To what extent does specialisation and education of judges at commercial divisions influence business climate in Bosnia and Herzegovina

Resolving commercial disputes in Bosnia and Herzegovina (BiH) is time-consuming, courts often violate optimal deadlines and it is questionable whether the companies, even after court rulings, can recover the claims, which is one of the greatest obstacles in creating favourable business environment for many business subjects in BiH. Manner of court organisation in BiH, large number of unresolved disputes, constantly rising number of new cases and lack of adequate specialisation and education of judges are some of the obstacles to court functioning in BiH. Duration of commercial disputes  leads to loss of trust in the activities of the judiciary by many companies because they lose liquidity in the process which leads to termination of business activities. Inefficient and weak judiciary is also one of the obstacles to foreign investment and opening new companies in BiH.

 One of the aims of the Reform agenda adopted in 2015 which was intended to lead towards recovery and modernisation of BiH economy relates to improvements in the business climate and competitiveness. However, results of the 2018 Business barometer analysis indicate that  48% of participants consider that economic and business environment in Bosnia and Herzegovina (BiH) has not changed compared to the previous year, and 29% of the participants find that the business climate has somewhat exacerbated.[1] EC BiH 2018 Report states that „According to international rankings, the business environment has slightly improved, although the overall level is still very low. “[2] At Global competitiveness index BiH takes 91^st position out of 140 countries with slightly better score 54.2 in comparison to the previous year. [3]

World Bank Group flagship publication „Doing Business“[4] for 2019 states that time for resolving one commercial dispute in BiH is in average 595 days, in Croatia 365 days and in Serbia 495 days and the costs summed up to 36% of the dispute value in BiH, which is extremely high percentage. In line with these indicators, quality of judicial processes was rated 10.5 at scale 0–18. „Doing Business“ for 2019 also ranks BiH at 89^th position out of 190 countries, three positions lower than in previous year, thus becoming the lowest ranked country in the region. [5]

Court efficiency as key challenge for creating favourable business climate

One of the key challenges directly affecting favourable business climate in BiH is court efficiency. Organisation of courts dealing with commercial disputes in BiH is not identical in both Entities. In FBiH commercial cases are under jurisdiction of municipal courts, cases in second degree in cantonal courts and in RS there are five district commercial courts and one higher commercial court in Banja Luka.

Efficiency audit report regarding efficiency of municipal courts in FBiH[6] dealt with analysis of activities performed in 31 municipal courts in period 2014–2016. It was concluded that time for resolving commercial disputes differs among the municipal courts and that the courts failed to resolve disputes on time in significant number of cases. Audit results have shown that in almost all the courts comprising the sample, 60% of disputes were resolved overdue the optimal deadlines [7] and that one third of cases was between two and five years old. Situation in cantonal courts was similar. Due to different manner of court organisation in FBiH and RS it takes different amount of days to resolve dispute in first degree. Courts in RS are able to process new cases and maintain resolving rate of 100%. In some cases they resolve disputes faster than in FBiH, for instance in appeals in civil procedures where it is four times faster. However, the dispute in first degree can be more time-consuming.

Such situation affected mostly small and medium enterprises (SMEs) which „would probably be affected the most due to poor court efficiency. Due to their relative power imbalance such enterprises are less able to have fair dispute and advocate their rights in or out of courts. In cases where disputes affect their operations they have less capacities to  absorb long time required for resolving the commercial disputes and reaching the verdict. This makes them vulnerable regarding difficult cases and malfeasance“.[8]

In 2018, Business clients department of ProCredit Bank, a leader in business operations with SMEs in BiH, stated that SME are key generator of BiH economic development and that there are estimates that the situation will remain unchanged in the future. At the moment, SME sector participates in BiH GDP with 60%, and in number of employees in BiH with 60%. „Inefficiency of the judiciary regarding slow resolving contracts and providing judicial security in business operations and protection of proprietary rights are often a reason behind stopping or slowing business activities and one of the key reasons for unfavourable business climate  for local and foreign investors.[9]

Slowing down or termination of SME business activities has a direct consequence in losing jobs, reduction of new value growth and GDP and reduction in amount of collected taxes by the government.

Training for judges and court staff – crucial requirement for more efficient court operations

In terms of court efficiency there is a number of factors directly influencing it: court organisation, number/input of disputes, existing material and human resources management, court practice etc. It is important to emphasize that in terms of human resources, it is not only necessary to have sufficient number of employed judges for commercial disputes at municipal and cantonal courts, but „bearing in mind great complexity of commercial disputes, higher level of specialisation of judges is required in order to enable them to better identify certain legal details of the said cases. It is therefore necessary to also ensure economy-oriented specialisations for judges which would provide them with insight into BiH market, specialisation in certain areas of commercial law (e.g. intellectual property, competition regulations, responsibilities of company members to the company) and modern market economy, especially single market of the European Union, where BiH tries to become member state.“[10]

World bank 2016 study showed that in addition to the fact that there are commercial departments in FBiH, small number of judges is specialised in commercial law. There is also a situation in practice that Court presidents transfer judges and associates in and out of departments as they will, at times rotating judges each year and they are engaged in civil and administrative disputes. Current situation in terms of scope and quality of training for judges which is competence of Public institution Center for judicial and prosecutorial training of FBiH (CEST) fails to meet the needs in the area of commercial legislation.[11] In RS, where there is different court structure, but similarly to FBiH, it is questionable whether newly appointed judges have enough knowledge in the area of commercial legislation. Both the Centre for judicial training in RS and CEST FBiH  rganise annual trainings in this area but the problem is that it is not mandatory for judges from commercial courts/department. Although the judges evaluated the quality of existing training as good, more training in the area of economy and international legislation and practical application thereof is necessary.

Conclusion

Judiciary system should act as mediator for investment and economic growth, not the obstacle. In practice there is positive correlation between the capacities of the judiciary to efficiently resolve disputes in the area of commercial law and quality of business environment, in addition to efficiency of court operations and public trust in their activities. In countries where a model of specialistic training has been changed, such as Estonia, UK and Denmark, there is significant improvement regarding efficiency of resolving commercial disputes, and consequently better scores regarding competitiveness index.[12] 

Having in mind multidisciplinary nature of commercial law which requires knowledge of economy, finances and accounting in addition to knowledge about laws regulating this area, only specialist, high-quality and continuous education of judges in BiH will strengthen their capacities to engage in resolving complex disputes. That will undoubtedly lead towards better legal security not only for SMEs but also other business subjects and enable faster economic growth of BiH.

Author: Snježana Ivandić Ninković