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Mediation: The cost-efficient alternative in dispute resolution - Daily News Egypt

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Mediation: The cost-efficient alternative in dispute resolution

CAIRO: The International Finance Corporation (IFC) launched Tuesday its Alternative Dispute Resolution Program in Egypt, which promotes mediation as a tool to improve the country’s investment climate. Fatma Ibrahim, associate operations officer at IFC, said, “The program’s objectives are to transform the practice of mediation/reconciliation to become an alternative effective method for resolution of trade …


CAIRO: The International Finance Corporation (IFC) launched Tuesday its Alternative Dispute Resolution Program in Egypt, which promotes mediation as a tool to improve the country’s investment climate.

Fatma Ibrahim, associate operations officer at IFC, said, “The program’s objectives are to transform the practice of mediation/reconciliation to become an alternative effective method for resolution of trade and financial disputes in Egypt.”

It also sets out to “enhance the capacity of Egypt as a regional center of excellence for training in commercial mediation, and support a culture of mediation and demand for its use to activate a regional initiative for means of alternative dispute resolution.”

As part of the program, the IFC have partnered with the State Secretariat for Economic Affairs of Switzerland (SECO) and the Cairo Regional Center for International Commercial Arbitration to organize stakeholder engagement activities through public awareness campaigns, training workshops for mediators and capacity building workshops.

According to an IFC statement, “mediation can be used as a tool to address the recurring problems that accompany contract enforcement and dispute resolution in a country where the judicial system has become increasingly backlogged, expensive and deleteriously time consuming.”

The IFC statement said that in most countries in the Middle East and North Africa (MENA) contract enforcement presents a challenge, adding that the existing legal system is not equipped to handle the increasing numbers of commercial disputes.

“Numerous studies and analysis by the World Bank and other donors consistently point to complex litigation procedures and inefficient judicial systems as a main impediment to private sector development in the region,” the statement read.

“Specifically, the costly and lengthy process of contract enforcement has been identified as a critical barrier for the private sector, especially due to lack of confidence in the court system, excessively high court fees and lengthy litigation processes.”

Despite Egypt’s significant economic reforms over the past years and the country’s relatively advanced judicial system, contract enforcement remains one of the main bottlenecks in business operations.

According to the World Bank’s “Doing Business Report 2010,” contract enforcement is one of the country’s worst indicators, where Egypt ranked 148 out of the 183 economies.

The report noted that it takes a minimum of 1010 days to enforce a contract in Egypt; the enforcement cost being approximately 26 percent of the value of the claim. This is compared to around 530 days in the UAE, Yemen and Iraq. The cost, however, in the UAE and Iraq is similar to Egypt while dispute resolution in Yemen requires only 16 percent of the value of the claim.

In general, Egypt underperforms when compared to contract enforcement in the MENA region which takes on average 679.9 days costing 23.7 percent of the value of the claim.

These shortcomings greatly reduce the competitiveness of private firms by increasing their transaction costs and leading to long delays. For many small and medium enterprises (SMEs) struggling through commercial disputes, these time-consuming procedures often come too late in releasing assets tied up in commercial disputes.

It adds that “SMEs are likely to suffer the most; even when the judicial system functions effectively their access to domestic courts is severely limited. In the meantime, a country’s ability to deliver a justice system that is fair and reliable, relatively quick and inexpensive and generally free from onerous procedural formalities is a key factor for the promotion of international investors’ confidence.”

According to Ibrahim, these reasons are why mediation could be used as an alternative method of dispute resolution in Egypt since it is faster, less costly and more productive in terms of sustaining a financial relationship.

Both sides of the dispute have to agree to resort to mediation as a method of dispute resolution, which takes into account a more emotional and human perspective than its judicial counterpart. This allows both sides to portray their points of view, while maintaining full confidentiality and finally coming to agreements themselves instead of requiring the hammering of judges’ gavels.

Khalil Shaat, a lawyer and recent trainee in the mediator training program conducted by the IFC, said that the government has been taking strides to address the problem of dispute resolution.

“The legal framework is improving in solving financial conflicts and disputes with alternative methods, with the government reforming the laws necessary to do so, but challenges remain including dispute resolution clauses encouraging mediation in the initial legal contracts between firms,” said Shaat.

Talking about the training he recently completed, Shaat said that it was very useful in honing his skills as a financial mediator and that it gave him vivid guidelines and procedures to follow though the mediation process.

“I am confident that this alternative resolution method will be very successful as more awareness is spread about its advantages over the available methods,” said Hazim Rizkana from Baker & McKenzie law firm.

He cited economic courts which have been recently introduced by the government, as an example, saying that they cost the parties involved around 15-17 percent of the value of the claim, while mediation which takes significantly less time is relatively costless, sometimes having to pay symbolic, hourly rates to the mediators and mediation centers.

“The government still has a lot to do in terms of insuring the enforcement of resolutions and sentences and until then mediation seems like an attractive alternative,” he concluded.

 

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