Reforming Contract Enforcement in Nepal

– This article was originally published by Ankshita Chaudhary in the Himalayan Times on the January 06, 2019.

Many companies think twice about investing, hiring or entering into long-term supply contracts or business agreements, betting that any dispute could consume years and cost hundreds of thousands. According to the 2019 World Bank’s Ease of Doing Business Index, enforcing a contract in Nepal takes an average of 910 days, which equivalents to approximately 2.5 years, and costs 26.8% of the value of the claim.

In Nepal, enforcing a contract has been a cumbersome process and this has led for parties to resort to informal contract enforcement mechanisms. While this mechanism is deep-seated in the economy, it does not offer any predictability and long-term security for a new entrant. Thus, if the economy cannot develop this informal institution to formal practices, it will not succeed in economic expansion as it will only deter the entrance of new economic players. For Nepal to radically overhaul efficiency in contract enforcement, the following reforms are the need of the hour.

Easing the dispute resolution process

Since litigation is high at cost and slow in proceedings, businesses and entrepreneurs can seek for either Mediation or Arbitration, both of which account as efficient, low-cost and quick alternatives. In order to reduce the backlog, targets need to be set for the elimination of older cases. The backlogs can be settled systematically starting with the closure of the oldest cases and moving up with the recent ones. The inactive cases need to be separated for rapid closure or for further processing, depending on the interest of the parties. This can be done through the establishment of a fast track court, by adding the number of judges and/or by designating a particular day in a week for the disposal of the pending cases. This not only will help to control the perennial problems of cost, delay, complexity but also will help lessen the backlog.

Improvement of commercial cases handling in the justice system

Courts
In order to resolve dispute efficiently, a commercial court needs to be put in place. If the commercial court cannot be brought into place and the commercial bench continues to be in operation, efforts can be made to review and strengthen the existing benches. The judges and the judicial officers should not be transferred for at least a span of ten years. This immobility will allow them to build the necessary sectoral expertise pertaining to large scale commercial undertakings and contract interpretation. Likewise, if the National Judicial Academy (NJA) is able to provide substantial training to all the judges equally, both the judges and the court system can be self-standing without the need to rotate judges to the remoter areas.

Tribunals
The same reforms that are used in a court system can be employed in the tribunals whereby which the judge is prohibited from movements as well as the existent backlog can be curbed.

Judicial Committees

There is a need to provide orientation and training to office holders on the judicial matters. A handbook that provides an easy and effective protocol in addressing disputes in a specific manner can be prepared. If we can strengthen the Judicial Committees, the jurisdiction of the District Court can be gradually transferred to these local courts.

Strengthening the functionality of the National Judicial Academy

In order to build competence in the commercial law practices, the NJA can pool resources to support and facilitate the reforms in the judiciary. The NJA can facilitate judicial trainings in commercial law to conduct efficacious trials for legal professionals. These training modules need to be created for a particular case so that the professionals can build greater proficiency in the same.

Installation of Case Management System (CMS)

A proper Case Management System (CMS) needs to be installed. A well-functioning CMS that enables the creation of a database for judges to deal more effectively with their caseloads, is essential. A CMS that automates the existent manual processes, provides courts with registries of case filings and events, and introduces modules to handle e-filing as well as to program the hearings. This will save the cost, time and effort both in part of the clients and the legal professionals. This system should also be implemented not only in the Supreme Court but also in the lower tiers.

Improving the effectiveness of Arbitration and Mediation as an alternative to Court

It is important that judges and lawyers alike understand why arbitration was introduced, in the first place, to avoid the complexities of court, for speedier dispute resolution and so on. Therefore, lawyers and courts have to be wary of unnecessary court interference even though the act may permit it.

Likewise, the public needs to be made aware about mediation and its benefits and how it incurs fewer costs and how it protects privacy and confidentiality. For this, the court must commit to promote and refer to mediation as a fair and a legitimate resolution process. This not only will allow the law practitioners to transform their assumptions and attitudes but also will instate confidence in the public that mediation can result in improved and speedier justice.