Policy change needed for enforcing business contracts

Enforcing contract remains a key challenge in improving business climate in Bangladesh. Data collected for 'Doing Business Report 2018' shows that contract enforcement takes 1442 days and costs 66.8 per cent of the value of the claim. Bangladesh slipped one step in the ranking and attained 177th position out of 190 countries in Doing Business Report 2018. Of the 10 indicators, the country performed worst in the 'enforcing contract' indicator, ranking 189th.
In Bangladesh, it takes about 4 years on an average to get a contract enforced, the comparative scenario in India is almost the same, taking 1,445 days, but the cost of claimed value to resolve a case is much less -- 31per cent. In order to ensure a favourable business climate for both local and foreign investors, policies for enforcement of contracts need to be streamlined.
Bangladesh has been working towards achieving the target of Vision 2021 which includes the target of raising export to US$54 billion. To achieve the target, regulatory reforms conducive to doing business are necessary, especially in the area of contract enforcement where Bangladesh especially lags behind.
Business Initiative Leading Development (BUILD) carried out a problem-tree analysis. The main problems included the following: (1) Faulty drafting of a contract can leave the room open for arising of disputes; (2) Unscrupulous business entities sometimes make false or vexatious claims to inconvenience their counterparts; (3) Case management by the court has certain shortcomings, e.g. lack of distinction between complex and simple cases; (4) Forum shopping and interlocutory matters, i.e. parties can drag a case through several levels of the judiciary; (6) Repeated adjournments and low penalty for non-abidance with time limits; (7) Lack of use in digital technology;(8) Lack of adequate coverage on commercial law in curriculum; and (9) Lack of wider usage of Alternative Dispute Resolution (ADR).
In order to identify the key stakeholders who could play an important role in this area, BUILD conducted a brief stakeholder analysis and considered stakeholders who have the highest level of interests, incentives and power. The key stakeholders included the Supreme Court, Prime Minister's Office and Cabinet Division, Ministry of Law, Justice and Parliamentary Affairs, Law Commission, BIDA, Bar Council and lawyers, Business Chambers, Women entrepreneurs, Civil Society and Academia, Media and similar other quarters.
The recommendations to resolve the problems with contract enforcements were divided into short and long-terms. The short-term recommendations included (1) Establishment of a multi-tier system for case management; (2) Establishment of specialised Commercial Courts at divisional level; (3) Organising pre-trial case management conference; (4) Reducing the number of permissible adjournments and forum shopping as well as appeal ; (5) Raising of cost orders; (6) Clearer understanding about enforcing contracts among key stakeholders; (7) A detailed Study on enforcing contracts; and (8) Reform of Alternative Dispute Resolution (ADR).
The long-term recommendations included the following: (1) Digitisation for e-courts; (2) Centralised case management; (3) Human Resource Development.
The proposed advocacy strategy identified required actions for each of the recommendations. Bangladesh Investment Development Authority (BIDA) may act as the champion of the reforms.
Foreign organisations take contracts very seriously, while local organisations do not do so. Due to contract-related disputes, many foreign organisations have left Bangladesh, including some Japanese organisations.
BIDA is a facilitating organisation, it cannot contribute intervene in the amendments to laws, rules and processes that are needed for bringing about reforms. Hence, related organisations of the government should cooperate to ensure reform.
Foreign investors often face problems for branding, they take Trade Mark registration from the concerned offices but it is often copied with fake brand name. Their business faces loss and eventually they have to withdraw their business. Department of Patents, Designs and Trademarks (DPDT) felt that the role of DPDT is to protect intellectual property rights. However, it is the duty of the aggrieved party or owner of the brand to inform DPDT about any infringement. Other government agencies like court, police, or customs could also send query to DPDT regarding such issue. The situation is not yet business friendly, time spent, unclear procedures always have hindered for business.
Besides the above, there are problems that adversely affect doing business, especially by the foreigners. It is often found that remitting money outward or inward for genuine reasons is difficult because of unclear policy. It is difficult to convert a temporary foreign currency account into a permanent account for a genuine foreign investor. It is necessary to allow some flexibility in the banking services for international trade. Merely going digital or online is not the panacea; rather it is important to ensure better service delivery, including time efficiency.
India took a number of steps for ameliorating its conditions of doing business, such as FDI Policy 2016, Goods and Services Tax, IPR Policy 2016, and most importantly, the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015. The last mentioned Act provides for establishment of separate commercial courts with specialised judges. India also revised the Code of Civil Procedure.
Appointment of specialised judges for commercial cases was another recommendation. Mentioning the long time taken due to interlocutory orders, stakeholders recommended narrowing the scope for such provision, following the Indian example. There should be a clear definition of what constitutes commercial disputes.
Commercial courts should be established at the district level. Arbitration and mediation should be made compulsory and popularised. Even though it is in the policy but use is not enough. Pre-action protocol would be very useful to solve problems before going to the court. Also, Code of Civil Procedure and ADR-related provisions need to be reviewed. There are three specific phases of the case, these are : preparation of contracts, performance of the contracts, and dispute resolution.
Companies Act is one of the issues awaiting reforms for long, a number of stakeholder consultation have been organised but it is not yet finalised. Regarding the issues of enforcement of contacts, the most emphasised point is the high attorney fees. Bangladesh does not have an adequate number of well-qualified lawyers who are needed by companies to draft contracts. On the other hand, the attorney fees are higher in Bangladesh compared to other countries.
The issues involved in ensuring contract enforcement are diverse. There are many critical dimensions that need to be addressed carefully through well coordinated efforts.
Ferdaus Ara Begum is CEO, Business Initiative Leading Development (BUILD), a partnership organisation of DCCI, MCCI and CCI.
[email protected]