The Judicial System
It is widely accepted that economic growth and social development cannot be sustained and promoted in countries where the justice system fails. By consistently enforcing clear rules, an independent and impartial judicial system supports legal reform and promotes economic and social development. An effective judiciary should apply and enforce laws and regulations impartially, predictably, and efficiently.
Whether the legal system is one of civil law or common-law tradition, it is imperative that its structure ensure adequate checks and balances on the three branches of the government—legislative, executive, and judicial. The legislature ought to act as the enabling and enlightened arm that makes, adds, and amends the rules for the regulation of the financial sector. The executive branch needs to be efficient and effective in carrying out the mandate of the legislature, whereas the judiciary ought to act as the guardian of the nation to ensure that the other two arms operate within their mandate.
The process through which laws and regulations are conceptualized, drafted, enacted, publicized, and enforced is the foundation of a society governed by the rule of law. When the law-making process is not effective, the legal system suffers from outdated and badly written laws that do not provide a sound legal basis for executive action. This situation must be avoided because it encourages reversal of policy and practices and it makes executive action and acts of regulatory bodies vulnerable to legal challenge.
The legal and judicial system must provide a method for resolving disputes not only between private agents but also between private agents and the state. Courts are a way to resolve disputes justly. Courts must resolve disputes by judgments that are based on independent fact-finding. Those judgments must be enforced by the state. State enforcement distinguishes courts from alternative forms of dispute resolution. State enforcement also limits potential violence and can improve the business climate. But for courts to be effective, the other branches of government must also comply with the law. The judicial system must provide checks and balances against arbitrary state action. If the judiciary is to fulfill its role as the guardian of the nation, the judiciary and its work must be perceived as fair. Courts must work efficiently, and they should be sufficiently accessible.
The fairness of judicial decisions is determined first by the judges’ independence—real and perceived. There must be sufficient safeguards to ensure that judicial decisions are independent of both political decisions and the influence of powerful private parties and that government officials can be made to obey the law. Other branches of government should not override or ignore judicial decisions. When they do, they should be subject to legal action. Judges’ independence entails that their decisions are not determined by anything other than the facts in the case and the applicable law.
Fairness of judicial decisions must be safeguarded by adequate procedural provisions. Hearings should be open to the public. Assignment of cases should follow standardized
procedures. There must be sufficient guarantees in the law governing civil procedure for party input, oral proceedings, and independent fact-finding. Rules of evidence and standards for evaluating arguments should be in place and should be applied in a predictable fashion. Possibilities for the review of decisions should be adequate because they safeguard the quality of judicial decisions. There should be a three-tiered system in place: (a) a court where the cases are heard initially; (b) courts of appeal, which review cases as to the facts and with respect to the law; and (c) cessation by a final instance court with respect to conformity to existing law.
Judges’ independence must be supported by objective selection and career planning and by training. Judges must be selected according to objective criteria. The criteria must be job relevant and merit based. The criteria must also be public. Selection must be done in a transparent manner. Judges should have life or fixed-term tenure. They should be sufficiently trained. Compulsory training at entry should be followed up with permanent education to guarantee judges’ independence and the quality of their decisions. Judicial salaries should meet living wage and some reasonable proportion of good wage in the private sector. Existing laws and the body of jurisprudence must be readily available to judges and their staff members and should be regularly updated. Another safeguard for judicial independence is the existence of an independent, competent association of lawyers.
Governance of the judiciary—including its accountability and efficiency—should underpin its independence. Existing institutional arrangements on this point vary considerably. Responsibilities with respect to the budget of the judicial organization; the judicial career, including matters of discipline; the court management; and the other issues should be distributed among the judicial administration body—such as a judicial council, the Supreme Court, and the Ministry of Justice—in such a way that judicial independence is not compromised. Changes in the budget for the judicial organization should be commensurate with the development of the national budget and also should reflect changes in demand for judicial services. Court management should follow set rules, and the management processes should be monitored and audited. The courts’ efficiency is defined in terms of the speed, cost, and quality of the judicial decisions, as well as the access that aggrieved citizens have to the court. Those four factors are interdependent. Procedures for resolving a dispute must be proportionate to the value, importance, and complexity of the dispute.
Procedures and the way courts work should facilitate timely judicial decisions. Pretrial settlement of disputes may be encouraged but not enforced. Procedures and procedural law should not be unnecessarily complicated. Procedures should be reasonably efficient, as well as designed and reformulated in the interests of eliminating unnecessary steps and bottlenecks. Judges must have the power to move cases ahead and to punish or deny efforts to create additional delays. Adequate case management systems should be in place. Where there are small claims courts and other specialized courts and where there is the possibility of oral proceedings, trials tend to go faster. A forum for provisional judgment can prevent the need for full proceedings, which take more time.
Cost is an important factor in the courts’ ability to provide an adequate service. Courts should be managed in an economic manner. The funding for staffing, equipment, and offices of the courts must be adequate to allow the performance of the courts’ duties. Internal resource distribution should be based on need and workload. Court fees are part
of the cost, but most of the cost for taking a case to court relates to fees for legal assistance. Low value or simple disputes should be assigned to simpler and faster procedures that consume fewer court resources. For example, disputes over small amounts of money should be handled by small claims courts, where parties can represent themselves.
The judiciary and the courts must be sufficiently accessible. To provide access to justice, courts should be reasonably close to the citizens and not exclusively concentrated in the capital. Courts must be managed in such a way that taking a case to court is not unnecessarily cumbersome. Cost should also not hinder citizens’ access to courts. The cost of taking a case to court should not be so high that it prohibits access to justice. There should be sufficient possibilities for low-cost or free legal advice and assistance. Ways of providing legal aid in case of need should guarantee access to courts.
Although judicial review in developing countries is helping to ensure checks and balances, it can also be abused if the law does not lay down the perimeters for the role of court judicial review. The banking law ought to circumscribe the role of the courts in judicial review by defining it in the law and by disallowing a stay of regulatory decisions. A further useful provision is one that confines the relief of the court to compensation. The foregoing will help to prevent vexatious and unwarranted proceedings against regulatory action.
Alternative dispute settlement systems can be designated in relation not only to the disputes between banks and customer and between a bank and another bank but also to the disputes that arise between the banks and the regulator. Experience has shown that installing effective dispute settlement mechanisms for all types of disputes has paid off handsomely. They reduce litigation cost, resolve disputes faster, and instill greater faith in the banking system as far as customers are concerned while also establishing better relationships between banks and between banks and the regulator. In this respect, options such as a banking ombudsman to resolve customer-banker disputes, banking tribunals to deal with differences between the banks and the regulator, and use of arbitration by banks should also be explored.
3. The principles and guidelines for effective insolvency and creditor rights systems (principles) were developed in collaboration with a number of international partner organizations and numerous international experts who constituted the Bank’s task force and working groups. From 1999 to 2000, regional practices were examined, and various drafts of the principles were discussed in regional workshops involving more than 700 public and private sector specialists from some 75 countries. The principles and background papers can be accessed in the Global Insolvency Law Database (http://www. worldbank. org/gild), which has been designed as a research tool to promote access to and awareness of country practices. This broad dialogue process yielded strong international support and consensus on the principles, which establish a uniform framework to assess the effectiveness of corporate insolvency and creditor rights systems. Since April 2001, the principles have served as the basis for formal assessments in countries around the world, including in the context of the financial sector assessment program. The Bank is currently collaborating with the IMF and the United Nations Commission on International Trade Laws (UNCITRAL) to develop unified standards on insolvency and creditor rights systems.
4. 
The principles on insolvency and creditor rights (ICR) systems have been used in a series of experimental country assessments in connection with the program to develop reports on standards and codes (ROSC).
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