Protracted Business Disputes and Unenforced court Rulings are the Matters of Main Concern for Businesses in Georgia

Protracted business disputes and unenforced court rulings are the matters of main concern for businesses in Georgia for many years now. Although this problem has been long acknowledged by the government and lawyers, it remains to persist. While it becomes increasingly difficult to attract investments throughout the world, the aforementioned problem undermines the investment attractiveness of our country. 

A segment of lawyers even admits to advising their clients to maximally avoid, in their agreements, defining a Georgian court as a body for dispute resolution and, instead, seek alternative ways, including private and international arbitration. 

What is the real investment potential of the country, how it is used and how protracted disputes and unenforced rulings affect the country’s investment image are the topics BusinessPartner discussed with Victor Kipiani, the Chairman of the Geocase think tank.

- What are the natural investment possibilities of Georgia in the difficult reality the world finds itself in today?

- When talking about an attractive investment environment we must take into account two factors: the first is the legal environment in the country. In this regard, I think, our legislation provides all prerequisites for the implementation of foreign as well as domestic investments in the country. However, the legislation alone is not a sufficient prerequisite. It is important what type of image is created by the country and how it is promoted to a potential investor. In this regard, despite already implemented measures, there is a need for additional work, especially when numerous other countries, like Georgia, are seeking investments too.

Another factor is the so-called operational code of the country, which consists of a whole set of elements and formally, has nothing to do with business. For example, the geographic location of the country, which is one of our main assets and allows us to benefit from it. Georgia is a Black Sea littoral state and the Black Sea, along with a security element, is a link connecting us with the external world as well as our transit potential for countries of Central Asia. This is a circumstance which we can use, especially against the war waged in Ukraine.

The war has substantially limited transit potential for countries of Central Asia and questioned the long-term perspective of well-established transportation routes. Even in this case, we must take into account one rather delicate circumstance. Of course, any war is a tragic event, it is a humanitarian catastrophe. However, if we look at it only from an economic viewpoint and without emotions (though emotions in such case are perfectly understandable and we all share the tragedy underway in Ukraine), we will come to face the following fact: the Ukrainian market has closed down for the global business while the presence of business on the Russian market has drastically shrunk. Clearly, the Georgian consumer market and the scale of the economy are significantly smaller compared to those of Russia and Ukraine, but Georgia can perform a function of a sort of transit hub through a regional expansion of this or that company. This is a window of opportunity and we can use it reasonably, rationally and pragmatically. This is the opportunity which history rarely offers, while on the condition of our maximal human solidarity with the ongoing war, it is also obvious that we must maximally take advantage of the economic potential and possibility that have emerged for the country.

Given the existing reality, new economic order is being outlined in the world. What kind of contours will it take, what will be its form and substance are the topics of hot discussion today, though it is already the fact that we can use a whole set of levers to emphasize our competitiveness, usefulness and functional need.

- You touched upon an issue of promoting Georgia’s possibilities against the Russia-Ukraine war, which the country may use; on the other hand, Georgia often makes it into world ratings, and gets high assessments from respected rating agencies; however, how adequately do those ratings reflect the economic state of the country and how they affect the investment image?

- One may often hear talks in society as to how come the country with high scores in ratings does not match those rating indicators by its economic level. Before discussing this topic let’s ask what, in general, those ratings mean. Rating indicators have their connotations. First, it is a political-psychological connotation, a sort of calling card which we can use to boast about before investors and strengthen our positions. Even though the position of a country in ratings does not always match the existing situation, a country is initially presented to new investors based on those very ratings. Therefore, we cannot turn our back on those ratings and must not assign them lesser importance than they actually have.  Second, these ratings determine the country’s access to capital, ease or difficulty in obtaining loan capital as well as the value, a real price of such capital for the country’s economy. The higher the assessment of the stability of a country by such rating agencies, the higher the investment attractiveness of that country. This also determines how cheap the money we can attract to our economy will be. 

However… you are right to speak not only about external but also internal factors because an important thing when talking about internal factors is the proper operation of institutions. In this case, our concern was and is the court system of the country, its justice. If we consider the judiciary as a service provide in resolving a particular dispute, the importance of the provision of such service in a fast and effective way is unarguable. In this context, we must emphasize one chronic problem characteristic of our judiciary – protracted court disputes.

- There has been dissatisfaction about protracted disputes among businesses for quite a long time now, but the situation has not changed. How difficult is it for businesses to operate under such conditions and where do you see a solution?

- A potential investor pays attention to macroeconomic stability, the health of fiscal policy, etc. … In terms of fiscal policy, Georgia is among those which stand out for their stability. From the perspective of monetary policy, it is quite successful too, but it is difficult to attract investors with only healthy fiscal or monetary policy as well as macroeconomic stability. Equally important is a timely settlement of disputable issues as well as timely and effective enforcement of court rulings.

Entering a dispute is already a great discomfort for a normal business relationship, while the failure to resolve it during a long period of time may totally destabilize a normal operational regime of business. This is a problem that needs to be tackled once and for all. We have often heard about various waves of court reform, that a number of reform waves have been implemented. However, if we use such a literary trope in our answer, let me say that instead of these protracted waves, it is better to implement one “tsunami-like” reform in order to solve the problems existing in courts for good. This is precisely the key issue that relates to the resolution of business disputes within set terms and also directly affects investment attractiveness.

On the one hand, business complains about protracted disputes, while on the other hand, there are also problems in the enforcement of resolved disputes, which is dragged on much like disputes are in courts. There are also talks about the harmful influence of certain groups on the process and other negative events of subjective nature.

I am not aware of concrete facts, but if particular studies prove that or even a single business complained about that, it is important to inquire into the issue and fully analyze any of such issues in order to avoid damage to the country’s investment image.

- Exiting a business is a problem too as it also involves protracted and complex procedures whereas registering a business in Georgia is a matter of hours and by this indicator, the country is among the leaders in ratings; is this a sufficient reason for complacency?

- That the registration of a company is one of the indicators of an attractive investment environment can already be considered an outdated point of view because many countries have managed to achieve a fast and effective registration of business. However, running a business does not mean registering a company alone; running a business involves a number of phases in further operation. For example, it is essential how favorable the legislation is not only in terms of registering and running a business but also in terms of exiting it quickly. I believe that the business legislation of the country, whether related to enforcement, liquidation or any other issue, must be stronger oriented on creditors, timely and effective reinstalment of infringed rights. I understand that a certain degree of equality in society is necessary and that Georgia’s competitiveness will be impossible without certain elements of the social welfare state, but not in the sphere of doing business. I have a feeling that our business legislation is too burdened with social elements; therefore, a stronger emphasis must be placed on the rights of victims, on more meaningful results in terms of realizing such rights for the aim of restoring a normal rhythm of activity and relationships. In this regard, not only proper functioning of the court but also a post-court process, the stage of enforcement is in the interest of a complainant, a business, whose rights were violated. This is how the effectiveness of the entire proceeding for the restoration of rights is assessed and not by evaluating separate stages of the process. Thus, one should stop boasting about the aspect of company registration and pay a greater deal of attention to other critical aspects of uninterrupted operation. Consequently, there are a number of legal issues in the Georgian reality which need to be put to right and properly tested in business and court practice. I would reiterate that a stronger emphasis must be placed on creditors, which will be an incentive for attracting more investments to the country.

- Will that infringe state interests?

- This call must not be understood as the call for discrimination between public and private subjects at the expense of state interest. The key message and concern are to timely “put the wrong to right” and “administer justice” in a fast and effective manner. Otherwise, without correct and adequate tackling of pre-dispute, dispute and post-dispute challenges and without relevant judicial remedies, it will be impossible to speak about an investment environment in terms of macroeconomic stability alone. These mechanisms must be adjusted properly and to a needed degree in order to ensure that conflicting or almost conflicting situations are resolved in the country in accordance with investors’ expectations though in necessary balance with state expectations. In this regard, a correct parity is a prerequisite enabling us to take more than one step forward and move up the queue of countries waiting for investments.