Enforcing contracts in Dubai: much more to be desired

A prompt settlement of business and commercial disputes saves a lot of time and resources that can be channeled into productive uses.

On the other hand, lengthy and protracted settlement of business disputes may lead to the loss of economic and social value.

This article compares Dubai with Singapore in terms of the number of procedures, time duration and financial cost involved in settling a business dispute through the judicial system.

The comparison of Dubai to Singapore is justified because of the similarities of the two economies and the vision of Dubai to be the best place for doing business in the world.

The article is based on data from Doing Business 2008 of the World Bank Group.

Please note that Doing Business has reported the data for UAE, but actually it is based on Dubai data.

Doing Business tracks the efficiency of the judicial system in resolving a commercial dispute, following the step-by-step evolution of a commercial sale dispute before local courts.

The dispute between two businesses (the Seller and the Buyer) concerns a contract for the sale of goods.

The Seller agrees to deliver the goods to the Buyer.

After receiving and inspecting the goods, the Buyer concludes that their quality is inadequate.

The Buyer sends the goods back without paying for them. The Seller disagrees and argues that their quality is adequate.

The Seller seeks full payment from the Buyer, arguing that the goods cannot be sold to a third party because they were custom-made for the Buyer.

The Seller sues the Buyer before the court to recover the amount due under the sales agreement.

Three indicators of the efficiency of commercial contract enforcement are developed (i) number of procedures, which includes all those that demand interaction between the parties or between them and the judge or court officer, (ii) time, which counts the number of days from the moment the plaintiff files the lawsuit in court until the moment of payment.

This measure includes both the days on which actions take place and the waiting periods between actions, and (iii) cost, which measures the official cost of going through court procedures, expressed as a percentage of the claim.

The cost includes court costs, enforcement costs and attorney fees.

While Singapore ranks number 4 worldwide, Dubai ranks number 144 out of 178 economies worldwide. Singapore outperforms Dubai in all contracts enforcement indicators.

Dubai tracks the average of North Africa/Middle East region, more or less.

It is very interesting to note that Dubai rank (144) is just below that of Sudan (143) and above that of Egypt (145).

One explanation for this may be that Dubai court system is heavily influenced by the judicial systems and patterns of Sudan and Egypt.

It seems this is a plausible explanation given the historical development of Dubai judicial system and how it has been shaped by the judicial experiences of those two countries, both in terms of enacting of laws and their interpretation and application and enforcement in practice.

It takes only a third of a year (0.33) to settle the commercial dispute through the court system in Singapore. It takes one year and two-third of a year (1.66) to settle it in Dubai, which is about five times (5.1) the duration of Singapore.

The number of court procedures in Dubai are more than twice (2.3) that of Singapore.

The trial and judgment takes more than one year (1.1) in Dubai, which is almost five times (4.5) the duration that it takes in Singapore.

The financial cost for settling the dispute in Dubai is one and a half times (1.5) that of Singapore.

All these indicators of enforcing a commercial contract point to the fact there is a real need for reforming and speeding up the process of settling business disputes through the judicial system in Dubai.

The areas of reform are the number of procedures, time duration and financial cost of settling a commercial dispute through Dubai court system.

It is proposed that the number of court procedures to be reduced from 50 to 25 procedures, i.e. a reduction 50%.

It is proposed that the time duration to be reduced from 607 to 200 days, i.e. a reduction of 67%. T

his comprises 32% reduction in the time duration of filing and service from 37 to 25 days; 75% reduction in the time duration of trial and judgment from 400 to 100 days; and 56% reduction in the time duration of enforcement of judgment from 170 to 72 days.

It is proposed that the financial cost of the settling the dispute to be reduced from 26% of the claim to 18%, i.e. a reduction of 31%.

This comprises 41% reduction in court cost from 8.5 to 5% of the claim. 61% reduction in enforcement cost from 7.75 to 3% of the claim.

The proposed reforms put more emphasis on the reform of the number of court procedures and the time duration those procedures take and less on the financial cost.

Dubai Chamber is currently coordinating with the experts and the concerned authorities to come up with the best reforms in the area of commercial dispute settlement in Dubai.