JEDDAH – Breaches of contract and payment defaults are the biggest causes of commercial disputes for companies operating overseas today, a new research conducted by The Economic Intelligence Unit (EIU) for global law firm Reed Smith revealed Tuesday. The study further said that intellectual property theft is a fast-growing concern for business leaders, with an increasing number forecast to end up in an international commercial dispute over the next two years. “Business leaders expect IP issues to become one of the biggest areas of commercial dispute in the next few years, particularly as they expand into developing and emerging markets, the EIU report titled “Troubled Waters: The Risks of International Commercial Disputes” noted. Against this backdrop, businesses operating in the Middle East are increasingly turning to arbitration over litigation in resolving disputes, the report, which came from a survey of more than 450 senior executives from multinational businesses worldwide, said. The EIU report highlighted the importance to companies of having clear routes to resolution when a dispute arises – and preparation for dispute resolution in advance rather than when required is vital. Businesses should conduct a detailed risk assessment and have a clear plan to resolve disputes rather than spend valuable time and resource solving when problems arise. Chau Ee Lee, Reed Smith's Dubai Office Managing Partner and a partner specializing in the resolution of international construction and engineering disputes, said: “Businesses operating in the Middle East are increasingly turning to arbitration over litigation in resolving disputes. A large number of these disputes have been construction industry-related; pertaining to issues of breach of contract and/or payment default.” “Since the UAE's accession to the New York Convention in 2006 and the coming into force of the Dubai International Arbitration Centre's (DIAC) revised arbitration rules in 2007, Dubai has emerged as an attractive hub for the resolution of both domestic and international commercial disputes through arbitration. However, Middle East arbitration practitioners and commentators have often lamented on the inadequacies of the local court regime.” “Concerns persist over enforcement of both domestic and foreign arbitral awards by local courts, and the DIAC has been seen principally as a domestic arbitration center. However, progress made in recent cases has served to enhance confidence in Dubai as an arbitral center for the resolution of domestic and international commercial disputes.” The survey found out also that one in four companies across all sectors have faced an international commercial dispute in the past two years, rising to three in 10 of transport and shipping business. Charles Weller, Partner at Reed Smith, specializing in international arbitration in the shipping sector, said “the main cause for an international commercial dispute is breach of contract. Particularly as technology evolves, and negotiations are developed electronically, disputes can arise as to whether contracts have been concluded.” “Consequently, companies must consider the risks when expanding as cultural differences around whether a contract has even been made can impact on legal proceedings and mean that enforcement is not always a viable option for collecting in a contractual dispute.” Carolyn Pepper, Partner at Reed Smith and an expert in intellectual property and dispute resolution, said: “Companies which rely heavily on the value of their IP are increasingly worried about IP infringement and enforcement and don't expect the situation to improve quickly, our report found. Many businesses will regard these perceived risks as an acceptable cost of conducting business in certain markets, but others won't.” “Unless strong messages are sent out on enforcement companies will continue to be wary and executives may think more carefully about investing in or doing business in territories where they do not think that the protection available for IP rights is as strong as they would like.” Gautam Bhattacharyya, Partner at Reed Smith, specializing in international commercial litigation and arbitration, and co-chair of the firms India Group, added: “BRIC nations need to be seen as attractive markets for long-term overseas investment. In terms of IP, Russia and China have been one step ahead of India and Brazil as they modernized their IP systems by joining The Madrid Protocol - the international trade mark registration system - which is seen as a marker of economies which have arrived. “India has taken a great leap forward this year by applying The Madrid Protocol from July 2013 which will, it is hoped, assuage concerns over IP rights and protection for foreign owners who would like to tap into the target English-speaking consumer market in the world. Brazil seems likely to follow at some stage, but that time does not seem to be near.” – SG
