NOVEMBER 2017 GOVERNANCE NOTES No.4 APRIL 2018 No. 8 Broadening the Use of Alternative Dispute Resolution in Azerbaijan Prepared by Damir Kaufman*, Eva Maria Melis, Amit Mukherjee, and Christian Michel-Casulleras Governance Global Practice Technical support financed by the World Bank is helping award, is issued, but opinions are not part of the public Azerbaijan’s Ministry of Justice broaden its efforts to record. Azerbaijani law recognizes the right of parties to modernize the judicial system. The Judicial Services and refer a dispute to arbitration in another country or to a Smart Infrastructure Project (JSSIP) aims to improve court in Azerbaijan, which will apply international law. access, transparency, and delivery of justice services, both nationally and internationally, through alternative Mediation dispute resolution (ADR). This issue of Governance Notes Mediation can be employed for both international and explores how it works in Azerbaijan and the knowledge domestic disputes. Applying the values of neutrality, gained through experience to enhance it. impartiality, confidentiality, and consensus, mediators endeavor to reach a mutually convenient, efficient, and What is Alternative Dispute Resolution? durable agreement to a dispute. The mediator’s role is Any means of settling disputes outside of the courtroom to encourage clear communication and provide a space falls under the category of alternative dispute resolution. for productive discussion. Instead of a binding solution, Its goal is to resolve disputes prior to or during formal proposals are suggested to help the disputants arrive at administrative or adjudicative procedures, which can be an agreeable decision. costly and time-consuming. Although not intended to Mediation can be effective in resolving minor disputes replace more traditional approaches, ADR can provide without destroying business relationships or involving long-term solutions to employer and employee relations courts and significant legal expenses. It also ensures the or to conflicts within families through stakeholder parties avoid becoming trapped in settlements they don’t participation and buy-in. Traditional dispute resolution support, unlike arbitration where decisions can go against procedures can impose a decision by a judge where the will of the parties. neither party is satisfied and the conflict continues or even escalates. Arbitration and Mediation Practices The JSSIP focuses on mediation and arbitration, the At the center of the country’s system, the Azerbaijan two most common alternative methods, and is financing Arbitration and Mediation Center (AAMC) advocates the an ADR pilot at Baku Yasamal District Court to test use of alternative dispute resolution methods and raises improvements in areas of access, speed, and cost- public awareness about the advantages of ADR as well effectiveness. as its mechanisms for resolving economic disputes. The center also trains professional arbiters and mediators, International Arbitration and publishes best practices. The AAMC consists of Arbitration in Azerbaijan is used to settle commercial three institutional bodies: the Azerbaijan International disputes between international commercial and economic Commercial Arbitration Court (AICAC), National entities through a disinterested third party or an Arbitration Court, and Baku Mediation and Conciliation arbitration panel. Both sides can agree on one arbitrator, Service. or each side can select one arbitrator and the two arbitrators elect a third. Evidence is heard and a decision International Arbitration in Azerbaijan is made, which can be binding. Deliberations can last In 2003, Azerbaijan took its first step toward advocating from a few days to a week. A written decision, or arbitral and applying alternative dispute resolution. The AAMC * Currently Secretary General, Ministry of Economy of Croatia 1 GOVERNANCE NOTES APRIL 2018 No.8 set up the AICAC, the first and only international enforcement to the Supreme Court, which will generally arbitration court in the country. Today, it has 30 recognize and enforce the award unless the application accredited arbitrators. Disputing parties may select does not meet the requirements specified within the law. independent arbitrators of any nationality, proceedings The Doing Business Indicators database of 2016 may be conducted in any language preferred by the shows Azerbaijan ranks well when it comes to ease of parties, and applicable material and procedural law enforcing contracts. It holds the 28th position among may be chosen by the parties, except for matters to 189 economies and against a regional average of 61. be resolved through legislation. International investors Figure 1 shows that a lower percentage of businesses use rely on the provisions of the Foreign Investment Law to courts for dispute resolution in Azerbaijan than in other govern dispute resolution. Investment disputes may be transition countries or in the Europe and Central Asia resolved either by Azerbaijani courts or in accordance Region as a whole. This suggests the justice system is with procedures agreed to by the parties, such as using a not necessarily regarded as the most effective way of forum approach. resolving disputes. The only national court officially involved with international arbitration is the Supreme Court. The Law Figure 1. Percentage of Businesses Using Courts for on International Arbitration gives the Supreme Court International Dispute Resolution supervisory and advisory functions with respect to arbitration, but only in international commercial cases. 27 Since the establishment of the AICAC, only six cases have been decided by the Supreme Court. The low level PERCENTAGE of cases could indicate that international businesses 19 distrust arbitration, or arbitration as a method is still in its infancy. There are also discrepancies regarding data from the AAMC and the Ministry with respect to the number of arbitrators and the level of use of arbitration in Azerbaijan. 7 Approach to Commercial Disputes In international commercial arbitration cases, Azerbaijan follows international conventions dating to 1958: the Azerbaijan Transition Europe and GEOGRAPHY Countries Central Asia United Nations Convention on the Recognition and Region Enforcement of Foreign Arbitral Awards, the European Convention on Foreign Commercial Arbitration, and the Washington Convention on the Settlement of the International and Domestic Mediation Investment Disputes between States and Nationals of Mediation can be applied to four types of disputes in Other States, which provides for arbitration through most European countries: civil and commercial, family the International Center for Settlement of Investment law, administrative, and criminal cases. In civil disputes Disputes. or divorce cases, judges may refer parties to a mediator Procedures for enforcing international judgments are if they believe more satisfactory results can be achieved established by the Civil Procedure Code, and generally for both parties. In criminal cases, a public prosecutor can require that judgments be enforced based on the principle propose alternatives to prosecution, such as establishing of reciprocity. Azerbaijan also entered into several compensation agreements. bilateral treaties, principally with neighboring states, to In Azerbaijan, legislation does not address mediation facilitate enforcement of international judgments, and is or inform the conciliation process and its nature. a party to the Convention on Mutual Legal Assistance in Conciliation is mentioned in the Civil Procedure Code: Civil, Family, and Criminal Cases of the Commonwealth of “Courts in Azerbaijan shall guarantee and protect violated Independent States. and disputed rights and freedoms, except when their Regarding international arbitral award enforcement protection is to be carried out in an out-of-court order in Azerbaijan, a party must file an application for pursuant to this Code and other laws.” The Family Code 2 GOVERNANCE NOTES APRIL 2018 No.8 states: “If there is an absence of a permission of one of the sides for a marriage breakup, the court has a right Recommendations for Strengthening the Use of to suspend a judgment with appointing a period for Alternative Dispute Resolution in Azerbaijan conciliation during 3 months. Breakup of a marriage is carried out if there is no conciliation or if spouses (one Institutionalizing ADR of them) insist on a marriage breakup.” The informal practice of mediation is seen as a part of the work To regulate mediation, other countries have a of nongovernmental organizations mostly regarding central body established either as a public entity, commercial and economic cases. such as a directorate within the Ministry of Justice, or as private self-regulated organization, The Justice System such as a council, professional association, or The court system in Azerbaijan is composed of district institute. Through a public entity, the evolution or city courts, appeal courts, the Supreme Court, and of dispute settlement processes can be better the Constitutional Court. It also includes specialized units regulated. such as military, administrative-economic, and grave crimes courts. The Ministry of Justice develops and Promoting Mediation executes the activities and budgets of these courts. A significant implementation challenge is limited awareness about mediation among litigants, Indicators judges, attorneys, and court staff, based on a • Case inflow: The clearance rate of resolved cases, both survey and qualitative interviews. Among those pending and incoming, in Azerbaijan is 100.5 percent aware of mediation services, few report it as for criminal cases and 99.9 percent for civil cases, useful in dispute resolution. An outreach initiative which means courts are managing their case inflows is needed along with intensive training for judges, well. Compared to the European Union’s average of 146 prosecutors, lawyers, and court staff. days to resolve criminal cases and 253 days for civil cases, Azerbaijani courts show considerable efficiency, Incentivizing Domestic Arbitration averaging 56 days for criminal cases and 46 days for Greater incentives and publicity need to be civil cases. provided for domestic arbitration, whose regulation also needs review, with the right to • Court fees and other costs: The level of court fees and arbitration given lo local commercial entities and costs is low in Azerbaijan. Adequate incentives may individual litigants, too. Incentives could be built not exist to choose mediation services over litigation, into the institutional framework to encourage the although the cost of ADR is not likely to be significant. use of mediation and integrate it into the justice system by touting faster speed, cost savings, • Legal limitations: International commercial arbitration privacy and confidentiality, the opportunity is legally supported in Azerbaijan; however, domestic to decide the outcome rather than having it arbitration and mediation remain relatively neglected imposed, greater flexibility on outcomes, and and are not taken into consideration in legislation. an environment that is less confrontational or adversarial than court proceedings. GOVERNANCE GLOBAL PRACTICE Guiding Results through Public Institutions Governance Notes captures knowledge derived from World Bank engagements and technical and financial assistance requests. The views expressed are those of the authors and do not necessarily reflect the views of the World Bank. For more information, contact: askgov@worldbank.org. 3