Commercial Dispute Resolution
Commercial dispute resolution, properly understood, describes a range of mechanisms that can be used by the private sector and government to avoid, manage, and resolve commercial conflicts. These include courts, arbitration and mediation, but also informal institutions, traditional conflict resolution approaches, and various private sector skills such as contract drafting and receivables management, as well as systems that match consequences to behavior – credit information bureaus, self-regulating bodies, ombudsmen, and even property registries.
Courts are normally the last resort for resolving commercial disputes, but when they come into play, they may be the only resort. Consequently, they are fundamental for ensuring the overall integrity of the conflict resolution systems. Afghanistan is currently rebuilding its courts. Though once respected for efficiency and general trustworthiness, the years of Russian interference, civil war and Taliban domination took a severe toll on the judiciary. Today, the country is essentially starting over.
Arbitration and mediation have recently been introduced on a formal basis. A hybrid version, however, has been around for centuries, if not millennia, in the form of the shura or jirga. These traditional councils of elders mediate disputes between parties, then issue a binding decision, as would an arbitration panel, which is enforceable through community pressure and even the courts. Unfortunately, the system is not always well suited for “foreigners” – either investors from other countries or outsiders from other Afghan provinces. Consequently, formal systems are needed as an additional option in the commercial sphere.
Other pieces of the dispute resolution system are either missing or damaged. Afghanistan has no credit information bureau for assessing the likelihood of disputes over eventual non-payment of debts, nor is there sufficient public court data to determine past history of potential business partners as defendants or plaintiffs. Contract drafting skills are very limited. There are no collection agencies. Few self-governing bodies – such as business associations – have been structured or established to handle disputes among or against their members. Property registries are being rebuilt for immovable property, and have not yet been established for immovable and intangible property. Within this fractured framework, however, are opportunities for creating a better conflict resolution infrastructure than has previously been available.
This chapter primarily examines the formal systems for court adjudication, arbitration and mediation, including court administration, by separately examining the framework laws and implementing institutions, but combining the analysis of supporting institutions and social dynamics because of the many overlapping themes. Keeping in mind conflict resolution is a system and not simply an event, this chapter will also examine some of the other components of the system noted above that are frequently neglected in the more pinpointed analysis applied to formal commercial dispute resolution bodies such as courts and arbitrators.
For the formal systems of adjudication, the overall legal framework is reasonably sufficient to support the needs of the developing economy, if applied. There are some gaps, but the basic system of commercial procedure – on paper – will not need substantial amendment for some years. Arbitration and mediation have formally been introduced through the recent adoption of new laws, and these should also be adequate for this stage of development. To the extent that amendments are currently needed, most changes can be accomplished through regulation and internal decree, without recourse to the more difficult process of amending the codes.
The institutional structures are not so robust. Not only did government institutions and civil society organizations retreat or disintegrate during the war years, the underlying educational system was badly damaged as well. As a result, many of those responsible for the administration of justice have minimal educational and practical qualifications to fulfill their roles. As the schools are re-established, new and better qualified judges and lawyers will be available, but it will take time.
The demand for reform is significant. A reliable, trustworthy court system is one of the principle pillars of economic growth. Courts underlie the capacity – or incapacity – of banks to make loans at affordable rates, because the costs and risks of enforcement are critical elements in the calculus of lending. Courts also determine a substantial portion of the stability and safety that investors need to initiate or increase investment. Without reliable “referees” to fairly apply the “rules of the game”, investors stay out of the investment game. Court reform must therefore be one of the highest priorities until the system has been restored.
The current level of instability in the formal system suggests that economic actors must primarily rely on informal and alternative systems of dispute resolution for the immediate future. The shura or jirga systems, while imperfect, enjoy popular legitimacy at many levels, and even hear conflicts between sophisticated investors. Reliance on these structures has risks, but ones that can be managed and reduced. Use of formal structures will increase only as users begin to perceive them as trustworthy, so that there is likely to be a natural evolution toward use of formal courts, if the courts provide benefits greater than those currently provided by the shuras and jirgas.
The informal system, at heart, is significantly similar to formal mediation and arbitration systems. As such, it provides a cultural foundation for growth in these alternatives. While not suitable for some types of conflict, the average business conflict can be handled adequately through these approaches. Indeed, shifting reliance to alternative forms of resolution will help create a better long-term approach to commercial conflicts, in which the courts will more appropriately emerge as the last resort, instead of becoming the backlogged, unproductive first resort that they have become in so many transition countries that do not have effective CDR.
