Business attraction

In the words of Shaikh Khalid Bin Ali Al Khalifa, Bahrain Minister of Justice and Islamic Affairs, upon launching the Bahrain Chamber of Dispute Resolution (BCDR - AAA) in January 2010: "Alternative Dispute Resolution (ADR) is now an essential tool of modern commercial transactions and a key component in both Bahrain's Vision 2030 and our National Economic Strategy, aimed at enhancing Bahrain's future economic outlook. It will help extend the legal services sector offering here in the kingdom, stimulate economic trade and further enhance Bahrain's international business and legal credentials."

Financial Review spoke with James MacPherson, CEO, BCDR- AAA, to hear more about what it means.

What is the Bahrain Chamber of Dispute Resolution? Is it part of the government?

No. The project was headed by the Ministry of Justice and Economic Development Board, but has an independent board which includes the CEO and the Senior Vice-President of the American Arbitration Association (AAA). One of their functions is to make sure of our independence, that our neutrality is paramount. BCDR - AAA is a home-grown option, but to have instant credibility in the marketplace we felt that for cases that are regional or international, we needed to partner with a reputable global ADR provider with a set of arbitration rules that were already tried and tested. With 850 international arbitration cases in 2009, AAA is far and away the largest such provider in the world.

Where do these rules come from: the private sector domain, or perhaps the US public sector? What do they entail?

From the private sector. The AAA is a not-for-profit organisation founded in the 1920s. It provides arbitration and mediation services both nationally and internationally. Arbitration has always been private sector, as was the case too in Europe. But in the Bahraini case the government decided to have two types of arbitration, based on research by our steering committee, about moving what would have been commercial and financial court cases to Statutory Arbitration Tribunals.

The first is section one of the statute, for the local market, for cases that exceed 500,000 dinars (about Dh4.8 million) in value, involving either an entity registered with the Central Bank or which has an international business component — so that by those criteria such cases will be filed here directly for a statutory tribunal hearing, which is a world-first, and which has been uniformly well received by those to which it applies.

The second is section two, for the entire region, and another first, where if parties agree in writing to utilise a free arbitration zone mechanism when the applicable law is not Bahraini, and it is to be enforced outside Bahrain, then the award will be guaranteed and not subject to challenge in Bahrain courts.

These two sections — approved by parliament and reviewed by the constitutional court — were what arbitrators, lawyers and business people dreamed of having. Many commented that they were simply astounded that we managed to put this together.

Retrospectively, does it mean mediation and arbitration in the Gulf have been defective? Does it now mean you have a regional capacity beyond Bahrain, and others may have to imitate?

In past years, Bahrain and its neighbours have engaged in ADR, and to considerable effect. The issue is more improving the provision of services. Obviously, we are convinced there is nothing like this offered in the region in the component pieces. The day we opened our doors, the alliance with AAA meant we had that seal of approval, and no one is going to doubt the seriousness or professionalism of the project. Others will look at the momentum here and there will be some degree of [imitation]. AAA is focused on Bahrain because of its position as a regional hub. The focus is here, the infrastructure is excellent, the place is compact. We have invested considerably in our technology and facilities, so people won't have to make other arrangements in a parallel fashion.

This particular centre has been a home-grown initiative, and the outside partners we found focus on both mediation and arbitration, not just arbitration. We see that in this region mediation will be a key piece. There are mediations going on here, about 240 requests at the Chamber of Commerce in Manama in the past five years. Bahrain has always played an innovative and leadership role in these sorts of things. The bankers and business people and all others involved all want to have world-class mechanisms.

We have to measure up to all other jurisdictions. When the World Bank assesses how easy it is to do business and resolve issues, Bahrain was ranked 20th, a good number, but we believe we can surpass that. The key for business people is predictability. We believed the Gulf region didn't have that fully met. And we are using Bahraini locals to do the work here of doing such case management locally.

Does this development support Bahrain mainly as a financial centre, or in respect of the non-financial sectors as well? How much is essentially a tool for enhancing comparative competitiveness, viewed in terms of business environment rankings?

It is designed to promote business, period. It is also part of Bahrain's Vision 2030 story. From a competitive standpoint, if Bahrain wants to attract more foreign investment, it is essential that it has an appropriate ADR centre that works in reality. The stakeholders in this project wanted the entire country to be involved, not for a particular niche to be carved out, with a structure applying to everyone.

The impact] will be visible. For section one, it is tailoring the handling of disputes to a more focused process, dealing with pretty sophisticated litigants. For section two, this is a jurisdiction without a doubt among the most friendly to arbitration that currently exists. Not only does the law provide for a free arbitration zone, but we've been training locally [to this effect] using international expertise.

Most such precedents in the region have been outsourced. And we are looking to reach out to the entire region in this process.

Bahrain is already ranked 13th in the world, and first in the North Africa and Middle East region, in the Heritage Foundation's index of economic freedom. We are building bridges for business across the region, and between bankers, accountants, lawyers. Being sited here will benefit Bahrain, since when a general counsel [for a company] tries to determine which country to [advise to] invest in, s/he will look to section one and two and conclude that this is the place to go to.

If you expect to attract international players, they expect international service and standards, and want to do business in the best markets wherever they are found. Banks, construction companies, insurance companies, health groups – these are all huge users of ADR services globally. They are unilaterally calling us asking when we will be open for business, and they're now very pleased, as they can now draft their deals and add us as a clause, i.e. section two, in their contracts.

In the local cases, section one, they have already kicked in. No one, wherever in the world, wants to go to court – they're notoriously slow, expensive, unresponsive, unfeeling -- whereas arbitration is about the customer. Here, though still a legal claim, it would be handled by experts and move faster - which is always good for business.