Tuesday April 16, 2024

Invest in ADR

Economic and societal progress cannot be achieved without granting more access to the legal system

By Hafiz Ahsaan Ahmad Khokhar
February 15, 2024
This picture shows a general view of the Karachi sea port. — AFP/File
This picture shows a general view of the Karachi sea port. — AFP/File 

Alternative Dispute Resolution (ADR) is a valuable legal framework for settling disputes out of court and is crucial for resolving trade disputes and increasing foreign investment.

This system of dispute resolution can be used in a variety of ways, including neutral evaluation, arbitration, mediation, and conciliation. ADR provides speedy resolution of all disputes and relieves the courts of the burden of managing a large number of cases that are beyond the scope of human expertise. In general, the procedures of arbitration, mediation, conciliation, and neutral evaluation are private, less formal and stressful than traditional court hearings, and they are widely accepted practically worldwide.

It is widely recognized without reservations that ADR presents many advantages over traditional litigation, which settles disputes via the judicial system. Strong legal systems and effective dispute-resolution processes encourage investors to increase their investments. Moreover, ADR is more affordable for people, businessmen, investors and organizations with low funding or for those who would otherwise find it difficult to pursue traditional litigation due to linguistic or physical limitations. It provides a variety of options that can be customized to fit various requirements and situations. Unfortunately, Pakistan is falling behind in this regard, leading to a lack of investment in the country.

With almost over two million cases waiting in Pakistan's lower and superior courts, the country's legal system is severely overburdened. This has resulted in inefficient government, doubts over the validity of rule of law, and additional barriers to the development of a robust economy. Economic and societal progress cannot be achieved without granting more access to the legal system, offering robust protection to businesses, and instituting early dispute settlement protocols. A high level of growth is required in economies with strong legal systems and effective procedures for preserving contractual obligations to quickly build a business climate that promotes innovation and attracts foreign direct investment. It is more likely that investors will raise their stake.

A dispute resolution mechanism that safeguards and preserves investor rights through nondiscriminatory laws and regulations is one of these requirements, along with dynamic and contemporary legislation that upholds investor rights through an independent and strong legal system. The ease with which contracts can be enforced is one measure of how easy it is to conduct business in Pakistan. Regarding the nation's ability to uphold fundamental rights and advance civil and criminal justice, it is rated as the least effective nation in the world.

Right now, Pakistan's economy is ranked 156th out of 190 in the world. A survey has recently found that the average time to resolve a business dispute in Pakistani courts is 1,071 days. Following that, an appeal may be filed, initially with a high court and then the Supreme Court. It is not unusual for a lawsuit to take more than a dozen years to be resolved. This is the main reason behind Pakistan's 156th position on the World Bank's Enforcing Contracts Index, hindering the investment environment both for local and international investors.

There are also plenty of terrifying tales about the years that were lost during Pakistan's arbitration award filing process or the court's selection of arbitrators. Years have passed before the verdicts are carried out, which has left billions of dollars in funding in limbo and delayed the payment of damages from an arbitration-decided issue. These issues have also stopped foreign direct investment from coming into the nation, which would have created jobs and increased economic development. Although investors and foreign organizations typically demand contracts to include a dispute resolution clause that covers mediation and arbitration, they are openly sceptical about Pakistan's legal system. This is why legislators and decision-makers urgently need to take Pakistan's greater commercial interests into account.

ADR models come in a variety of forms and have been around for a while, with successful implementations in industrialized and developed nations. Due to their consistent investment flows, open investment regulations, and supportive modern general and arbitration-specific infrastructure, China and Dubai are recognized as two of the top developing economies. These factors have contributed to their rapid economic success.

The achievement of prominence in both foreign and domestic investment ultimately rests only on the maintenance of dynamic economic and governmental policies that foster economic growth, the progressive revision of local laws on an ongoing basis, especially with regard to the resolution of disputes, the construction of state-of-the-art infrastructure, and the persistent observance of global best practices and standards.

The continuous use of the ADR process and the appropriate modification of all pertinent arbitration laws in Pakistan to align with worldwide best practices will surely have an impact on many aspects of society, especially those related to local and foreign investment. Fast resolution of business disputes would increase consumer confidence both locally and globally.

The federal government must collaborate with provincial governments to prioritize the enactment of new laws or the amendment of existing ones to promote the use of ADR techniques, particularly for commercial and investment matters, such as conciliation, arbitration, and mediation, and to bring them under codified harmony with a time limit. This can mean updating the legislation with provisions that ensure the execution of ADR agreements and the legal acceptance of ADR outcomes.

Finally, there is no doubt about it: to create an atmosphere that draws in both domestic and foreign investors as well as the local business community, Pakistan must fulfill all necessary conditions, including those related to ease of doing business and an early dispute resolution mechanism through an efficient justice and governance system. Further, to resolve concerns about foreign investments as well, it is also crucial and necessary that Pakistan should apply the updated United Nations Commission on International Trade Law (UNCITRAL) to dispute resolution.

The writer is a practising advocate of the Supreme Court of Pakistan with 25 years of legal standing. He can be reached at: