Trade and Commercial Law Assessment - Honduras - Economic ...

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TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004 HONDURAS against the bidding process. In fact, the challenging party is ineligible for government contracts for a period of up to 2 years after issuing the suit. The Law on Government Contracts favors the government in many respects. If the government is found liable for a suit against it, the compensation it pays carries interest rates that are below market rates. The same treatment does not apply if a private party is found liable and needs to compensate the government. In labor matters, parties are not free to contract at their discretion. Parties cannot waive certain stipulations, and some provisions are automatically included in labor contracts regardless of the content of written agreements. For example, contracts cannot allow for night shifts, nor can employers typically dismiss an employee without paying large compensation. Honduras’s legal framework for contracts should be improved to meet the needs of domestic and foreign commerce; modern contracts are not included in the legal framework, distribution agreements are biased toward local parties, government contracts are unfair, and powers of attorney from abroad or to be used abroad are hindered by bureaucracy. C. IMPLEMENTING INSTITUTIONS In Honduras, lawyers are allowed to practice law immediately after graduating from law school. Interviewees estimate that there are around 16,000 lawyers in Honduras. Although, in the past, lawyers had to fulfill certain requirements before being admitted to practice law, there are currently no requirements besides graduation from law school. Lawyers are ill prepared in matters relating to international business transactions. Approximately 90 percent of lawyers have never taken a course in international business law and lack knowledge regarding basic business principles. According to interviewees, deficiencies in commercial law training are due, in part, to an educational emphasis on local criminal law. Lawyers become notaries after passing an oral examination administered by the Supreme Court. Several sources have alleged that this examination is biased. Notaries are supervised by the Supreme Court, but supervision is weak because the court is unable to devote much attention to its supervisory role because of other responsibilities. According to interviewees, a lack of sufficient supervision has led to instances of fraudulent behavior by notaries. For instance, many persons reported that it is common practice for notaries to state that they have verified a transaction before the transaction has occurred. As a result of this practice, one person’s right—usually that of the person whose document is fraudulently authenticated—can appear to prevail over other’s right. Court procedures are slow. It was reported that it could take up to 5 years to reach a trial court decision on credit collection in a purely written procedure. Appellate and Supreme Court procedures could add an additional 10 years to the wait. The constitutional action of amparo, which in theory is a mechanism to quickly rule on a constitutional offense, can take the Supreme Court up to 2 years to conclude. IV-3
TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004 HONDURAS The Supreme Court is composed of 15 justices serving 7-year-terms. These judges are elected by Congress from a list of 45 candidates provided by civil society organizations. Candidates are meant to reflect the best of the legal profession, having been selected by independent groups after a close examination of professional and academic credentials. Currently, eight justices are members of the ruling party and seven are members of the opposition party. Lower court judges are selected by the Supreme Court after an open submission of credentials in accordance with the provisions of the Law on Judicial Career passed in 1980. However, the merit-based system the law intended to create has not improved the perception that judges are selected mainly on the basis of political recommendations. In addition, through a narrowly approved Supreme Court resolution, judges are now appointed by the President of the Supreme Court rather than by the court as a whole. Similarly, judges can be removed at the discretion of the President of the Supreme Court. Comments from many sources suggest that judges are poorly paid and trained. There is a judicial school under the authority of the Supreme Court, but its courses are outdated and do not provide practical training. Because they are appointed through political connections and can be removed by the same means, some judges may be influenced by politicians. Bribery has also been mentioned as a growing problem, which might be linked to the issue of low pay for the judiciary. Enforcing Contracts (2004) The ease or difficulty of enforcing commercial contracts in Honduras is measured below, using three indicators: the number of procedures counted from the moment the plaintiff files a lawsuit until actual payment; the associated time; and the cost (in court and attorney fees), expressed as a percentage of debt value. Indicator Honduras Regional Average IV-4 OECD Average Number of procedures 36 35 19 Time (days) 545 462 229 Cost (% of debt) Source: World Bank 33.1 23.3 10.8 In summary, most lawyers and judges are not well versed in international business transactions, leaving many foreign businesses unable to access sound local legal representation and unsure of trial outcomes. Notaries have authority to authenticate a contract, but this authority is not monitored, leaving room for the emergence of fraud. Each of these factors impedes the flow of foreign investment and consequently affects the possibility for economic growth and alleviation of poverty. D. SUPPORTING INSTITUTIONS After the Law on Alternative Dispute Resolution was passed in 2001, two arbitration centers were created in Honduras: one in Tegucigalpa and one in San Pedro Sula. The center in Tegucigalpa is part of the local chamber of commerce and has been in place for 3 years; it has 28 listed arbitrators and has handled 8 arbitration cases and about 20 conciliations. Cases are typically settled within 3 months, although one case lasted 18 months because an amparo was filed to annul the arbitration clause. No annulment procedure has been initiated against any
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