The Judiciary - a Secret Enemy or Friend of the Economy?!

“Unemployment or economic hardship seems to be the main problems in the sociological studies, judicial independence is usually at the bottom of the list.”

Davit Klidiashvili, a lawyer and a master of economic analysis of law, has eleven years of experience in cooperation with the banking sector. Considering this experience, we decided to interview him.

- How judicial independence and freedom of business are interconnected? What is the correlation there?

- Before starting to talk about the direct importance of the judiciary in the development of the economy, we should mention, what is the correlation between law and the economy in general.

We often say that justice can be either a hidden enemy or a best friend of the economy. We live in times where the business operates within legal frameworks. It is important for them that the deals achieved (starting a business, labor relations, product sales, etc.) are made effective by the law. If not for the law, these transactions cannot be effective – they would not have a binding force.

Thus, the law is the main driving force for business, and therefore for the economy. To split it into three parts, these are:

Material norms, based on which we enter into legal relations, second – dispute review and resolution, and third – so to speak, enforcement of the resolution. The dispute will have no point if the decision is not or cannot be executed, will it?!

- Let’s clarify, what is the role of the judiciary in the above-mentioned circumstances?

- Let’s start with the matter of competence. Court resolution has a so-called ex- ante function, meaning that court decision affects the future actions of the businesses, or economic agents; a specific type of business relations.

When saying the judiciary has a problem of competence, we mean that the judge often has not studied the specifics of a particular type of business relationship.

Of course, there are exceptions. The reader shall not think that this issue concerns all the judges, but unqualified decisions are many and it creates a general impression of the system being unqualified and inefficient.

There are cases where it is clear that the judge did not consider the nature of the particular business relationship (what it consisted of, what was the risk, and what would be the consequences of the decision in the future). The judge also did not consider how effectively enforceable his decision would be.

Such are, for example, decisions related to the use of a bank card, the cancellation of a mortgage, and the granting of consent to the disposal of a property by a minor.

Let’s move to the next problem. Such is delayed court proceedings. In the Economy, there are transactional expenses and the golden rule – the lower these expenses, the faster development of the economy, the higher investments, etc.

One part of this fee is the alleged dispute – how effectively and fast will come to an end; how well a system reviewing a dispute is protected from external interference.

In Georgia, we have very high transactional expenses. This is also due to the fact that the court proceedings last for an illogically long time. Imagine a simple example: you sold a product and should have received money, but the other party did not fulfill their obligation. You go to the court to request money from them, but the dispute is delayed in time.

A lease is another simple example. Nowadays, leasing relations are very frequent in Georgia – Many citizens of foreign countries have entered the country. Georgian citizens lease apartments to them. As you know, according to legislation, if the lessee does not pay the lease amount and does not leave the apartment either, the lessor shall address the court for the eviction. In such cases, the first question arising is about the timeline. How long will the case last? Although the legally mandatory case consideration period is short, practice shows that at best, the process in the first instance court lasts a year, a year and a half. Add to this, appeal in the second and third instances, and most importantly - the enforcement.

Imagine how this hampers the lease relationship. Your property may become absolutely useless for a certain period – someone could be living in it but you would not have a chance to benefit from it. Most importantly, this encourages us to go beyond legal frameworks.

If the judiciary is not efficient (in terms of time, as well as competence and independence), we choose non-legal ways.

- What do you mean in particular?

- For example, I had a case when a person was telling me that the lessee was neither paying a lease amount nor leaving the property. I was told that he should go to court, but the process would last a year and a half or two years. He goes and tries to evict the lessee by means of physical confrontation. This is already an offense. This is the most important thing we are often forgetting: inefficient judiciary encourages us to go beyond legal frameworks. We as humans have a need for justice. The state must ensure the satisfaction of this need.

- Is this example relevant to larger deals?

- Of course. For example, corporate disputes between shareholders are frequent, including who owns what percentage and what part of the profit. The bigger the deal is, the harder and heavier result of taking the dispute beyond legal frameworks.

The next issue is so-called Clan Management in the judiciary. I have talked about it many times. The only ones not recognizing this are the court and the state.

From non-governmental organizations (playing the role of Watchdogs) to the Embassy of the United States, everybody is saying that the judiciary is not independent of the influence. Naturally, the court and the state would not say on their own that these problems exist in the system, but all external observers point to it.

- What is a share of politics in this problem?

- It is hard to specify the exact percentage. The existence of the clan is allowed by the state – a political group. If there was no particular benefit, it would not be like that. What other motive one could have as a political group allows the clan to exist?!

Criminal cases are discussed more often. E.g. if we remember the case of Nika Gvaramia. He is tried and punished under such an article, I do not remember anyone being charged with it. Such cases come to the fore and media attention, but there are hundreds of cases behind them on very simple private legal relations and there are risks to impartiality in them.

Unfortunately, everyone avoids publicly talking about this. Nobody says, for example, that they have traced impartiality in a specific case. If the other party “settles things”, they try choosing the same way, instead of speaking out about the problem in the judiciary.

Business sees the situation from a short-term perspective. Its motivation is not improving the system, instead, it tries to satisfy its specific interest for that moment.

The problem is well explained through the so-called game theory. Imagine – if every business simultaneously decides that they want a good judicial system, we will have it the second day. However, there is a fair: I may express my concern, but others will not support me. I will be the only one losing.

One additional factor: Questions related to the Georgian court are known even to foreign investors. All those with whom I have worked in private practice say that they know this and therefore evaluate investing here as high-risk.

Why do all businessmen want their disputes to be heard by international arbitration? Because there is no trust in the Georgian judicial system.

Also, the problem is not directly perceived by the population. They do not have daily contact with the court. At the beginning of the interview, I mentioned the secret enemy and the secret ally. I highlighted the “secret.” Secret means not being directly revealed. To take a simple example: Unemployment or economic hardship seems to be the main problem in sociological studies, and judicial independence is usually at the bottom of the list. Perceptually it is so, but in reality, on the contrary – unemployment and economic hardship are only manifestations of the problem in the judiciary. A private citizen is certainly concerned by the manifestation of the problem, a healthy court is not his demand, and the state benefits from it.

In my opinion, our main goal should be explaining as simply and clearly as possible to the widest possible society that their problems are actually the result and the cause is somewhere else.

- Let discuss the issue of competence in more detail. Business disputes are mainly considered by narrow specialization judges. Is this good or bad?

- The presence of narrow specialization is necessary at the principal level. A family dispute and a banking case cannot be considered by the same judge. None of the cases will have the proper quality. It is physically impossible for a particular judge to know the law so deeply in all directions. In theory, it is good for the judges to be specialized, but going deeper, there are two questions arising: is the number of judges considering a particular type of case enough, and the second – is the competence of these judges relevant to the dispute in review.

The higher we move on the judicial hierarchy, of course, the more competence is required. Do not read this as if we have especially incompetent judges in the first instance. No, there are good judges as well in the first instance.

Also, judges who have made many controversial decisions, to say the least, suddenly become judges in the Supreme Court and Court of Appeals. Many of my lawyer colleagues share this opinion in private conversations. The problem is that such judges leave the profession of a lawyer dysfunctional. I can recall decisions that radically contradict the principles of law the law students have been studying in universities for years. Such decisions cannot withstand even minimal criticism; they cannot meet the elementary criteria of foreseeability. However, foreseeability is very important. Of course, justice is not always as simple as two times two is four, but two times two cannot be ten either and it shall be somewhere closer to four if translated into math. When the decision of a judge says two times two is ten, it completely ruins the material legal system. It turns out that, as a lawyer, you studied for years for absolutely nothing.

- Is a problem of competence easy to solve? Can it be resolved without reforming the whole system?

- In terms of solution, it is entirely different. If, for example, eradication of clans requires only political will, in terms of competence we face greater difficulty. To start solving this problem today, we will probably need at least ten years.

This does not only imply the training of judges but necessary changes in the material legislation too to ease the pressure on the court. Cases should be also resolved through mediation and arbitration, or by so-called pre-trial hearing. Truth is, no one wants to change the situation.

- Do you not think, it is better to create commercial chambers and not to define the narrow specialization of judges?

- Yes, I agree that defining the narrow specialization does not qualitatively solve the problem. It would be much better to create specific chambers within the framework of the reform. This would be more structured.

As for the specialization – of course, I believe that people can acquire new specific professions in a short time, but, when talking about large cases, other circumstances are to be taken into account. For example, some corporate disputes require compliance with not only Georgian but international norms and deep knowledge of practices established in different countries for decades.

- The government brags about its good positioning in international ratings. When investors plan to enter our market and draft a business plan, do they rely on these ratings or are there other sources?

- Let’s say this way: when an investor has this rating on one side and on the other side, the assessment of all non-governmental organizations and even the US Embassy that a clan is operating the court, the rating becomes just a piece of paper. No investor will implement a project worth several million based on the rating only.

- How often do they consult with existing business operators? Do they ask the ones who already have business experience in Georgia?

- Per my observation funds that come to Georgia are mainly of high-risk, from countries where Georgian court problems are a common story.

- Why is it bad?

- Because a legal culture that has nothing in common with the Western one is being introduced to us. If we look closer, Western institutional investments are very few in our country. They are mostly from the post-Soviet countries, where corruption and clans are familiar and organic, and maybe, on the contrary, they even feel comfortable here.

- Does political corruption mean that business helps political actors to achieve electoral goals?

- Generally, everybody operates based on logic. Imagine, you are a businessman and have directly or indirectly paid a certain amount of money to the governing party. This is an ordinary investment for you, from which you expect to get a profit. This profit may come in different forms. E.g. winning the tender. This is one of the profits as well.

When the political class is in debt to someone, an investor going for a legal dispute can go to them and ask for help. This is logically expected – if a political class is in material debt to me, I will request a return of favor from them.

- Can we separate this way - large businesses are more vulnerable to political corruption, and medium and small businesses are more vulnerable to everyday, banal corruption?

- Of course. Big businesses are more prawn to patronage, small businesses try to survive by different means.

- According to the practice established here, there are criminal case lawyers who cooperate with the Prosecutor’s office and can also “settle” the cases informally. Are such lawyers in your field as well?

- When talking about the judges, we shall not forget the corps of lawyers who cooperate with the system in non-legal ways.

- Their identities are known to interested parties, aren’t they?

- When there is someone answering, there will be one addressing it.


Interview was prepared by Irakli Absandze.

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Georgian Court Watch Project: "Active Citizen Involvement for a Better Judicial System"

The article was prepared with funding from the European Foundation, within the framework of a grant from the Danish International Development Agency. The author is responsible for its content. The article does not reflect the official positions of the European Foundation and the Danish International Development Agency.

Author: Irakli Absandze