KIN Journal: Engaging the Private Sector | April 2015

Reforming Civil Courts to Enhance the Business Environment in Lesotho

Abstract

A well-performing commercial court with speedy resolution of cases can have direct and powerful effects on levels of investment and economic activity. If commercial cases are resolved in a timely fashion with well-established rules and procedures, investors perceive less risk and are more willing to invest. Civil legal reform was a small piece of the MCC compact with Lesotho but a critical activity for enhancing the business environment in the country.

Background

For Thabo Mpaka, a commercial lawyer based in Maseru, Lesotho, the introduction of a fully functional commercial court to this southern African nation of 2 million has brought clear benefits to his clients.

Consider the case of a local citizen who sold land in 2004, but then found himself embroiled in a lawsuit brought by a real estate agent who falsely claimed he had brokered the transaction. In fact, the agent had merely suggested the name of a potential buyer. Languishing in the High Court since 2005, costing him both time and money, the case was suddenly resolved in 2010, with the advent of the newly reformed specialized commercial court in Lesotho. Within a week after the presentation of evidence in the case, the presiding commercial court judge dismissed the case. The defendant was elated with the verdict, telling Mpaka, “Thank you for helping me—this guy had been breathing down my neck for years!”

This swift delivery of justice—rare for commercial disputes in Lesotho before 2010—was a result of legal reforms initiated through the Lesotho Compact. The Civil Legal Reform Activity undertaken as part of the MCC compact sought to ensure faster, fairer and less costly resolution of commercial disputes for all people and businesses in Lesotho. The activity consisted of the following components:

  • Establishment of a fully functional commercial court dedicated exclusively to commercial matters, with specially-trained judges and rules designed to promote rapid resolution of disputes.
  • A small claims process administered by the Magistrate Court, enabling individuals and informal businesses to seek redress for commercial disputes that might fall below the value threshold of the Commercial Court. Lawyers are not required in these simplified proceedings, making the process available to the poor.
  • Mandatory court-annexed mediation before acceptance by the Commercial Court, promoting expeditious dispute resolution without the greater expense, time and uncertainties of litigation.
  • Development of a computerized case management system (CMS) for the entire High Court (of which the Commercial Court is one chamber). CMS speeds case resolution, assists with court management and reduces the opportunities for corruption.

These reforms have improved the investment environment by reducing the risk for commercial transactions, from large bank loans to small sales. As more investments are made, and “risk premiums” are reduced, the gross domestic product should grow more quickly. Moreover, the risk to the poor of exclusion from official means of dispute resolution can be particularly dire in an urbanizing society. Civil court reform serves all strata of society.

Though representing less than 1 percent of the total compact investment—MCC invested $3 million, and the Government of Lesotho contributed $1 million for additional project needs—the impact of the activity has already been sizeable. A fully functional commercial court is operating in its own refurbished courthouse, mandatory court-annexed mediation of civil and commercial cases is underway and a small claims process is expeditiously resolving disputes. In the two years since the new commercial court began operating, the number of days to resolve commercial disputes has decreased from 962 to 343 days.

“Cases are being fast-tracked now,” said Mpaka, who counts large banks as his primary source of clients.

Monyake Hlabanyane is a first-class magistrate who hears small claims cases. “Landlord-tenant disputes populate the docket,” he said. “We try to encourage amicable settlement. But we also let people know their rights and inform them they can appeal if they are not satisfied.”

One of the disputes he recently resolved arose over the return of a security deposit of less than $200. The parties were both professional staff at a bank in Lesotho. While the decision was in favor of the landlord, the tenant was satisfied with a formal ruling that he understood and could accept. Without a small-claims process, there would have been no practical means of dispute resolution available, and animosity between the parties could have lingered.

In designing the activity, the Government of Lesotho and MCC looked to the flourishing commercial courts in other African countries. Commercial courts have grown in popularity across the continent since the mid-1990s. Most Commonwealth African countries have now established commercial courts, with the courts in Ghana and Rwanda posting particularly impressive results. Some Francophone countries—including Côte d’Ivoire and Burkina Faso—have recently established similar specialized courts.

In 2000, the High Court of Lesotho set up a commercial court as a chamber of the High Court. However, the initial rules differed little from ordinary court procedures, and very few cases were filed. Banks, in particular, continued to criticize the courts over the excessive time it took to enforce contracts in the courts. The Central Bank of Lesotho voiced concerns that the slow pace of High Court decisions not only reduced profits for existing businesses, but also negatively impacted investment overall.

“There had been complaints that the investment environment in Lesotho was not conducive to private sector growth,” said Acting Chief Justice Tseliso Monapathi, then a judge of the High Court and a key architect of the activity. “The complaints focused not only on trade but resolution of disputes and execution of judgments, recovery of money by the banks.”

“The courts were identified as the fulcrum, the point at which things would evolve,” he said. “The disposal of cases, the delays in resolving disputes in general terms and tardiness of overall execution were identified as key constraints.”

When Lesotho became eligible for a MCC compact in 2004, the government identified commercial dispute resolution and the Commercial Court as an important area of focus. The Law Society of Lesotho, working with the Law Society of England and Wales, prepared a primary study from which the project was developed. By the time the compact was approved in 2007, additional components—court-annexed mediation, small claims procedures and the computerized case management system—had been included to bring additional benefits to the activity.

MCC’s early analysis of the economic rate of return—which considered only the costs of litigation, not the broader economic impact—nonetheless showed a strong economic basis for the project.

Strengthening the investment climate

In the short time that the Commercial Court has been fully operational, the court and associated reforms are already strengthening the enabling environment for private sector-led economic growth in Lesotho.

Local banks—once the most vocal critics of lengthy dispute resolution delays in Lesotho before the advent of the Commercial Court—are seeing the impact.

“Loan-to-deposit ratios have increased from 30 percent to 60 percent for the Lesotho banking industry as a result of speedier resolution of loan non-payment through the commercial court,” said Standard Lesotho Bank CEO Mpho Vumbukani. “The Commercial Court has brought a lot of loan discipline to bank clients who previously thought they could hide behind slow judiciary decisions. Now they know that they need to repay their loans on time.”

Banks are also pleased that the time to enforce contracts in Lesotho has decreased as a result of the commercial court’s improved efficiency in resolving commercial disputes. The time required to enforce contracts is one of the indicators in the World Bank’s annual Doing Business Report rankings, a key measure of investment climate competitiveness around the globe and one scrutinized by investors. 

“Now a key challenge is the enforcement of decisions by the deputy sheriffs,” said Vumbukani. “The Commercial Court issues a judgment, but enforcement still lags.”

Making justice accessible

In addition to the commercial benefits brought about through the reforms, the activity has helped to increase access to justice for ordinary Basotho in Lesotho.

In particular, the inclusion of the small -laims processes in the activity has made the judicial system more widely accessible in Lesotho. Traditional means of dispute resolution historically dealt with smaller disputes outside of formal judicial proceedings. As the Basotho have become increasingly urbanized, traditional means of resolving smaller disputes are less available. However, taking a small dispute to the regular court was impractical because of the associated costs. The new small claims process has made judicial resolution of commercial disputes available to all Basotho regardless of their financial status. Hundreds of small claims are now decided each year—rapidly and at low cost—in the Magistrate Court.

Similarly, the introduction of court-annexed mediation in resolving commercial disputes has made ordinary Basotho more active participants in the judicial system. According to Palesa Phenethi, a mediation administrator with the Commercial Court, mediation has increased the engagement of ordinary Basotho in resolving their own disputes. “They become active participants in the legal system,” Phenethi said.  In an effort to resolve disputes, parties must meet with court mediators prior to trial, and Lesotho has already reached a resolution rate of approximately 60 percent. Mediated decisions, once agreed to by all parties, have the full weight of a court decision. Time and costs of litigation are avoided, and the judges’ dockets are reduced.

Key success factors

Overall, the activity’s success to date derives from a number of design and implementation factors. Implementation challenges included budget shortfalls, delays in implementation, staff shortages, and the perceptions of lawyers toward mediation. The Government of Lesotho bridged the budget shortfalls. Addressing understaffing—particularly of information technology personnel—took some time but was resolved with the relevant ministries. Lawyers’ perceptions were tackled through training and continuous sensitizations via meetings and dialogues, as well as advertisements and stories in radio, television and the print media.

Strong project champions

The activity benefited throughout compact development and implementation from the strong support of Chief Justice Mahapela Lehohla—who served as chief justice for the duration of the Lesotho Compact—as well as numerous sitting judges. Their regular and vocal support for these reforms from the very beginning made clear that there would be no foot-dragging in implementing the changes.

Early and regular outreach to key constituencies to allay concerns about the changes

Given the impact these changes would have on the status quo for judges, court staff and lawyers who use the courts, there were concerns upfront that there would be resistance to the reforms from these groups. Would lawyers fear loss of business? Would judges and other court workers resist—even sabotage—a new system? Could the transition from paper to a computerized case management system be made successfully? In Lesotho, the relations between the court and legal bar had a sometimes troubled history, with lawyers at times feeling that court would too often impose its rules without consulting users. Early and regular outreach to the lawyers was critical in gaining useful feedback about the activity’s design and implementation, as was ensuring the needed buy-in from the judges, lawyers and court staff who would ultimately implement the reforms.

Moving forward

“As we grow, we need more support and expertise,” Monapathi said. “The indirect result is the improvement of the lawyer’s profession in Lesotho—it becomes more sophisticated and solid. This, in turn, affects other aspects of the court system—a positive spillover. I can only wish that what has been done for the Commercial Court can be done for other aspects of dispute resolution like the Land Court.”

The courts of Lesotho, in cooperation with the European Union, are now expanding some of the civil legal reforms pioneered under the Lesotho Compact. Building on the foundation of the Civil Legal Reform Activity, Lesotho has the opportunity to develop one of the more successful civil legal systems in Africa.

In many other countries the resolution of commercial disputes remains slow, expensive and prone to corruption. Where the will to address these challenges exists, reforms can be achieved with modest cost and great impact.

The Lesotho Compact’s end of program review, conducted by international consultants DRN from Italy and JIMAT from Zimbabwe, note that because of the Civil Legal Reform Activity:

“… it can be generally concluded that businesses and citizens have more faith and much easier access to the courts and have also rising expectations that their disputes will be settled successfully within a reasonable period of time. This is anticipated to be beneficial for citizens and businesses for the long term and could impact the climate in Lesotho as an investment destination positively.”

Stuart Kerr, director, legal and regulatory at MCC, was involved with designing and implementing the Civil Legal Reform Activity from 2005 to the present.

Alice Riedel served as deputy resident country director in Lesotho and supported activity oversight in-country.

Libete Selapane is an attorney in Lesotho who served as MCA-Lesotho’s project coordinator in the High Court, supporting all elements of the Civil Legal Reform Activity.