Bahrain launches independent financial arbitration centre

What is described as the world's first arbitration 'free zone' avoids the problem of the delays and uncertainty arising from using national courts.

MANAMA // In a move aimed at attracting more foreign investors and reinforcing the Gulf island's status as a "commercial hub" for the region, a new independent arbitration centre for commercial disputes was unveiled in Bahrain this week. The Bahrain Chamber of Dispute Resolution, which is a joint initiative between Bahrain's ministry of justice and the New York-based American Arbitration Association, will act as the arbitrator between the parties that voluntarily present their grievances and agree to accept its ruling as a final and binding resolution.

The chamber, which has been described as the world's first arbitration "free zone", avoids the problem of the delays and uncertainty arising from using national courts. It has the authority to arbitrate cases where the claim is more than 500,000 Bahraini dinars (Dh4.7 million) and involves an international party or a party licensed by the Central Bank of Bahrain. Its rulings are not subject to challenge in Bahrain once they are handed down, but the parties involved can still seek alternative legal judgment through other national courts if the law allows in those countries and the parties involved opt to do so.

Bahrain's minister of justice and Islamic affairs, Sheikh Khalid bin Ali al Khalifa, said during the opening of the chamber's offices in Manama on Monday that about 80 per cent of the commercial disputes could be settled through mediation and alternative means of arbitration. "The chamber will provide judges and arbitrators specifically trained in mediation and arbitration of commercial transactions, something that their counterpart judges in the normal courts do not possess," he said.

Sheikh Khalid said that the independence of the chamber would reinforce investors' confidence and pointed out that Bahrain was seeking to develop its legislative procedures to keep pace with global developments and enable investors to settle their disputes in a fair and quick manner. "The chamber is also a key aspect of Bahrain's Vision 2030 and National Economic Strategy. It will help develop the legal services sector offered here in the Kingdom, stimulate economic trade and further enhance Bahrain's international business and legal credentials," Sheikh Khalid said.

He said that the rules governing the new alternative dispute resolution legislation were themselves codified as part of domestic legislation. "We were conscious that the commercial market required not only surety of process and award, but transparent and secure integration with Bahrain's existing legal structures. "The effect of this is now a balanced and consistent model that provides certainty and ensures the ADR process is embraced and provided for within Bahrain's courts system," Sheikh Khalid said.

"As the Middle East's largest and most effectively regulated commercial and financial centre, with more than 400 licensed financial institutions, Bahrain wanted to ensure ADR was of specific additional benefit to this vital sector of the economy." Sheikh Khalid said the move is aimed at providing additional benefit to Bahrain's commercial, banking and financial services sectors. He also said that the chamber, which would cost between 2.5 and 3 million dinars a year to run, was mainly aimed to serve regional needs in the Gulf, Iraq, Yemen, and Iran but it was open to review cases from across the globe.

The chamber's chief executive, James McPherson, said that they hand-picked their team out of 700 initial applicants that was whittled down to just over 180, mainly Bahraini, applicants before the final selection was made. "This team now includes four New York-trained lawyers, two Bahraini lawyers who have been trained in New York, as well as the wider team who have had the additional benefit of ongoing training and professional development via the Chartered Institute of Arbitrators in London," he said. "We will continue to work with the Chartered Institute of Arbitrators specifically to train arbitrators, in Arabic, here in Bahrain. Furthermore, our own professionals as well as judges and lawyers in Bahrain's legal community, have participated in a series of symposia and briefings aimed at expanding professional development in the practice of ADR."

Mr McPherson, said that over the coming months, the chamber will be increasing by more than two-fold its ongoing investment in the development and training of Bahraini lawyers. "We will also begin the process of reaching out to bankers, accountants, civil engineers and other professional sectors, to help develop sector specific arbitration expertise and, in the process, participation as potential arbitrators of tomorrow from among them," he said.

Sheikha Haya bint Rashed al Khalifa, a Bahraini lawyer who is the head of the chamber board of trustees, and the former president of the United Nations general assembly, said they expected the first cases to be transferred from local Bahraini courts to their chamber within the coming weeks. [e-mail]