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

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TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004HONDURASagainst the bidding process. In fact, the challenging party is ineligible for government contractsfor 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 isfound liable for a suit against it, the compensation it pays carries interest rates that are belowmarket rates. The same treatment does not apply if a private party is found liable and needs tocompensate the government.In labor matters, parties are not free to contract at their discretion. Parties cannot waive certainstipulations, and some provisions are automatically included in labor contracts regardless of thecontent of written agreements. For example, contracts cannot allow for night shifts, nor canemployers typically dismiss an employee without paying large compensation.Honduras’s legal framework for contracts should be improved to meet the needs of domestic andforeign commerce; modern contracts are not included in the legal framework, distributionagreements are biased toward local parties, government contracts are unfair, and powers ofattorney from abroad or to be used abroad are hindered by bureaucracy.C. IMPLEMENTING INSTITUTIONSIn 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 arecurrently no requirements besides graduation from law school. Lawyers are ill prepared inmatters relating to international business transactions. Approximately 90 percent of lawyers havenever taken a course in international business law and lack knowledge regarding basic businessprinciples. According to interviewees, deficiencies in commercial law training are due, in part, toan 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 isunable 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 fraudulentbehavior by notaries. For instance, many persons reported that it is common practice for notariesto state that they have verified a transaction before the transaction has occurred. As a result ofthis practice, one person’s right—usually that of the person whose document is fraudulentlyauthenticated—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 courtdecision on credit collection in a purely written procedure. Appellate and Supreme Courtprocedures 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 SupremeCourt up to 2 years to conclude.IV-3
TRADE AND COMMERCIAL LAW ASSESSMENT DECEMBER 2004HONDURASThe Supreme Court is composed of 15 justices serving 7-year-terms. These judges are elected byCongress from a list of 45 candidates provided by civil society organizations. Candidates aremeant to reflect the best of the legal profession, having been selected by independent groupsafter a close examination of professional and academic credentials. Currently, eight justices aremembers 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 inaccordance with the provisions of the Law on Judicial Career passed in 1980. However, themerit-based system the law intended to create has not improved the perception that judges areselected mainly on the basis of political recommendations. In addition, through a narrowlyapproved Supreme Court resolution, judges are now appointed by the President of the SupremeCourt rather than by the court as a whole. Similarly, judges can be removed at the discretion ofthe President of the Supreme Court.Comments from many sources suggest that judges are poorly paid and trained. There is a judicialschool under the authority of the Supreme Court, but its courses are outdated and do not providepractical training. Because they are appointed through political connections and can be removedby the same means, some judges may be influenced by politicians. Bribery has also beenmentioned 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 threeindicators: the number of procedures counted from the moment the plaintiff files a lawsuit until actualpayment; the associated time; and the cost (in court and attorney fees), expressed as a percentage ofdebt value.Indicator Honduras RegionalAverageOECDAverageNumber of procedures 36 35 19Time (days) 545 462 229Cost (% of debt) 33.1 23.3 10.8Source: World BankIn 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 oftrial outcomes. Notaries have authority to authenticate a contract, but this authority is notmonitored, leaving room for the emergence of fraud. Each of these factors impedes the flow offoreign investment and consequently affects the possibility for economic growth and alleviationof poverty.D. SUPPORTING INSTITUTIONSAfter the Law on Alternative Dispute Resolution was passed in 2001, two arbitration centerswere created in Honduras: one in Tegucigalpa and one in San Pedro Sula. The center inTegucigalpa is part of the local chamber of commerce and has been in place for 3 years; it has 28listed arbitrators and has handled 8 arbitration cases and about 20 conciliations. Cases aretypically settled within 3 months, although one case lasted 18 months because an amparo wasfiled to annul the arbitration clause. No annulment procedure has been initiated against anyIV-4
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