being the one(s) in which action
will yield the greatest result or where lack of action is having the greatest negative impact
on performance.
How Much Does Legal Tradition Matter?
Scholars and practitioners in the legal and economics profession distinguish
between different types of legal systems. Typically attention has focused on the
differences between the civil and common law traditions France and Germany being the
main originators of the former and England of the latter.
The main European legal traditions were exported to countries around the world
with conquests. The colonised lands were missing one of the two ingredients which
would have led to a better assimilation of the colonisers’ legal traditions. The first was
that the political and social context which made the laws relevant for the colonisers did
not exist in the colonised land. And second, existing economic conditions did not provide
sufficient incentives for assimilation. In most of the colonised countries, native
populations were not required to use the colonial law. Some of these countries however,
adopted the ex-colonial legal system as their own at independence though sometimes
only partially.
Tunisia follows Islamic family law and inheritance law but commercial law is
based on the French civil law tradition. Yet even when the colonial law was adopted for
25
the country, it has still failed to have relevance for a vast majority of the people who did
not understand it, who were not trained to use it, for whom the formal administrative
structure were too costly to access, and who did not have the resources to make it
function. I would like to draw attention to the words of Mattei (1998) “the common law
vs. civil law dichotomy probably does not mean much in Africa. The level of the civil law
vs. common law opposition is limited to a remarkably superficial layer of the legal
system, certainly a layer that would be wasteful to approach by itself if one hopes to
reform the law.” Though he overstates the case, to the extent that Mattei considers that
less formal/costly methods of dispute resolution need to be considered, it would be hard
to argue with him.
Some scholars contend that France and Germany in fact look quite different from
other countries following the French or German tradition (Merryman, 1985). France and
Germany in fact present striking evidence of how dynamic is the process of legal change
when countries are faced with changing economic and political forces. One might argue
that one of the reasons that the originators of civil law look so different from their
followers today is that economic interests in these countries had to contend with
competitive pressures from surrounding countries, notable among them, England.
Competition will induce governments to undertake institutional change to protect their
own economic interests.
All this to say that where many developing countries find themselves today partly
reflects the vagaries of history and that history will be a partial guide to the future. The
relevant question is how much to innovate and how much to work with what is already
there. Looking forward, there are important choices that each country can make which
26
can improve the performance of their legal and judicial systems. The remainder of the
paper focuses on one area of potential reform.
Procedural Complexity
Clearly, it would be an impossible feat to discuss all the elements which affect
judicial performance in a single paper.28 As stated earlier in the paper, this paper aims to
illustrate some general principles and discuss certain aspects of procedural law in this
context. The focus on legal procedure does not imply that it has been found to be
universally the most important or pressing area for judicial reform. Just as countries differ
in the design of their laws and other institutions, so they differ in terms of where reform
needs are the greatest. In this section, I base the discussion on a recent project initiated
jointly by the World Bank, Harvard University and Lex Mundi, (the Project) analysed
empirically (looking at a sample of over 100 countries) how excessive formalism affects
judicial performance.29 Since this Project is unique in that it covers a large number of
countries it allows for comparisons between countries.
The Project focuses on a commercial transaction relevant for the everyday lives of
ordinary people: small debt collection and it also studies another non-related transaction,
tenant eviction, as a “control” event. The project is summarized in Annexes 2 and 3
which are from the World Bank, 2001 and Djankov et al 2003. It assesses how many
procedural steps are required from the time notice is served to a debtor in default until
enforcement of the court’s decision. The construction of the index which I will refer to as
procedural complexity is described in Djankov et al (2003).
28 Botero et al (2002) provide a good summary of the existing literature which addresses country experience
with judicial reform.
29 This project was originally undertaken for the World Development Report, 2002, World Bank, 2001. See
Djankov et al (2003) for a detailed description. See also Annex 3.
27
Legal procedure may be viewed as “providing the means by which substantive
legal rules are ultimately enforced” (Kaplow and Shavell, 2002). While substantive law
determines the rights of parties under different scenarios, procedural law determines how
these rights are enforced in practice. Both substantive law and legal procedures affect the
incentives of individuals to act in a certain way (e.g. to fulfill contracts or not). For
example, if a debtor does not pay his debt then the probability that the creditors will take
him to court and the expected outcome when there matters (assuming social
norms/networks and ADRs cannot solve the problem). If it is costly to intervene through
the courts relative to the benefits expected or if courts are unpredictable, it is less likely
that people will use the courts and less likely the substantive content of the law will
influence behaviour; that is it is more likely that the debtor will not honour his contract.
What is meant by complexity? To quote Epstein: the cheaper the cost of
compliance the simpler we can say the rule is….the minimum condition for calling any
rule complex is that it creates public regulatory obstacles to the achievement of some
private objective. ..how much simplicity is required? To answer this question it is
essential to consider the great trade-off, namely, that between social incentives and
administrative costs. … does the creation of some administrative structure - hiring a
police force, formulating rules, electing people to public office, …- also create some
desirable incentives for individual behaviour such that the gain from this particular
administrative expenditure is justified in terms of the overall improvement in incentive
structures?30
30 In the words of another legal scholar, Steven Shavell: In many cases simpler is better: especially when
resources are scarce and the marginal social benefits to increased complexity are slight.
28
It is obvious that any system which is more costly to use in terms of financial or
other resources will be less likely to be used for disputes where the claim is relatively
small. To the extent that smaller businesses and poorer individuals are more likely to
have disputes which are of lower value financially, they will be less likely to use the
courts, particularly when doing so is costly. Which claims should be settled in the courts
depends on broad considerations of how the ability to access courts affects overall
welfare and economic development. Overall welfare depends on both the behaviour of
the parties (ex ante to bringing the suit to the court) as well as the costs of litigation.
These costs have to be weighed against any benefits that would actually be attainable
from a given design, particularly in developing countries where implementation capacity
is weak.
Procedural complexity or formalism raises the costs of dispute resolution;
complex systems tend to be more opaque and tend to have other negative consequences.
For example, as discussed in Djankov et al, 2003, they are perceived to be less efficient,
have greater delay on average, may facilitate corruption and are perceived to be less
accessible.
The Project found that poor countries on average have a higher degree of
procedural complexity for the debt collection and tenant eviction cases mentioned above.
A close look at the data reveals that a number of rich countries also have a high degree of
procedural complexity, Austria, and Greece being examples. In fact Austria’s complexity
index derived from the Project is higher than that of Pakistan (see Table 3). However,
perceived efficiency and access are much higher than that of Pakistan .
29
Table 3.
Country
Eviction
Formalism
Check
Collection
Formalism
Judicial
Efficiency
Index
Citizens’
Access to
Justice
Enforcement
Index
Control of
Corruption
Index
Austria 6.30 6.07 9.50 7.50 8.25 8.57
Pakistan 4.21 4.21 5.00 0.00 3.85 2.98
Sources: Formalism Index: Djankov et al. (2003); Judicial Efficiency Index: ICRG; Citizens’ Access to
Justice: World Business Environment Survey; Enforcement Index: Business Environmental Risk
Intelligence; Control of Corruption: ICRG.
There are several possible explanations for this, all of which are probably true.
First, there are other factors besides procedural complexity which affect perceptions of
efficiency or access and these may be more important in some countries. Second, in rich
countries administrative capacity, and other institutional designs (see Table 2) including
ADR systems may be more developed; therefore citizens may be better able to deal with
procedural complexity, or to counteract some of the negative effects associated with
procedural complexity. Third, while comparative values for indices tell us how countries
fare relative to each other, they do not tell us what is the appropriate level of the index for
a particular country. For example, while a score of 2.42 may be “small” enough for
Denmark, it may not be so for Malawi.31 In fact, no score will be “small enough” for
Malawi if Malawi does not have court structures in suitably accessible places: something
which is not picked up by the data.32
While the data discussed above and some of which is shown in Table 3 deals only
with relatively simple and small transactions, the general principles, stemming from
common sense and supported by some empirical evidence, should hold for all types of
commercial transaction which are disputed in the courts.
31 The theoretical benefits of formalism and the practical experience is discussed later in the book.
32 For example if parties must travel long distances to courts, the likelihood of using courts falls even
further and the relevance of courts declines.
30
A closer look at the data reveals some interesting variations when the countries in
the sample are grouped regionally.
East Asia
Figure 2. Perceptions of Judicial
Efficiency
9.2
8.3 7.7
9.0
7.3
3.1
5.8 6.3
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Judicial
Efficiency Index
Citizens' Access
to Justice
Enforcement
Index
Control of
Corruption Index
High Income Countries East Asian Countries
Figure 3. Formalism Index
2.91
3.13
3.00
3.52
2.70
2.80
2.90
3.00
3.10
3.20
3.30
3.40
3.50
3.60
3.70
Check Collection Eviction
High Income Countr ies East Asian Countries
Fig.1 Sources: Judicial Efficiency Index: ICRG; Citizens’ Access to Justice: World Business Environment
Survey; Enforcement Index: Business Environmental Risk Intelligence; Control of Corruption: ICRG.
Fig.2 Source: Djankov et al. (2003)
The East Asian countries in the sample score lower on various performance
indicators and on average have more procedural complexity than high income countries
(statistically significant at the 5% level). Figure 3 shows an index measuring overall
procedural complexity for both the check collection and eviction cases.
A number of procedures seem to matter particularly: for example whether or not
professionals are required to represent the litigants in court, whether the procedure relies
on judges who have undergone complete training or not33, whether or not there is a
specialized court (such as a small claims court). Other aspects which are important are
the nature of the legal justification required (how formal a justification is required), the
number of independent procedural actions required (that is how many actual steps are
needed in the filing and service of a complaint, trial and judgement and enforcement),
and how the presentation of evidence is regulated (e.g. only certified documents are
33 Dispute resolution may also be conducted by an arbitrator, or an administrative officer, practicing
merchant etc.
31
accepted). The use of written procedures only may also limit access to the judicial
system.
Table 4 shows how long enforcement related to disputes takes. The first column
shows the time lag between filing of a complaint and a summons to court. The second
column shows the time taken for adjudication and the third column shows the time taken
for enforcement after adjudication. Korea and the Phillipines seem to do particularly well
in enforcement of judicial decisions for check collection. In the UK and in the US for
example, it takes 14 days after adjudication for enforcement. Of note is the fact that the
Project also highlighted that establishing mandatory time limits for the various steps in
adjudication, seemed to have little effect on delay or perceptions of efficiency once
procedural complexity is accounted for.
Table 4. Duration: East Asian Countries
Eviction Check Collection
D
urat
i
on unt
il
completion of
service of
p
r
ocess
Duration of
trial
Duration of
enforcement
(from
notification to
actual
enforcement)
Total Duration
Duration of
trial and
Duration of
enforcement
Duration until
completion of
service of
process
Duration of
trial
Duration of
enforcement
(from
notification to
actual
enforcement)
Total Duration
Duration of
trial and
Duration of
enforcement
China 15 105 60 180 165 15 120 45 180 165
Korea 30 180 93 303 273 20 40 15 75 55
Malaysia 60 90 120 270 210 15 15 60 90 75
Thailand 30 510 90 630 600 30 90 90 210 180
Vietnam 35 55 60 150 115 35 35 50 120 85
Indonesia 30 165 30 225 195 30 165 30 225 195
Philippines 42 97 25 164 122 42 97 25 164 122
Source:World Bank 2001 and Djankov et al. (2003)
Enforcement of a decision in the check collection case takes significantly longer
in French but not in other civil law countries relative to common law countries on
average. The reasons for this are not clear at this stage. This does not mean however that
countries whose legal systems are based on the French civil law system will be
constrained in the future by the nature of their legal systems from achieving better results.
32
Indonesia and the Phillipines are examples of French civil law countries where
enforcement is actually faster than in many other countries.
Africa
Figure 4. Perceptions of Judicial Efficiency
9.16
7.50 7.65
8.55
6.31
1.79
5.45 5.33
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
Judicial
Efficiency Index
Citizens' Access
to Justice
Enforcement
Index
Control of
Corruption Index
High Income Countries African Countries
Figure 5. Formalism Index
3.05
3.28
3.38
3.59
2.70
2.80
2.90
3.00
3.10
3.20
3.30
3.40
3.50
3.60
3.70
Check Eviction
High Income Countries African Countries
Fig.3 Sources: Judicial Efficiency Index: ICRG; Citizens’ Access to Justice: World Business Environment
Survey; Enforcement Index: Business Environmental Risk Intelligence; Control of Corruption: ICRG.
Fig.4 Source:World Bank 2001 and Djankov et al. 2001
A close look at the data on procedural complexity shows that there is a significant
difference in the level of procedural complexity in Africa relative to the high income
countries in the sample (at the 5% confidence level) and particularly in the statutory
regulation of evidence in Africa34. The sample of African countries shows a higher
degree of formalism relative to the E. Asian sample. A comparison of common law
African and rich countries shows that despite the similar legal background, there is a
substantial difference in the level of statutory regulation of evidence, the degree of
intervention by the appellate courts (control of superior review), and the degree of other
statutory interventions – all significant at the 5% confidence level. The common law
African countries have less procedural complexity than the civil law ones and faster
dispute resolution and better control of corruption.
34 In this sample, Botswana, Ghana, Kenya, Malawi, Namibia, Nigeria, South Africa, Swaziland, Tanzania,
Uganda, Zambia and Zimbabwe follow the English common law tradition, while Cote d’Ivoire, Egypt,
Mozambique, Senegal, and Tunisia follow the French civil law system.
33
The evidence (looking at the individual components of the complexity index)
suggests that reforms to decrease formalism, by decreasing the written component in
procedures, simplifying rules for the presentation of evidence; and simplifying and
limiting the appeals process in the group of African countries may show results in terms
of faster adjudication and less corruption, ceteris paribus.
Latin America (LAC)
As Figure 6 shows, judicial efficiency is rated higher in wealthy countries than in
the LAC countries in the sample. Similar conclusions are reached with respect to the
perception of citizens’ access to justice, corruption, and the level of contract enforcement.
Figure 6. Perceptions of Judicial
Efficiency
9.14
7.50 7.62
8.55
6.70
2.75
4.80 4.58
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
Judicial
Efficiency Index
Citizens'
Access to
Justice
Enforcement
Index
Control of
Corruption
Index
High Income Countries LAC Countries
Figure 7. Formalism Index
3.05 3.28
3.88 4.04
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
Check Eviction
High Income Countries LAC Countries
Fig.5 Sources: Judicial Efficiency Index: ICRG; Citizens’ Access to Justice: World Business Environment
Survey; Enforcement Index: Business Environmental Risk Intelligence; Control of Corruption: ICRG.
Fig.6 Source: Djankov et al. (2003)
The data show that the degree of procedural complexity in the LAC region is
significantly higher than in the sample of high income countries (at the 5% confidence
level) and in some of its major subcategories – notably in the amount of statutory
regulation of evidence required for these simple cases, as well as other statutory
interventions; the use of appeals; and in the overall number of independent procedural
actions required for resolution (Figure 2). In the Central and South American countries,
in particular, there is an almost universal right to superior review (appeals) for even the
34
most minor case (an exception is Belize). As a result, the appeals process is often used
by the losing party to delay enforcement even further after the already protracted court of
first instance proceedings. 35 The LAC index for formalism is higher than that of both
the African and E. Asian index.
Some examples help illustrate the severity of the problem in the LAC region: In
Colombia, it takes on average 527 days to resolve a case of small debt collection in the
courts, while in Peru it takes 441, and even in Argentina it takes nearly a year. The
eviction of a delinquent tenant through court order can be even more cumbersome – 440.
Looking at data in the other regions shows similar results.
The project discussed here does not set absolute standards of formalism for any
country. For example, the degree of procedural complexity in the UK, while low by the
standards of developed countries may not be low enough for Mozambique. And reform
towards greater simplicity in the courts of Mozambique for example, will continue to
have little relevance if there are few courts in the country and distances traveled are large.
Another thing that is missing is information on who actually uses the courts for the
disputes considered. Two other caveats need to be mentioned in considered these results:
while the project focuses on small disputes relative to GDP, in many countries the
amounts chosen may still be large relative to the income of the vast majority of the
population, especially where inequality is high.
Any reform of the judicial system needs to assess how it will affect behaviour.
35 Common Law LAC countries exhibit substantially less regulation of dispute resolution, all of its major
components and substantially faster resolution than their Civil Law counterparts. Because of their small
size, Caribbean countries are often omitted in international surveys and unfortunately, data on corruption
containment from the Common Law LAC countries is virtually missing (exceptions are Jamaica and
Trinidad and Tobago).
35
Legal procedures are often more complex in an effort to ensure accuracy (Kaplow and
Shavell, 2002). But instead, such complexity can lead to non-transparency and abuse. It is
critical to ask whether the theoretical advantages attainable under a given structure
actually attainable in practice?
Scholars today agree that the costs of adjudicating and enforcing a decision
should be commensurate with the importance of the case at hand. But this is not enough.
It should be consistent with the nature and capacity of the state , with the ability of people
it serves and would like to serve, and with the available technology and resources. If it is
too far from the capabilities of the country and the resources available to its people, then
the legal and judicial system cannot serve them. The work described above provides an
indication of what types of actions may improve the performance of the legal and judicial
system in one area and also demonstrates the value of data and research, and the value of
a comparative approach to judicial reform.36
As the discussion also indicated, the nature of the overall institutional structure
matters: whether or not ADRs exist for example, or how many courts there are. Finally,
there are situations when procedural reform cannot improve the performance of the
judiciary. For example when the main problem of the judiciary is high level corruption;
that is, the judiciary is pressured or bought (financially or otherwise) by one of the
litigants (one party may be the state) and the government is loath to take action.37
Usually, the parties involved in these cases are large (large companies or banks or the
government). In these cases, external agencies such as the media and civil society can
36 I use a broad concept of the term “efficient”- to mean swift, fair and accessible justice.
37 In smaller cases simplification may be enough to reduce the opportunities for corruption. It may also
reduce the incentives for corruption if the likelihood of being caught is increased (as it would be in a more
transparent system).
36
play a large role by providing the necessary checks and balances. In cases where the
government is willing to reform but the judiciary is closely linked to the private sector,
other methods which affect the incentives of judges are also warranted. The good news is
that there are many things that can be tried.
Conclusion.
Integral components of an effective institutional reform strategy are country-
specific data which illustrate how a given system is working, comparative data which
help suggest ways in which a system may improve, and an analysis which identifies the
importance of the data collected and hypotheses formed relative to competing
hypotheses.
Any reform of the judiciary should ideally take into account the net benefits to
society, to assess which an empirical and comparative approach is critical. These depend
on how the change may affect behaviour (for example, will more people be less likely to
default, and if they default will more creditors be more likely to use the courts) as well as
the total cost of administering the change. To do this job more effectively is needed a
deeper and more concrete understanding of how institutions work in other countries, how
the various pieces fit together.
As governments move forward they will need to think which changes would
complement their existing endowments. Reforms in the judiciary, just like reforms in any
other field can be greatly enhanced if key players are open to innovation and to new ways
of doing things. One of the ways in which ideas can be stimulated and consensus for
reform brought about is through greater openness- both with the rest of the world and
37
within each society. Finally, reform in small steps is also reform and it is important to
advance in small ways even if a “comprehensive” reform is not possible.
ANNEX 1:
Annex 1
List of Countries with National per Capita Income ($US)
Legal
Origin Country
GNI per
capita
Legal
Origin Country
GNI per
capita
Legal
Origin Country
GNI per
capita
High Income Countries S Slovenia 11178 S Lithuania 1924
G Switzerland 48160 F Portugal 11030 F Dominican Rep. 1920
F Luxembourg 42930 E Bahrain 10760 F El Salvador 1920
G Japan 42783 F Malta 9210 F Guatemala 1680
Sc Denmark 36923 E Barbados 8600 F Jordan 1630
Sc Norway 36750 E Anguilla 7900 F Paraguay 1560
E USA 31910 E Turks and Caicos 7700 S Bulgaria 1409
E Bermuda 31500 F Argentina 7550 Low Income Countries
G Germany 31413 F Uruguay 6220 F Egypt 1380
G Austria 30943 S Czech Republic 5049 F Ecuador 1360
Sc Iceland 30014 S Hungary 4976 E Swaziland 1350
Sc Finland 29723 E Trinidad & Tobago 4750 S Kazakhstan 1323
Sc Sweden 29242 F Chile 4630 S Romania 1253
F Monaco 27000 F Mexico 4440 F Morocco 1180
F Netherlands 25140 F Brazil 4350 F Philippines 1050
F France 24790 S Croatia 4015 F Bolivia 990
F Belgium 24650 S Estonia 3875 E Sri Lanka 890
E Hong Kong 24570 S Poland 3729 S China 840
E Singapore 24510 F Lebanon 3700 S Ukraine 812
E Cayman 24500 F Venezuela 3680 F Honduras 760
E United Kingdom 23590 F Costa Rica 3570 F Cote D'Ivoire 670
E Ireland 21470 E Grenada 3440 F Indonesia 600
E Australia 20950 E Malaysia 3390 E Zimbabwe 530
F Italy 20170 E Botswana 3240 F Senegal 500
E Canada 20140 E South Africa 3170 S Georgia 473
F Kuwait 19020 F Panama 3080 E Pakistan 470
E UAE 17870 F Turkey 2900 E India 440
F Spain 16800 E Belize 2730 E Ghana 400
Middle Income Countries E St. Vincent 2640 E Bangladesh 370
E Israel 16710 E Jamaica 2430 E Kenya 360
E Br. Virgin Islands 15000 S Latvia 2336 E Zambia 330
38
E New Zealand 13990 F Colombia 2170 E Uganda 320
G Taiwan 13235 F Peru 2130 S Vietnam 314
F Greece 12110 E Namibia 2120 E Nigeria 260
G Korea 11958 F Tunisia 2090 E Tanzania 260
E Cyprus 11950 S Russia 2051 F Mozambique 220
F Neth. Antilles 11800 E Thailand 2010 E Malawi 180
Legal origin legend: E– English Common Law; F– French Civil Law, G – German Civil Law; Sc –
Scandinavian Civil Law; S – Socialist Law. Source for GNI – World Bank data.
ANNEX 2: The World Bank-Lex Mundi-Harvard University Project
The Project involved implementing a survey to discover how courts work. The data systematically
compare the pace of litigation by means of a standardized survey delivered to private law firms. The
survey presents two hypothetical cases that represent typical situations of default of an everyday contract:
(a) the eviction of a tenant; and (b) the collection of debt (a returned check or an invoice in countries where
checks are not popular).
These two cases proxy for all types of commercial disputes that enter the courts. Two quite
different cases are chosen in order to check whether the findings can be generalized to all civil litigation.
The questions cover the step-by-step evolution of these cases before local courts in the country’s largest
city. Importantly, the survey studies both the structure of the judicial system – that is, where the plaintiff
would seek redress in specific cases – and the efficiency with which judicial decisions are made.
The survey chooses cases in which the facts are undisputed by the parties but where the defendant
still does not want to pay. The judge consistently rules in favor of the plaintiff. In this way the survey
controls for fairness across countries, as judges follow the letter of the law. We assume that no
postjudgment motions can be filed. Should any opposition to the complaint arise, the judge always decides
in favor of the plaintiff. The data consist of the number of steps required in the judicial process, the time it
takes to accomplish each step, and the cost to the plaintiff. The last provides a comparable measure of
access to the judicial system, while all three address the issue of judicial efficiency. The questionnaire
makes a distinction between what is required by law and what happens in practice.
The following are examples of questions asked: What is the most commonly used mechanism for
collecting overdue debt in your country? Does this mechanism differ if the debt amount is small, equal to 5
percent of GNP per capita, or large, equal to 50 percent of GNP per capita? What type of court will this
mechanism be applied through? Would the judgment in the debt collection case be an oral representation
of the general conclusions, an oral argument on specific facts and applicable laws, or a written argument on
specific facts and applicable laws?
Source: Lex Mundi, Harvard University, and World Bank. World Development Report 2002 background
project.
ANNEX 3: Procedural Complexity
Procedural complexity is approximated by an index of dispute resolution, which describes substantive and
procedural statutory intervention in judicial cases at lower-level civil trial courts. The index covers seven
broad categories of such regulation, as defined below: (1) the use of professional judges and lawyers as
opposed to lay judges and self-representation, (2) the need to make written as opposed to oral arguments at
various stages of the process, (3) the necessity of legal justification of various actions by either disputants
or judges, (4) the regulation of evidence, (5) the nature of superior review of
the first-instance judgment, (6) the presence of various statutory interventions during dispute resolution
(such as service of process by a judicial officer), and (7) the count of the number of independent procedural
actions required by law. 38
38 Djankov, Simeon, Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer. 2003 and World
Development Report 2002 Background Paper, World Bank, 2001
39
Table 2: Elements of Procedural Complexity
Professionals vs. laymen
Describes whether the resolution of the case provided would rely mostly in the intervention o
f
professional judges and attorneys, as opposed to the intervention of other types of adjudicators and lay
people. This index ranks from 0 to 1, where 1 is the normalized sum of the following variables: (i)
General jurisdiction court, (ii) Professional vs. non-professional (iii) Legal representation is
mandatory.
Written vs. oral index
An index evaluating the written or oral nature of the actions involved in the procedure, from the filing
of the complaint, until the actual enforcement, assigning a percentage of stages carried out mostly in a
written form, as defined above, over the total number of applicable stages.
Index of legal justification
Describes the level of legal justification required in the process. This index ranks from 0 to 1, where 1
means a higher use of legal language or justification, while 0 means a lower use. The index is formed
by the normalized sum of the following variables (i) Complaint must be legally justified, (ii)
Judgment must be legally justified, and (iii) Judgment must be on law, not on equity.
Index: Statutory regulation of evidence
Describes the level of statutory control or intervention of the administration, admissibility, evaluation
and recording of evidence. This index ranks from 0 to 1, where 1 means a higher statutory control or
intervention, and 0 means a lower level of statutory intervention. The index is formed by the
normalized sum of the following variables: (i) Judge cannot introduce evidence, (ii) Judge cannot
reject irrelevant evidence, (iii) Out-of-court statements are inadmissible, (iv) Mandatory pre-
qualification of questions, (v) Oral interrogation only by judge, (vi) Only original documents and
certified copies are admissible, (vii) Authenticity and weight of evidence defined by law, and (viii)
Mandatory recording of evidence.
Index: Control of superior review
Describes the level of control or intervention of the appellate court’s review of the first-instance
judgment. This index ranks from 0 to 1, where 1 means a higher control or intervention, and 0 means
a lower level of intervention. The index is formed by the normalized sum of the following variables:
(i) Enforcement of judgment is automatically suspended until resolution of appeal, (ii) Comprehensive
review in appeal, and (iii) Interlocutory appeals are allowed.
Index of other statutory interventions
An index aggregating statutory interventions in judicial procedural actions. This index ranks from 0 to
1, where 1 means a higher statutory control or intervention in the judicial process, and 0 means a
lower level of statutory intervention. The index is formed by the normalized sum of the following
variables: (i) Mandatory pre-trial conciliation, (ii) Service of process by judicial officer required, and
(iii) Notification of judgment by judicial officer required.
Independent procedural action index
Independent procedural action index: Is coded as 1 if the total minimum number of independent
procedural actions (defined as every action by the judge, the parties or a third person, required to
complete the following stages of the process under the case facts provided: filing, admission,
attachment, and service) would be higher or equal to the median, and 0 otherwise.
Overall Procedural Complexity
This index describes substantive and procedural statutory intervention in judicial cases at lower-level
civil trial courts, and is formed by adding up the following indices: (i) Professionals vs. laymen index,
(ii) Written vs. oral index, (iii) Legal justification index, (iv) Statutory regulation of evidence index,
(v) Superior review/control index, (vi) Other statutory interventions index, and (vii) Independent
procedural actions >= median. The index ranks from 0 to 7, where 7 means a higher level of control or
intervention, and 0 means a lower level of statutory intervention.
40
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