Afghanistan's Agenda for Action - Economic Growth - usaid

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Afghanistan’s Agenda for Action: Developing the Trade & Business Environment – August 2007Attention in the drafting to local values should alsoappeal to the local business community.The Arbitration Law sets forth standard provisions forthe appointment of an arbitral body in which each partymay choose one arbitrator and those arbitrators thenchoose another. (Art. 5.4) Unlike judicial litigation, theparties’ arbitrators can act as advocates for thepositions of those who have chosen them. Indeed, thisis the strength of the system – each party choosessomeone they trust (normally a technical or legalexpert in the subject matter) to set forth and arguetheir claims effectively. The third arbitrator is a neutralparty who can both mediate and guide the process, andcast the deciding vote should the arbitrators not beable to reach consensus. Final decisions can thus bemade based on a majority vote.Once an award is issued, it is enforceable according toits terms by a court if a party fails to comply with thedecision. The law appropriately provides few avenuesfor appeal, because one of the reasons for arbitration isto establish finality. Consequently, the law provides forappeal primarily on the basis of procedure, not onsubstance. (Arts. 9.4, 10.2) That is, a dissatisfied partycan claim that the arbitrators did not follow prescribedrules, or that the acted fraudulently, but cannot appealthe findings or substantive decisions of the arbitralpanel.The potential weakness in the system is practical ratherthan legal. Enforcement capacity of the courts, asexercised through the Hoqooq, is very limited atpresent. Attention should be given now to establishinga trustworthy system for enforcing arbitral awards(including foreign arbitral awards in accordance withthe New York Convention on the Enforcement ofForeign Arbitral Awards (to which Afghanistan is asignatory)). Without effective enforcement, arbitrationis a less effective option that can quickly becomeensnared in the dysfunctionalities of the court system.The Law on Commercial Mediation sets forth aframework by which parties can voluntarily seek toresolve disputes through outside assistance withoutconcern that their discussions will be used against themshould they eventually end up in litigation orarbitration. (Arts 21, 34) Indeed, that is one of theprinciple purposes of the law, as parties may alwaysseek to settle their disputes with outside help, with orwithout a mediation law.According to Article 4:“Mediation” means a process, whetherreferred to by the expression Mediation oran expression of similar import, wherebyParties request a third person or persons(the “Mediator”) to assist them in theirattempt to reach an amicable settlement oftheir dispute arising out of, or relating to, acontractual or other legal relationship. TheMediator does not have the authority toimpose upon the Parties a solution to thedispute.This voluntary nature of mediation is what distinguishesthe procedures from arbitration and litigation, wherethe third party imposes an enforceable solution to thedispute. Should the parties come to an agreement withthe help of mediation, they can then elect to make theagreement enforceable as part of the contract (Art.37).Mediation is an important tool for helping partiesovercome conflicts without resort to litigation orarbitration. It is best used when the parties have aninterest in continuing their commercial relations bygetting their understandings “back on track.” Theimportance of this law is that it permits parties tonegotiate freely without fear that the negotiations canbe used against them in court or in arbitration shouldthe attempts fail. Although Afghan society has a longhistory of mediation and consensus-restoringmechanisms, foreign investors need assurance thattheir attempts at mediation will not be used againstthem. This law brings local custom within the ambit ofinternational best practices.Summary of Legal FrameworkThe numerous laws defining the commercial disputeresolution system of Afghanistan define a system onpaper that could work effectively without majoramendments in the short term. Numerous smallchanges identified in other surveys, as well as moresubstantial amendments identified above and in thosesurveys, will need to be addressed eventually. But the75
Afghanistan’s Agenda for Action: Developing the Trade & Business Environment – August 2007legal framework itself is not the most important issue.The extensive failures of the existing court system tohandle commercial claims in Afghanistan is not due todesign, but capacity. As further explained below,, lackof legal education and ethical standards, coupled withlow salaries and inadequate oversight, have led towidespread, apparently deserved distrust of the courts.To the extent that other forms of resolution, such asmediation and arbitration, must rely on the courts forenforcement or appeal, they too are tainted by thejudicial ineffectiveness.Implementing InstitutionsAs with the laws, there have been extensive analyses ofthe courts as implementing institutions, and thischapter will not attempt to summarize or repeat thatwork. Much work is underway to correct, repair, andreestablish the judiciary, all of which needs to becontinued and adjusted as necessary over an extendedperiod. Successful judicial reform has proven to be aslow, methodical, deliberate and long-term process,even in stable countries that have experienced little orno social upheaval. In post-conflict, transitional states,almost no significant changes have been achieved in lessthan 5-7 years and those achievements have tended totake the form or re-designing the judiciary, withimplementation beginning only after the re-design hasbeen completed.Afghanistan is rebuilding a judiciary that was virtuallydestroyed in the past 25 years. Buildings, processes,training, capacity and management have all suffereddevastating impacts since the communist takeover in1978. To expect substantial results for Afghanistan inless than 5-10 years from today is unrealistic. There areno quick fixes, but short-term solutions are needed andsome are even available. These will be addressedbelow.Judicial Oversight and ManagementThe Supreme Court is responsible for oversight andmanagement of the judiciary, except for those functionsfalling to the Hoqooq. Recent changes in the SupremeCourt have led to greater emphasis on judicial integrity,which will continue to be a high priority for the courts.At present, there is widespread perception ofcorruption in the formal court system, and indicationsthat the perception is not unfounded. Starting judgesearn $50 per month – far below basic needs – yet over700 candidates applied recently for 170 judicialvacancies. Anecdotal evidence suggests that thepositions are highly desired because of their potentialfor earning rents, and some judges have indicated thatpositions are for sale.It is very difficult to prove actual corruption, but theconditions that give rise to rent-seeking opportunitiescan be attacked nonetheless. The Supreme Court willdo well to build internal investigation functions andshould consider the Bosnian system in which courtusers can bring complaints to a judicial disciplinarycommittee. At the same time, long term effort isneeded to create a culture of integrity in the courts.Several areas deserve particular attention:• Judicial opinions. Worldwide, perception andincidence of corruption are greater where opinionwriting is weaker. When the basis of a judicialopinion is not transparent, the public frequentlyattributes decisions to bribery and influence.Afghan judges are legally required to issue writtenopinions that clearly set forth the relevant facts ofthe case, the law applied, and the reasoning used.In practice, many judges do not do this, and manyare not currently capable of doing so. Withoutsuch opinions, there is no clear basis for appeal,which undermines the ability of the parties toensure proper application of the law. Increasedinsistence on written opinions, coupled withtraining in this skill and disciplinary action forfailure to comply will help establish a foundation oftransparency and accountability that helps todiminish corruption.• Judicial remuneration. Raising salaries alone hasnot been proven effective in reducing corruption,but it is certainly clear that judges cannot earn aliving on the existing salary level. In the past,government employees were provided with lowsalaries, but also were given housing and transport,thus creating a respectable package of benefits.Today, judges receive only salaries – and paltryones at that. Increased salaries will be necessary toattract and retain qualified judges and staff. Fundingfor increases is clearly a difficulty at present, whichfurther emphases the need to reform the fee76
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Nicholas Klissas, USAID/EGATTel: 20
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