View Point (Spotlight Weekly)

Shaping up Nepal’s Judiciary System

By John Adams and Sugandha Dhar Tuladhar

On 4 July, the Chief Justice of Nepal expressed concern over the decrease in budgetary support for the judicial system for the fiscal year 2003-04. Nepal’s slipshod treatment of its judicial system is probably the nation’s number one unrecognized peril. A nation without judges and courts is a nation without a rule of law. Without a rule of law, civil society has no bone structure of human order. Without a strong framework of legal governance, the economy suffers because businesspeople, consumers, and workers have no easy, predictable means of resolving disputes over contracts, debts, or shoddy goods.

It is true that Nepal’s finances are in bad shape, but being penny wise and pound foolish is never a good maxim to follow. In the past couple of years, the government has experienced severe fiscal constraints. The domestic disturbances coupled with the downturn in the world economy have decreased tax and tariff revenues. HMGN has adopted a strategy to slash frivolous expenditures and slash budget allocations, but the myopic cutbacks on the judicial front raise reasonable fears about the negative impact on the governance and social order of the country.

Legal and Judicial System Impediments

One need not be an expert to point out the many deficiencies of the legal profession and the judiciary in Nepal:

· There is no professional training institute for judges or lawyers and no training programs for support staff and paralegals.

· There is no strategy for the development of the judicial-legal sector within the national economic planning framework.

· Criminal and civil rights cases are not speedily and systematically handled.

· Commercial laws are being rewritten too slowly and few lawyers and judges are familiar with modern business law.

· Businesses and the economy are being adversely affected by the slowness of the judicial processes, by excessive and irregular costs and delays, and by inconsistent decisions.

· There is an absence of good office and time management, little use of computers and information systems, and a lack of records or even accessible copies of basic statutes.

Echoing the sentiment of the Chief Justice, many of Nepal’s leading attorneys and judges are voicing concern that budget appropriations to the judiciary are inadequate. Although it is one of the main organs of the government, the judiciary receives less than one-half of one percent of the national budget. The investment in the judiciary, the courts and the council of justice, for the past seven fiscal years (1994/95 to 2000/01) as a percent of GDP is a meager 0.08 percent. That is 8 paise for every one hundred rupees of GDP. As a principal state organ, the judiciary receives a budget appropriation on par with some second tier ministries. It is difficult to realize lofty expectations of the judiciary with such meager investment. Policy makers have to realize that expenditure for enhancing the judiciary is an investment in tomorrow's justice system and social order.

The importance of adequate funding of the judiciary is well recognized by international agencies and development institutions. The United Nations Basic Principles of the Independence of the Judiciary, Principle No. 7, states "It is the duty of each Member State to provide adequate resources to enable the judiciary to properly perform its functions.” Likewise, The Latimer House Guidelines for the Commonwealth state that "Sufficient funding to enable the judiciary to perform its functions to the highest standards should be provided.” The situation in Nepal certainly does not reflect these international statements.

The loads of outstanding cases in the appellate courts and the Supreme Court are accelerating. Over a period of eight years, from 1994 to 2001, the caseload in the Supreme Court increased from 18,279 to 30,407. This is a phenomenal increase in the caseload of about 180 percent, while the funding and resources remained constant at real values. Similarly, in the Appellate Courts the total number of cases increased from 27,307 to 30,480 over a period of five years from 1997 to 2001. Incoming cases are by no means a small number, counting over 10,000 per year. This accumulation of pending cases clogs the judicial system and frustrates plaintiffs and defendants alike.

Judges, lawyer, lawmakers and the people have to play their parts to uphold legal and judicial values. The professionalism of judges and others is a reflection of their professional upbringing. This building starts in academia and has to be sustained through a continuous education process backed by proper training. There is a vacuum in this area in Nepal. There is no institutionalized training facility or proper strategy for legal development. The training programs conducted so far lack a coordinated effort on the part of the government and the international development partners that sponsor training programs. The existing Judicial Training Center is ill equipped and lacks the strategic curriculum planning necessary to provide a complete training package. At the regional level, in SAARC, Nepal is the only country that does not have proper judicial training institutes as statutory bodies.

The legal system shares the same kinds of problems faced by the judiciary in Nepal. This is not surprising given that the legal and judicial branches are from the same trunk. The legal framework is inadequate in scope and at times there are inconsistencies in the laws that support the business environment. The capacity to identify the necessary legislation for the modern era is lacking. Drafting and ultimately enacting legislation are painfully slow and time-consuming processes. The tendency to “enact-now and amend-later” is pervasive in the legal system. The forward movement of legislation gives undue attention to personal lobbying rather than to actual needs. The current legal system in Nepal is marred by the proliferation of overlapping provisions across different pieces of legislation. Duplication of clauses is various acts increases the number of statutes and the risk for confusion and inconsistency; which will be subject to discretionary interpretation of the law. The lack of enforceability of laws, especially business laws, is one of the major concerns for private sector development in Nepal.

The lag in the legal system in Nepal is a distinct feature. This unfortunately is one of the main reasons for high rate of implementation failure in programs and projects in Nepal. Having an adequate legal and regulatory framework to promote development activities is a necessary condition for business growth. Not having a legal framework is a sure recipe for implementation failure. The legal system lag is evident in all fields in Nepal. For example, the financial institutions in Nepal (the commercial banks, rural banks, finance companies, financial cooperatives, financial NGOs, etc.) were all set up and supported on an institutionalized basis by specialized acts even though they all provides essentially the same financial services. The Commercial Bank Act, The Agricultural Development Bank of Nepal (ADB/N) Act, The Nepal Industrial Development Corporation (NIDC) Act, The Finance Companies Act, and The Cooperatives Act provides legal coverage for the commercial banks, ADBN, NIDC, finance companies and cooperatives, respectively. Random revisions and amendments of the specialized acts provide ample legal arbitrage opportunities. Undercapitalized ventures tend to start up in areas where the legal waters are murky and regulatory oversight is weak.

Although a unified (Deposit-Taking Institutions Act provides a solution, clearly this legal innovation has lagged for more than 15 years, since the financial sector reform programs was initiated in the mid-1980s. The effectiveness of the Commission for the Investigation of Abuse of Authority (CIAA) has increased with the recently enacted CIAA Act, which provides the legal environment for the institution to operate. The Dry Port and International Container Depot in Birgunj would be running as envisaged if the overall project scheme had included the legal framework. This $18 million facility has gone to waste without a railway agreement with India. The Institute of Chartered Accountants of Nepal was finally empowered with an adequate act (ICAN Act 2002) a decade after the first taskforce was formed to draft it. The government has brought out an Information Technology policy but is yet to formulate an information technology related act to deal with this expanding sector. So also is the case with anti-money laundering legislation. We can find an endless list of such examples where the legislation is lagging due to inefficiency in the legislation formation in Nepal, which negates the positive impact outline in any reform program.

Economic Development and Legal and Judicial System

What is the purpose of revising the entire matrix of laws concerning business ownership, management, shareholder rights, board responsibilities, and public obligations? What function does the judiciary play in contract enforcement, resolving business firms’ disputes, validating commercial transactions, protecting property rights, and assuring that financial intermediation between investors and entrepreneurs is fair and honest? Some ten years back, economists did not even ask these questions, but as a result of much hard-gained experience in working in developing and transitional nations, there is now full appreciation that legal and judicial institutions matter greatly, as one of the most critical elements of a successful development policy strategy.

Studies and international experiences indicate that there is strong association between the state of judiciary and economic development. The intersection of law and economics is a terrain that is as complex. Its competence to deliver fair, prompt and accurate justice in a commercial dispute will determine the level of confidence of private and foreign investors for investment in the country. An inefficient and unsophisticated judicial system will be a major deterrent in wooing much-needed investment for economic expansion. There are significant economic gains and positive linkages in the economic development with a well-developed legal and judicial system. Extrapolating from Berkowitz et al. (2000) study, Nepal can increase its GNP per capita by Rs. 1000 by raising the effectiveness of law enforcement institutions by only 1 percent.

Legal and Judicial Outlook for Nepal

Nepal will inevitably see increasing development assistances from the development partners for the legal and judicial system. This shift in development paradigm is a reflection of experience of the past five decades. The notion of development has been redefined and it concerns more than incomes, health and education (Stern 2003).

The reform efforts in the legal and judicial system have been initiated in bits and pieces over the past decade without a concrete plan and vision of the sector. Although significant assistance sin line for the coming two to five years to improve the rule of law and the judiciary, the government has neglected to incorporate these important undertakings into its Tenth Plan. So much so the legal and judicial system is weakly represented, at best, in the Tenth Plan. Discussion on the vision for the Ministry of Law, Justice and Parliamentary Affairs (MoLJ) is conspicuously omitted from the discussion. One is left to wonder the role of MoLJ in shaping the legal matrix in Nepal. The lack of importance given to this sector is further evident from the National Planning Commission’s project priority list. HMGN has recognized only a small technical assistance grant to improve court management under its priority P1 list. There have been numerous study reports and assessments on the legal matrix that will be required in the near future to improve investment climate in Nepal (Focal Point, 2002, and the Diagnostic Trade Integration Study, 2003). The policy makers need to recognize this pitfall in its outlook towards the legal and judicial system and include a bold program of judicial and legal reform in its vision document.

One encouraging step has been taken by HMGN. The National Judicial Academy is expected to bridge the gap in legal studies extension and proper training for the judiciary to fulfill its role in meeting judicial responsibilities. The Academy will be a source of major improvements in the strengthening the capacity of the judiciary to develop and improve judicial policies and administration by enhancing case management and judicial practice and procedures, particularly in the commercial law. The Academy should be the focal point for all future sector development initiatives. Its success depends upon realistic planning and the allocation of sufficient budgetary and human resources to the academy Nepal’s focus at present is on investment of what it is hoped will be a large peace dividends, but we should not lose sight of the social-order dividends that will accrue by sharply increasing funding for the legal and judicial system.

(John Adams works at Focal Point for Financial Sector Reform Ministry of Finance Bagh Durbar, Kathmandu

JQA3@yahoo.com and Sugandha Dhar Tuladhar works at Independent Economic Consultant tuladhar@eco.utexas.edu)