Rule of law

The rule of law is seen as the foundation of a civilised society, writes Jane Croft. It is crucial in fostering an environment in which business can flourish.

In a recent speech on litigation funding Lord Neuberger, president of the UK’s Supreme Court, emphasised the importance of the rule of law: “Investors need to know that the political elite will not expropriate their profits or their businesses at will.

“Individuals and business have to be able to enforce contracts, to protect their intellectual property and to obtain effective redress not merely against other individuals and business but also against the state.”

As Adam Smith put it in his 1776 Inquiry into the Nature and Causes of the Wealth of Nations, economic activity and innovation will thrive only in an environment that affords secure property rights and effective freedom of contract.

Having a transparent legal system and an independent judiciary in which no one, including the government, is above the law is seen as key to retaining business confidence. In countries with strong legal systems such as the UK and US, the rich and powerful can, and are, prosecuted in the courts, and government decisions are regularly challenged by independent judges.

“There is a close correlation between a high prevalence of corruption and a weak rule of law,” says Robert Barrington, executive director of Transparency International UK, an anti-corruption organisation. “Therefore, where there is a strong rule of law, corruption is likely to be less and there is a general pattern of strong independent institutions like the judiciary, an independent media and law enforcement.”

Countries guarantee the rule of law when they provide fair and equal laws applicable to all, a legal system accessible to all and an effective court system.

Confidence in the integrity of the UK legal system is high – as demonstrated by litigants from the former Soviet Union opting to have civil disputes heard in the English courts.

Russia slipped from 63rd out of 142 countries ranked for economic competitiveness by the World Economic Forum in 2011 to 66th a year later, due in part to corruption and a lack of legal reform. The jailing of Mikhail Khodorkovsky, Russia’s one-time richest man, is one case where questions have been raised about the impartiality of the Russian justice system.

Likewise in some of Africa’s mineral- and oil-rich nations, their natural assets have often proved a curse in the past, fomenting coups and conflict, and undermining the rule of law.

Other jurisdictions, notably Chile and Brazil, have been held up as making strides in improving the rule of law. Brazil, for example, has introduced the ficha limpa (“clean slate”) law, which prevents people convicted of crimes from running for public office.