Report reveals poor quality of judicial processes

Dr Bryce Wilkinson
The National Business Review
5 October, 2018

There are many things only the government can do. When it fails to excel, no one else can step in. We are all worse off.

Immigration policy is one example. The reports of widespread corruption in the sector affront our national psyche. Only the government can stop it.

The quality of the legal system is another example. A New Zealand Initiative report last month highlighted grounds for concern.

The concern arose from the World Bank's 2018 Doing Business report. First, the good news. New Zealand ranked first overall for ease of doing business out of 190 countries.

This country also ranked best in the world for three out of 10 component aspects. We were in the top 10 for another three. But we didn’t do so well in the remaining four. Two of these were judicial.

Out of 190 countries, 31 ranked ahead of New Zealand for ease of resolving insolvency. Only 17 ranked ahead of Australia. The top three positions were filled by Japan, Finland and the US.

In the World Bank’s standard case, survey respondents assessed it would take 1.3 years to resolve the case in New Zealand. The cost would be 3.5% of the estate and 84.2c in the dollar would be recovered.

Our lowest rank across these three categories was 23rd. Australia was faster but cost more than double and its recovery rate was not as good.

Norway was impressive. Survey respondents considered it would take 0.9 years, cost only 1% of the estate and 93.1c in the dollar would be recovered.

What dropped the overall ranking to 31st was a 94th rank for the insolvency framework. Australia was 49th. The US, Germany and Finland were in a group of six with the top rank.

Australia owes its higher ranking to better frameworks for dealing with post-commencement credit and information requests.

The other problematic judicial component was the ease of enforcing contracts. Out of 190 countries, 20 ranked ahead of New Zealand. The top three were South Korea, Singapore and Australia. Why not New Zealand too?

These ranks embody three considerations: the time, the cost and the quality of each country's judicial processes.

New Zealand was second only to Singapore for timeliness. Very good – but short of excellent. The gap was large: 164 days for Singapore, 216 for New Zealand. Why?

Legal fees

Enforcement costs in New Zealand are high. Survey respondents assessed it to be 27% of the amount claimed. It was lower in 90 countries and lowest in Iceland at 9%. In South Korea it was 12.7%.

The big issue here is not court costs but lawyers' fees: 22% of the amount claimed. Something is wrong.

A poor score for the quality of judicial processes was a further factor; 53 ranked above New Zealand. Australia was top ranked. It outscored us on all four sub-categories. One does not have to be parochial to find this galling.

Well, so what? How important are these deficiencies for community wellbeing?

I have no idea myself. I am not a lawyer and know almost nothing about our courts or judicial processes. But I sense it could be important. The rise of recourse to mediation and arbitration could be a symptom of problems with our courts.

I asked a range of legal experts on an informal basis what they thought of the World Bank’s findings.

What I have gleaned is preliminary. Readers can surely offer more insights.

On why legal fees are so high, I got a strong view that forced disclosure is a factor. Litigants can force up opponents' costs by demanding documents to an absurd degree. This has developed in recent decades. The rules limiting disclosure need to be more stringent.

Our judicial processes are lagging in adopting electronic technologies. That is one reason for the low ranking. However, none of the people I consulted seems to think this is important for wellbeing.

Another concern could be more important. New Zealand does not have a court or division dedicated solely to hearing commercial cases. Even the Supreme Court in New South Wales does.

I am told this lack is a source of considerable concern to legal practitioners. However, the powers that be seem unwilling to respond effectively to this concern.

I conclude there are grounds for real concern about aspects of the judicial system. Their source, nature and significance remain a matter for expert debate.

The public interest in this requires informed public debate. We should look to learn from others. A public assessment by the Ministry of Justice would help. The Initiative's report advocated that.

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