The Inter-American Development Bank (IDB) board has approved support for a Commercial Court and an Alternative Dispute Resolution Mechanism (ADRM) and it expects to sign the financing agreements with the government next week.

Resident Representative Sergio Olea-Varas indicated yesterday that the IDB had approved the project.

The Bank is providing US$500,000 as a non-reimbursable technical assistance for the project and the government has to match this with US$50,000. The Bank only recently completed the detailed designs for the court and the ADRM and the approval by its board will clear the way for the operationalisation of both mechanisms. Training has already started for persons for the ADRM.

The establishment of the commercial court and ADRM are seen as necessary to strengthen the enabling-environment for the private sector because as it stands, there are difficulties enforcing property rights and contracts, which increase the risks to private capital.

The commercial court is to be presided over by qualified and motivated judges to improve the judicial decision-making process and provide enforcement for commercial activities, including financial transactions.

Strict case-management practices and systems are to be provided to the Court under the technical assistance project as well as training for the support staff.

In the case of the ADRM, qualified arbitrators and mediators are to be retained to handle matters that fall under their purview.

The ADRM is expected to be an expeditious and effective alternative to the court system in resolving disputes.

The present court system has been found to be “ineffective and overwhelmed” and the IDB has argued that a weak enabling-environment discourages private investments, as financial intermediaries cannot effectively secure collateral for credits.

In the project profile, the IDB noted that decisions in the current court system were often neither prompt nor transparent and “often appear based on questionable jurisprudence”. It said as well that when decisions were rendered, the commercial sector had found enforcement to be slow and cumbersome with the accompanying reasons for decisions often not published for months or years after a decision, preventing an appeal. “This judicial environment increases substantially the risk of financial transactions, particularly with respect to property, fixed or moveable, as effective guarantees.

Without an effective threat of judicial enforcement, there are limited costs to non-payment of creditors and the consequent development of a weak payment culture.

This weak legal enforcement of financial contracts is viewed as perhaps the greatest obstacle to more rapid market development,” the Bank said in the project profile.

The IDB found varied reasons for the poor performance including judges being insufficiently trained in all aspects of law, particularly commercial law, the lack of legal information and resources at the judges disposal, which facilitated delaying tactics by debtors (such as the requests for injunctions or stays of execution) as well as inappropriate decisions and the slow enforcement of decisions.

The insufficient number of judges and inadequate court-administrative capacity were also found to be other bugbears in the system.

The backlog of civil cases at the end of 2002 exceeded 11,000, which is more than double the number of civil cases dealt with annually. At least a third of the cases filed in 2002 related to claims involving financial institutions.