Feisal Naqvi

Archive for October, 2014|Monthly archive page

Reforming the justice system

In Uncategorized on October 10, 2014 at 6:26 am

Let’s start with an obvious fact: Pakistan’s justice system is broken. There are millions of cases pending and rich and poor alike are frustrated with their inability to get justice.

So far, so good. There is broad consensus among all stakeholders in Pakistan that the justice system is highly unsatisfactory. What then is to be done?

Till date, the standard approach toward legal reform of the justice system in Pakistan has been to focus on making the system more efficient or on expanding the size of the system. Standard remedies for dealing with legal issues in Pakistan include calls to increase the number of judges and for cases to be disposed of more expeditiously. This is a fundamentally misguided approach.

The reason why Pakistan’s legal system is broken is not because there are insufficient judges (though that is also a limitation). Instead, the fundamental reason why Pakistan’s legal system doesn’t work is because the system itself allows, and encourages, needless litigation. Fixing the system is therefore beyond the scope of executive action. Fixing the justice system requires legislative action.

In simple terms, there are two types of cases: criminal cases and everything else (i.e., civil cases). Let’s focus first on civil cases.

The vast majority of civil cases pertain to real property – the sale of land, the rental of land, the inheritance. Any which way you choose to deal with it, land causes problems. More importantly, land doesn’t only form the basis of most civil disputes, it also forms the basis of many criminal disputes.

Finally, it needs to be understood that a dysfunctional land regulatory system isn’t only a legal problem but also an economic problem. The primary form of wealth in Pakistan is land. If you can’t sell land without legal hassles, if you can’t rent your house because you’re scared of the litigation that might follow, and if every death is to be followed by endless years of dispute amongst children bickering over who gets what share, then it’s not just the people involved who have a problem, it’s the country as a whole.

Let me make the above point in simpler form. Assume that you want to start a business and that you need a loan. Assume further that you own a piece of land which has a market value of US$ 1 million. If you happen to live in the United States, chances are that a bank will be willing to lend you up to US$ 900,000. On the other hand, if you live in Pakistan, no bank is going to lend you more than US$ 600,000. That difference (between 90% and 60%) is dead value. What it represents is the difference between a system in which you can actually rely upon systems of title and one in which you can never really be sure as to who owns what.

What then is the systemic problem in Pakistan’s land regulation framework? Well, to begin with, there are several. The most fundamental problem though is that we do not have a system of recorded title.

When you buy land in the United States (or any other developed country), your agreement to buy the land is in writing and recorded in some sort of centralized registry operated by the government. When the government issues you a title deed, you can relax. If there is a problem in the title, that problem is the government’s problem, not yours. In other words, the government both records title to land and guarantees title to land.

The opposite system operates in Pakistan.  Our government does not record title to land. And it does not guarantee title to land. Instead, every time you buy land from another person, you are taking a punt on the bona fides of the person selling you that land. Unfortunately, even if the seller is a person of good morals, and even if he has evidence to substantiate his claim to be the legitimate owner of the land, there is no definitive way for buyers to confirm that sellers do indeed own the land that they are selling. And if there is indeed a dispute over title then the problem is yours, not that of the government.

Let me give you a simpler illustration of the difference between the two types of systems. Prior to 1997, Pakistani companies issued actual, physical share certificates. If you bought shares, ultimately you wound up in possession of heavily embossed paper proclaiming themselves to be share of a particular company. If you bought fake shares or if the person selling you shares was not authorised to sell you shares, then that was your headache. It was your job to make sure that the person selling you was indeed the owner of the shares in question and that he was indeed authorised to do so. Not surprisingly, litigation often ensued.

In 1997, this system was changed through the promulgation of the Central Depositary Act, 1997. What this act provided was that shares were to be deposited with a particular company (the depositary) and after that the shares were to be sold and traded electronically. More importantly, it was the job of the depositary to guarantee that the shares were valid and that the transaction was valid. So, so long as you bought your shares in electronic form, you were guaranteed both that the shares were authentic and that nobody could take the shares back from you (on grounds of their being sold in an unauthorized manner). Instead, what the law provides is that even if the sale to you was unauthorized, the person defrauded can only sue the fraudster for damages and cannot ask for his shares back.

Electronically traded shares can still result in litigation. But the litigation is now of a different type (i.e. regarding the quantum of compensation, not whether or not shares are to be given back). The result is that more shares are getting traded in Pakistan, there is more confidence in the share markets and there is less litigation – all because of certain, very simple, very obvious legislative choices.

Pakistan needs to do with land what it has already done with share certificates. In other words, Pakistan needs to examine the way in which the sale, purchase and transfer of land now occurs and make amendments to the legislative framework so that transfers are made safer and more secure. Obviously, since land is a far more complicated subject than share certificates, the solution will not be as simple. But there is no shortage of low-hanging fruit which can be plucked. For example, oral transfers of land have been banned in England since 1604. In Pakistan, oral gifts of land are still possible!

Let me return to my basic point: if we want to fix the justice system, it is not enough to try and make the justice system more efficient in terms of processing the disputes presented for adjudication. Instead, if we want to fix the justice system, we need to review and revise our legislative choices so that less disputes arise. In blunt terms, most of the disputes which are adjudicated in Pakistan simply don’t exist in other countries because their systems of law do not allow for the existence of such types of disputes.

To take another example, the Government of West Pakistan promulgated the West Pakistan promulgated the West Pakistan Urban Rent Restriction Ordinance in 1959. What that law provides is that no matter how long the lease, every tenant is entitled to stay on as long as he likes unless he defaults in payment of his rent or unless the landlord can show a bona fide personal need for the rented property.

The obvious consequence of the law was an explosion in rent litigation. In 1991, the Pakistan Law Commission wrote that landlord-tenant disputes accounted for more than 1/3rd of all cases pending in the courts. It became normal for rent cases to be litigated all the way up to the Supreme Court. And as a consequence people either stopped renting their properties or starting demanding huge security deposits.

In 2009, the rent law was changed in the Punjab. It is now possible for landlords to simply tell their tenants to leave when the lease terminates. And, lo and behold, the number of rent cases has gone down too.

The point to note regarding the impact of the change in the Punjab rent law is not that it had an impact. Instead, the point is that its impact has gone unnoticed. In 2009, the National Judicial Policy Making Committee of Pakistan issued the Judicial Policy of 2009. That policy is still in effect as of today. And it contains not a word which would indicate any awareness that the legislative framework can and should be changed. Even in terms of rent laws, none of the other provinces has followed the Punjab.

Pakistan’s legal problems need to be viewed in the same manner as Pakistan’s traffic problems. To clarify, the standard response to urban congestion is to widen roads. But as the well-known saying goes “Trying to cure traffic congestion by adding more capacity is like trying to cure obesity by loosening your belt.” The solution to increased car traffic is therefore not to add lanes but to get people to stop using cars (and use bicycles or mass transit options instead). Similarly, the solution to legal congestion is not to add more judges or to try and browbeat judges into disposing of cases more quickly. Instead, the solution is to rework our legal architecture so that litigation becomes less likely.