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Global and local challenges in commercial dispute resolution

Global and local challenges in commercial dispute resolution

January 25, 2018

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TALKING POINTS

Global and local challenges in commercial dispute resolution

Amna Sultan Al Owais

Middlesex University Dubai: Fourth International Conference on Emerging Research Paradigms in Business and Social Sciences (ERPBSS-2018)

January 16, 2018

Good morning ladies and gentlemen

In a world that is more globalised and connected than ever, one element still dictates the success of commerce – trust… and the ability to trade securely with business certainty. We are seeing the transnational movement of goods and services across the world through hundreds and thousands of different companies. Inevitably this sustained flow of commerce will attract disputes.

Often the case, when a dispute arises, each party is reluctant to enter the other’s courts. They fear inexperienced or protective judges; they are unfamiliar with (and therefore sceptical of) local law; they seek to avoid inconsistent outcomes; in some instances, they prefer private conflict resolution to public litigation; and, there is often disagreement about the jurisdiction of choice, each side wishing to pursue uniform agreements rather than modifying their contracts to comply with the sometimes-obscure requirements from another jurisdiction.

When resolving cross-border disputes, will corporations prefer arbitration, particularly in conjunction with Alternative Dispute Resolution (ADR) mechanisms, with a streamlined stepped approach; or, will concerns regarding the legitimacy of local or global enforcement cause further doubt on litigation proceedings?

When looking at global legal infrastructures, it becomes apparent that the challenges for commercial dispute resolution run much deeper than superficial procedural obstacles. Professor Gillian K. Hadfield Professor of Economics at the University of Southern California (USC), recently published a book, entitled Rules for a Flat World, addressing this issue. she states in her book: “Our existing systems for developing the rules and legal practices we need to manage the galloping progress of the global digital economy are drowning in cost and complexity…the legal systems we have are failing ever more regularly to do what law is supposed to do: make it easier for people to work together and make life for all better, not worse.”

Perceptions need to change from the Courts as a concrete building to a trust-worthy service provider. Dispute resolution needs to be more about providing a service – helping people resolve problems they can’t work out themselves. Adopting user-friendly procedures, reinforcing the overall courts experience is crucial as a stepping stone to building trust. Effective and less-expensive access to dispute resolution procedures and regulatory systems need to work in tandem with governments that ensure the rule of law is being honoured.

Traditional legal systems often increase fear and anxiety in claimants and defendants across the globe. The physical nature of a traditional court room has allowed for a perception of being a place that is out of touch and too traditional to solve complex and far-reaching disputes. In some cases, this is further amplified by systems that are often outdated, hindered by a shortfall in attempts to adopt modern, practical technology.

There is discussion in recent times of artificial intelligence and how it can revolutionise the legal sector. At a very practical level, some dispute resolution centres are failing to even introduce intelligent automation. It has caused many courts around the world to lag behind in solving disputes, including arbitration, mediation, or private sector resolutions.

So, how do we make sure that the global supply chain is secure and ensure trust in the network? We start by ensuring that our courts and regulatory systems are smart, hyper-connected and nimble enough to keep pace with global commerce.

Here in Dubai, we at the DIFC Courts we have recognised the need for our dispute resolution services to meet the demands that are challenging traditional disciplinary and geographical boundaries. While every country in the world has some kind of system for resolving commercial disputes, those ranked highest by the World Bank, as well as an increasing number of emerging economies, have recognised that investing in efficient, well-respected business courts. This is not a nice-to-have, but rather a need-to-have if they want to compete globally for investment.

Businesses in Dubai are free to choose between litigation and arbitration; common versus civil law; or English versus Arabic language – whichever system best suits their specific needs. The driving force has not been competition between courts for cases, but rather competition between countries for investment.

When it comes to resolving disputes, businesses like choice, and need certainty. Dubai and DIFC is a place where a contract will be honoured, a dispute settled, and a loan repaid, essential ingredients for creating a pro-business environment.

According to an independent survey by DIFC Academy of Law on governing law & jurisdictional choices in cross-border transactions in the Middle-East, cross-border business in the Middle East has increased significantly in recent years. The survey has also shown a preference by almost 50% to choosing DIFC law as governing law and DIFC for dispute resolution for cross-border transactions in the Middle-East. Three important factors indicating the preference of governing law and dispute resolution is the established system, familiarity, as well as the certainty of law.

Underpinned by one of the world’s leading commercial courts, Dubai International Financial Centre (DIFC) has been recently ranked 10th in The Banker magazine’s annual international financial centre (IFC) rankings, placing it alongside hubs such as London, New York, Hong Kong and Singapore. Since its establishment in 2004, DIFC has become the leading financial hub for the Middle East, Africa and South Asia (MEASA) region, offering companies and investors an independent regulator, an independent judicial system with an English common-law framework and a global financial exchange.

Encapsulated within a four-pillar mandate and driven by a five-year strategy, DIFC Courts is ensuring the highest international standards of legal procedure thus ensuring business certainty, flexibility and efficiency expected by the global institutions operating in, with and from Dubai and the UAE.

DIFC Courts plays an important role in supporting Dubai’s status as a global business hub by engendering trust, confidence and certainty. Responding to today’s dynamic paradigms, we drive initiatives toward judicial excellence; service excellence; connectivity; and innovation. Harnessing these four pillars is what drives DIFC Courts to become one of the world’s leading commercial courts by 2021. Taking the four pillars in turn:

Judicial Excellence: DIFC Courts offer a uniquely international and experienced bench able to deal with the most complex transnational disputes. Studies have shown that a well-run judiciary can have a very real impact on economic growth, with markets with effective commercial justice regimes estimated to grow half a percentage point faster than those without.

      Service Excellence: We are the first local Government entity to be awarded 5 Stars for customer service under the Prime Minister’s service excellence programme, and the only court in the world accredited to the International Standards for Service Excellence (TISSE). Research has shown that the better the service a court offers, the higher the chance of the parties settling, which must be the driving preference behind any dispute resolution mechanism. The perception of justice in the market has more to do with how people view the journey through the courts, than the decision at the end.

     Connectivity: By building the world’s strongest enforcement regime. Formalising links with our colleagues across the UAE and the world brings additional certainty to business and enables us to support legal excellence. The interest charged on loans, for instance, is influenced by the risk of a default not being enforced by the local courts. Evidence suggests that the disparity between credit rates in markets with good commercial courts to those without is as much as 200 basis points.

In October 2011, as part of the UAE’s drive to attract further or more investment, a decree of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Prime Minister of the UAE and Ruler of Dubai, opened the DIFC Courts’ jurisdiction to businesses from all across the GCC region and beyond to provide the international business community with access to one of the most advanced commercial courts in the world.

Dubai’s DIFC Courts witnessed sustained growth throughout 2017, with the English-language, common law judiciary continuing to help global businesses resolve their largest and most complex disputes while becoming the increasingly preferred forum for settling the smaller claims of corporations, SMEs and individuals.

The workload of the Court of First Instance (CFI), including arbitration-related cases and counter claims, continued to grow in the first half of 2017, increasing by 57 per cent from the first half of 2016. The total value of cases in the same period increased to AED 7.5 billion (H1 2016: AED 3.44 billion), a 118 per cent increase, although this figure was impacted by a particularly large arbitration case. The underlying trend for case values showed stable year-on-year growth. When we publish our full-year figures next month, I have no doubt that we shall remain on trend.

The ongoing growth of CFI case volumes and values underscores the DIFC Courts’ maturity and position in the regional and international judicial landscape. This was further supported by a report from international law firm Clyde & Co earlier this year that found between 2015-2017, where litigation was the preferred option, the DIFC Courts were chosen in 76 per cent of contracts dealing with Mergers and Acquisitions, making it the preferred Court system for handling such transactions.

Last year was also notable for the first enforcement of a United States court judgment here in Dubai, affirming the international connectivity of the DIFC Courts. We also further extended their international enforcement framework with the signing of a cooperation agreement with the Federal Court of Malaysia in 2017. Since our jurisdiction was opened to businesses worldwide in 2011, the DIFC Courts has established one of the world’s strongest enforcement regimes with jurisdictions including the Commercial Court of England and Wales, the United States District Court for the Southern District of New York, the Shanghai High People’s Court, High Court of Zambia and Hangzhou Arbitration Commission. With almost all the cases international in nature, the DIFC Courts continues to connect with other courts systems around the world, particularly those with strong trade ties to the UAE. DIFC Courts has partnered with Dubai FDI to promote internationally the emirate’s status as a centre of legal excellence.

In 2016, the DIFC Courts launched the Smart SCT, enabling parties to resolve disputes from any location by participating via smartphone. In July, the Smart SCT was named among the world’s Top 10 Court Technology Solutions by the US-based National Association for Court Management.

 

And with our fourth pillar…innovation. This is where DIFC Courts has given particular attention to in recent years, identifying technological innovation as a key driver to commercial dispute resolution. DIFC Courts recently affirmed its commitment to use technology to increase judicial efficiency by forming a partnership with one of the world’s leading technology companies to drive the digital transformation of commercial courts and create the courts of the future in partnership with Microsoft.

In October 2017 DIFC Courts introduced a specialist Technology and Construction Division (TCD) allowing aa TCD case involving issues or questions which are technically complex, to be heard by a specialised Judge appointed to oversee disputes handled by the division.

The Division was launched in the same week as the DIFC Courts implemented a new web-based case management system developed in-house. Building on existing e-registry capabilities, the new system enables users to access case management information from their mobile phones, tablets and other electronic devices in real time.

Specific features include the ability to upload heavy bundles of documents; an entirely electronic, easy-to-use Small Claims Tribunal (SCT) section; faster and easier searchability of PDF case documents; integration with Emirates Identity Authority enabling verification of court users through their Emirates ID; and an interactive case plan that is automatically updated when documents are filed.

In a move designed to help people and businesses resolve disputes more quickly, the DIFC Courts Small Claims Tribunal (SCT) now offers claimants the option to use direct and instant messaging (like WhatsApp or Facebook messenger) to give defendants notice as part of an expanded range of e-services.

These are today’s dynamic paradigms…but what lies ahead? What are tomorrow’s emerging paradigms? The legal industry is now compelled to adopt technology to become more user-friendly – risks being supplanted by the private sector if it refuses to change.

Dubbed as the “city of the future”, Dubai, which plans to have robot cops, flying taxis and autonomous vehicles on its roads in coming years and appointed a minister in-charge of Artificial Intelligence recently, is planning yet another transformation: to become the world’s first blockchain-powered government. By 2020, the emirate wants all visa applications, bill payments and licence renewals, which account for over 100 million documents each year, to be transacted digitally using blockchain.

According to Smart Dubai, which is conducting government and private organisation workshops to identify services that can be best enhanced by blockchain adoption, the strategy could save 25.1 million-man hours, or $1.5 billion in savings per year for the emirate. Much of this enhanced productivity will stem from moving to paperless government.

An open source platform ecosystem for dispute resolution of crypto transactions allows users to opt into a conflict resolution mechanism that enables more tailored solutions for future currencies, like Bitcoin.

In addition, while smart contracts are coded as self-executing contracts, they do not necessarily provide effective mechanisms for enforcement if one party breaches his or her obligations in the smart contract – blockchain can remove this hurdle.

An open source platform based ecosystem for dispute resolution of crypto transactions could help ensure anonymity in blockchain transactions by facilitating anonymity for transaction parties to opt into the platform.

If dispute resolution services must follow the lead of trade and commerce, then we must also direct our attention to the East – the ‘One Belt One Road’ (OBOR) initiative by China is the largest global opportunity the world has ever seen. Predictions estimate $900 billion of infrastructure investment to revive one of the world’s oldest trade passageways.

Looking East and developing relations with China is amongst the foreign policy priorities of Dubai and the UAE. China has been Dubai’s biggest trading partner since 2014 and it has been the second-largest trading partner of the UAE since 2011. According to the UAE Ministry of Economy, the total UAE-China trade amounted to $141.74 billion during the 2014-2016 period. Non-oil trade between the two countries stood at $46.3 billion in 2016, with the UAE’s investments in China worth more than $2.1 billion.

But what does all this mean for commercial dispute resolution? Legal infrastructures will need to look at IP/ supply chain / transnational disputes, all associated with the Silk Road renewal. Emerging as the modern-day crossroads connecting east and west, Dubai’s commitment to harness technology and to be a City of the Future will play a role.

An example of how we rose to the challenge of connecting to the OBOR was by forging an agreement with one of China’s leading arbitration bodies. The Memorandum of Understanding (MoU) with Hangzhou Arbitration Commission targets the development of online dispute resolution solutions to bolster global e-commerce and the use of smart technologies, such as artificial intelligence and blockchain. The agreement will also support the development of enforcement mechanisms between Hangzhou and DIFC Courts.

Finally, if we look to the long-term future challenges for commercial dispute resolution. What will be the challenges in 20, 30 or 40 years’ time? What law and mechanisms will dispute resolution services need to adopt in order to keep pace? Are the necessary laws in place to allow secure innovation? How do you resolve disputes in the global 3D printing technology supply chain? The same goes for all the emerging technologies of recent years, from autonomous cars and drones through to artificial intelligence and blockchain.

When something truly innovative hits the market, new legal questions around liability and applicable laws and regulations are posed. In response, regulators and policymakers set to work to ensure the necessary legal framework is in place to protect both people and businesses. Finally, court systems step in to resolve new types of cases and disputes.

In an era of significant technological disruption, this process becomes ever faster and more dynamic. This prompted the DIFC Courts, together with the Dubai Future Foundation, to think ahead. If new technologies are creating challenges for regulators, what will the impact be on the court systems that will resolve the commercial disputes that inevitably arise?

Moreover, just as the UAE is a true leader in adopting innovations such as 3D printing, is there an opportunity to ensure that the country also remains at the forefront of commercial justice in the years and decades ahead?

As a result, the DIFC Courts and Dubai Future Foundation have established the Courts of the Future Forum, an initiative that brings together international legal, technology and business experts to first understand the full legal implications of rapid technological change and then prototype a future commercial court that can operate anywhere in the world.

So, the obvious question is: what will the courts of the future look like? We can already say with some certainty that technology will enable them to bridge barriers of language, borders, jurisdiction and currency. But the honest answer is that we don’t know, which is why we have launched an unprecedented global consultation to help us find the answer.

To begin the process, the Courts of the Future Forum has developed an initial set of Founding Principles, effectively a draft set of rules to underpin a globally connected commercial court 20, 30 or even 40 years from now. Called “Part 40,000” rules – because 40,000 km/h is the speed required to break free from the atmosphere – the principles strike a bold trajectory to break free from the conventional commercial court thinking.

Launched alongside the recent World Economic Forum Annual Meeting of the Global Future Councils in Dubai, anyone, anywhere with an interest in commercial justice can participate in the Part 40,000 consultation through an open-source platform until the end of January 2018. We have invited contributions from the chief justices of the world’s leading commercial courts, and look forward to understanding the different viewpoints of experts from across the world.

For more information about the DIFC Courts and/or Courts of the Future Forum and the global consultation exercise, please visit http://www.courtsofthefuture.org/part-40000-principles/

Speaking at the launch event, Marvin Ammori, Chief General Counsel, Virgin Hyperloop One, said: “With the help of a top accounting firm, we are currently researching where to house our IP to protect it and Dubai was among the top cities on our list. To have something like the Courts of the Future initiative, with the thinking and intelligence that’s gone into this, it ticks all the boxes.”

We are at the beginning of an ambitious process to shape the future of commercial justice and provide “techpreneurs” and businesses with secure innovation and legal certainty in an era of rapid technological change.

It is a big job and we do not expect to have all the answers come February, when the Courts of the Future Forum will next meet, but we do believe it is the right time to start asking the big questions.

 

 

 

 

 

 

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