Business disputes take out-of-court route as court processes prove lengthy

Businesses and individuals are increasingly choosing to solve business-to-business and tax related matters outside the normal judicial system as court processes prove lengthy.

This is according to reports by the Ministry of East African Community (EAC) and the Kenya Revenue Authority (KRA), who reckon that the trend points to the need for alternative dispute resolution (ADR) mechanisms.

Data shows an increase in matters resolved through ADR and more than Sh14 billion unlocked, as Kenya seeks to ease caseloads and release locked cash into the economy.

A report looking at the country’s ease of doing business submitted to Parliament by President Uhuru Kenyatta last week states that the establishment of Court Annexed Mediation (CAM) in 2015 has helped unlock Sh9 billion through resolution of disputes.

“So far, 4,036 cases have been referred to mediation, and 1,461 settlement agreements have been reached in the 2,921 matters that have been successfully concluded through mediation. Cases resolved through mediation have released Sh9 billion into the economy,” the report states.

It further notes that the time for settling disputes has reduced from 50 months in the Commercial & Tax Division court and 43 months in the Family Division court to an average of 66 days.

As of September this year, the CAM had accredited a total of 747 mediators as part of building capacity.

“The implementation of CAM has also realised savings in government, court and disputants’ resources. It has made businesses more profitable and restored family relationships, while surveys and interviews conducted support mediation as an appropriate dispute resolution approach,” the report states.

Dispute resolutions

With a 50 per cent settlement rate, meaning that out of every two cases presented before mediation teams one has been successfully resolved, this is an improvement from when many businesspeople waited for years for court verdicts.

The establishment of the model for dispute resolutions has eased pain for businesses, seeing Kenya overtake many countries in terms of time taken to enforce contracts, even though the cost is still high and quality of mediation processes low, at 50 per cent settlement rate.

Between 2015 and 2020, Sh23 billion worth of commercial disputes have been referred to ADR, out of which the Sh9 billion was unlocked.

With Sh12 billion still locked out of the economy until the disputes are resolved, calls to improve the process have been made, with the government also seeking to make more changes.

Last year, Kenya ranked number 89 on enforcement of contracts by the World Bank rankings on ease of doing business, up from position 151 in 2014.

At the KRA, the authority says it has recorded 100 per cent growth in the number of cases resolved in the first quarter of 2020/2021, courtesy of ADR. During the quarter, 118 tax matters were resolved, compared to 59 matters over the same period last year.

“KRA received 408 disputes between the months of March to September 2020 at ADR, compared to 310 cases that were received during the same period in the year 2019. This not only represents an excellent performance but also confirms that taxpayers have embraced ADR as opposed to other dispute resolution mechanisms such as litigation processes,” KRA’s Commissioner for Legal Services and Board Coordination Paul Matuku said.