(Copyright by the author, 2007.)

In this Two Part series, Judge Douglas Ginsburg, Chief Judge, U.S. Court of Appeals, (Washington, DC) and Distinguished Professor of Law (George Mason University) argues that by building upon the experience of existing web-based dispute resolution systems and maximizing the reputational cost of noncompliance with an arbitral award, it should now be possible to provide cheap, fast, and most important, effectively binding arbitration in places where the rule of law does not prevail in the courts of law. 

At the most recent General Meeting of our Society (Mont Pelerin Society), out-going President Victoria Curzon-Price asked, “What will be the effect of the Internet on our freedom?” The thoughts I present  are by no means a complete answer to Victoria’s question, but I am pleased to offer at least some reason to be optimistic about the contribution technology - in this case the Internet - can make to the realization of the Great Society, particularly in places, including so much of Africa, where that goal still seems so distant.

Although my topic today is the rule of law and how it might be better secured in developing countries, my particular concern is with the role of the judiciary in a rule of law regime.  At the constitutional level, the rule of law literature concerning the judiciary deals primarily with the conditions necessary for independence, that is, for insulating the courts from political interference, whether exerted at retail to alter the decision of a particular case or through the pervasive intimidation and dependence that can more subtly affect the outcome of all cases brought in order to restrain the Government within its lawful powers.

Even if the independence of the judiciary is secured against political interference, however, there is another major threat to realization of the rule of law in that the judiciary may use its independence to corrupt ends.  The corruption of the judiciary, by which I mean nothing more sophisticated than bribing judges or court personnel to influence the resolution of a case, is in some places seemingly so pervasive as to set to naught whatever contribution judicial independence can make to the rule of law.

The “rule of law” entails the protection of property rights and the enforcement of contracts, evidence suggests it is a prerequisite for economic development.  Unless they are able to count upon the courts to protect their property rights, owners tend to keep resources in forms easily guarded rather than forms easily invested, which are also often susceptible to fraudulent dealing or theft.  As Daniels and Trebilcock conclude in “The Political Economy of the Rule of Law Reform in Developing Countries,” “It now appears to be regarded as a truism that the ‘rule of law’ is causally related to economic development.  The evidence of a negative correlation between residents’ perceptions of judicial unpredictability and growth and investment is also robust.”

To ask how prevalent bribery is, is something akin to asking how many miles of caves there are yet to be explored.  Nonetheless, in recent years heroic and creative efforts have been made along these lines. In particular, the 2007 Index of Economic Freedom, a joint product of the Heritage Foundation and the Wall Street Journal, undertakes to estimate the degree to which the government, including the judiciary, of almost every nation in the world is free from corruption. Simple comparisons among nations are revealing.  On this scale, the 20 countries most free from corruption are Japan, Canada, the United States, and 17 countries in Europe.  Most African countries are in the bottom third, and many are clustered near the bottom of the entire ranking. For example, of the 156 countries evaluated, Uganda is 119th in the rankings; Niger 127th; Burundi and Congo tied for 131st place; Kenya and Rwanda tied for 142nd; Nigeria is 148th; and Chad 154th.

Another index, the Global Corruption Barometer developed by Transparency International, is based upon survey evidence asking tens of thousands of respondents worldwide of their specific experience with bribery in the past year.  The differences by region and country are striking.  Whereas 2 per cent of the respondents in Europe and North America acknowledged having paid a bribe, in Africa it was 36 per cent, making this the most corrupt region in the world.  Within Africa, the numbers ranged from a low of 5 per cent in South Africa to a high of 60 per cent in Morocco, with Kenya at 21 per cent and Nigeria at 38 per cent, more or less in the middle of the pack.  In Africa the largest bribes on average were paid to those in the judiciary and legal system (which does not include the police). Transparency International, by the way, also compiles a Corruption Perceptions Index, the results of which, in comparing regions and nations are, in light of what I already reported, all too predictable.

With the growth of trade and globalization in recent years, international organizations and developed nations have become more interested in reforming corrupt judiciaries around the world.  These organizations, such as the World Bank and USAID, have spent tens of millions of dollars on various “Rule of Law” programs in scores of countries.  Unfortunately, these efforts do not seem to have had any discernible effect upon corruption.  The hard fact is that no one knows, or even claims to know, how to rid a judicial system of corruption.  When I asked an official at the World Bank if he knew of any judiciary that had gone from being corrupt to non-corrupt, the only example he could give was Cook County, Illinois (Chicago), where a dozen or so judges were caught in an FBI sting operation, convicted, and removed from the bench.  But, of course, Chicago has the benefit of being part of a larger society that could enforce the law against an aberrational local jurisdiction. Nation states do not have that advantage.

With reform unavailing, the participants in the increasingly globalized economy have turned outside the judicial system for a second best alternative form of the rule of law, namely, international commercial arbitration.  From 1992 to 2005, the number of cases filed with the major international institutions engaged in arbitration increased from 1,195 to 2,795 -- an increase of approximately 6.8 per cent per year.

International commercial arbitration is useful only to the extent arbitral awards will be enforced.  Although the adoption of the 1958 New York Convention in over 130 countries, including half of the 48 Sub-Saharan countries, makes parties relatively confident of enforcement, the Convention allows local courts to deem an arbitral award contrary to the public policy of the country and not enforce it.  Particularly, if courts in a country have a reputation for corruption, the subject-to-interpretation “contrary to public policy” standard may make international arbitration no more attractive than depending directly upon the courts to enforce a contract.  In sum, arbitration is a poor substitute for a bad judiciary to the extent that arbitral awards depend upon judicial enforcement.

From this brief survey, it is apparent that potential litigants in countries with a corrupt judiciary will not be able to rely upon contracts and secure their property rights unless there is an alternative forum for resolving disputes.  From time immemorial, that alternative has been provided by religious leaders or other respected elders.  The competence of religious leaders or respected elders is limited, however, to disputes in which both parties are part of the same religious or local community. 

With the advent of the internet, however, there may be another private alternative.  I believe that arbitration is now practical for ordinary contracts between domestic businesses and between businesses and their customers.  If internet-based arbitration succeeds, moreover, it is likely that corruption in the courts will be ameliorated as the courts respond to the competition. 

By Douglas H. Ginsburg

Chief Judge, U.S. Court of Appeals, Washington, DC and Distinguished Professor of Law, George Mason University