Dr SHAKUNTALA MISRA NATIONAL REHABILITATION UNIVERSITY

Lucknow

Faculty of Law

PROJECT ON

[ROLE OF ADR IN DISPUTES ]

For

COURSE ON ‘ALTERNATE DISPUTE RESOLUTION’

CLASS: B.Com. LL. B (Hons.) 8th Semester

Submitted by

[SHUBHAM PATHAK]

Academic Session: 2020-21

Under the Supervision of

Mrs. Sambhavi Ma’am

Guest Faculty
Faculty of Law
Dr Shakuntala Misra National Rehabilitation University

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 TABLE OF CONTENTS

1. Introduction ……………………………………………………………………….03

2. Third party involvement in dispute settlement ………………………………….04

3. Third party……………………………………………………………………….05

4. Commercial …………………………………………………………….06

5. New york ………………………………………………………………………07

6. Nature and Purpose of Arbitration in International Commercial Disputes….08

7. Difference between a domestic arbitration and an “international” arbitration..8-9

8. Confidentiality in Arbitration Proceedings ……………………………………...09

9. Relationship between Arbitration in International Commercial Disputes and

National Courts…………………………………………………………………….12-13

10. Conclusion …………………………………………………………………………14

11. Bibliography................................................................................................15

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 ACKNOWLEDGMENT

I would like express my special thanks of gratitude to my Teacher SAMBHAVI MA’AM who

gave me the golden opportunity to do this wonderful project on “ROLE OF ADR IN

INTERNATIONAL COMM. DISPUTES and I came to know many new concepts about the

topic. I am really thankful to her for her support and co operation.

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 INTRODUCTION

Dispute resolution mechanisms have constantly undergone continuous transformation throughout

the history of commercial conflicts. The processes of litigation have been acknowledged to prove
grossly inadequate and prone to more damage than resolution of conflict by hampering positive
future relation and association between the parties to it.
These days, just has there seem to be a global paradigm shift from governmental control to
deregulation in all facets of life, there also seem to be a similar shift from placing reliance on
strict legal provisions in resolving business or commercial disputes to the use of processes of
Alternative Dispute Resolution (ADR), a phrased designed to cover a wide range of processes
adopted for the resolution of conflict other than through litigation. These consist of conciliation,
mediation, expert determination, adjudication, negotiation and arbitration. However, arbitration
has shown to be the most widely embraced process for business disputes especially across
national borders and boundaries. As a dispute resolution mechanism, arbitration has long gained
prominence among governments and inter/multinational organizations, for instance most
contracts now contain clauses that mandate parties to explore arbitration options in the event of a
disagreement.

According to Tweeddale A and Tweeddale K, for there to be arbitration, a number of factors

must be present. One, there must have been an arbitration agreement between the parties and this
gives the arbitral tribunal its jurisdiction to hear and determine the dispute, otherwise the whole
arbitral process will fail. This is usually contained in the contractual agreement between the
parties. Two, an arbitration panel must be appointed by the parties. The process of selection may
be contained in the arbitration clause or agreement and the mandate of the panel is to hear and
determine the dispute between the parties which has been referred to it. Thirdly, a dispute or
difference must have arisen. Also, there must be a “judicial process” not necessarily in the form
of litigation but there must be compliance with due processes, fairness and impartiality, and there
must be a decision in the form of an arbitral award. This is usually final and binding on the
parties. In arbitration of international commercial disputes, this is usually put into writing and

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once the award is made the arbitral tribunal is functus officio in respect of the matters decided
within the award and the issues are thereafter res judicata.1

According to Indira Carr, arbitration could be said to be the first step towards privatization of
justice. This is because it bye-passes the rigours of litigating in state courts while ensuring equal
enforcement of its award. Arbitration allows its parties to have greater control of matters such as
the appointment of arbitrators, the language of the arbitration as well as the place of arbitration.
The principles to be applied to issues also need not be attached to any particular national law.

Arbitration Act 1996 requires all arbitration agreements to be in writing although an oral
agreement can still be enforceable under the common law. An arbitration agreement is defined in
S. 6 of the same Act as “an agreement to submit to arbitration, present or future disputes,
whether they are contractual or not” although the parties can make the agreement either
before or after the dispute has arisen. Arbitration, thus, has proven to be a most widely embraced
process for business disputes especially across national borders and boundaries. As a dispute
resolution mechanism, arbitration has long gained prominence among governments and inter/
multinational, especially business organizations. Most business agreements or contracts now
contain clauses that mandate parties to explore arbitration options in incidents of conflict or
disagreement.2

1. Third party involvement in dispute settlement

Whenever two or more parties have a dispute, it would be preferable if they were able to discuss
it between themselves and to arrive at a peaceful solution. That is true whether the parties are
members of a family, States or commercial entities. Only the parties themselves can achieve a
solution that will not only resolve the dispute, but will facilitate a useful future relationship.
However, sometimes the parties are not interested in any future relationship and only want the
dispute to be settled, preferably on their own terms. That may lead to war or its private
equivalents. Even when they are interested in a peaceful settlement of the dispute, it is not
1
Redfern, A. Hunter, M. (2006) “Law and Practise of International Commercial Arbitration” Sweet&
Maxwell
2
https://www.arcjournals.org

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infrequent that the parties are not able to discuss – or negotiate – a mutually agreeable solution.
In such a situation the aid of a third party must be sought. The State offers one form of third
party settlement of private disputes by maintaining a court system in which they can be litigated.
Most private disputes that require the services of a third party are settled by litigation, though
many of them are settled directly between the parties once the litigation has begun.

It is also possible for the parties to involve third persons in a private capacity to solve, or to help
them solve, the dispute. Arbitration is the most prominent of the private dispute settlement
mechanisms, both domestically and for international commercial relations, though it is not the
only one. Others will be briefly mentioned below after the basic characteristics of international
commercial arbitration have been discussed.3

2. “Commercial”

It has become common to speak of international “commercial” arbitration, but there is no clear
concept of what is meant by “commercial”. As early as the 1923 Protocol on Arbitration
Clauses, Contracting States recognized the validity of an arbitration clause “by which the
parties to a contract agree to submit to arbitration all or any differences that may arise in
connection with such contract relating to commercial matters or to any other matter capable of
settlement by arbitration, … .” The Protocol then went on to say that “Each Contracting State
reserves the right to limit the obligation mentioned above to contracts which are considered as
commercial under its national law.”

The actions of the several States that used the opportunity to limit the application of the Protocol
to contracts which are considered as commercial under its national law were carried forward to
the 1927 Convention for the Execution of Foreign Arbitral Awards, since only arbitration
agreements subject to the Protocol were covered by the Convention. The 1958 New York
Convention essentially repeated the provision originally found in the 1923 Protocol.4

3. New York Convention

3
http://unctad.org
4
Article I(3)

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The New York Convention is not by itself limited to arbitration in respect of commercial
disputes. The limitation applies only if a State makes the necessary declaration, and only 44 of
the current 135 Contracting States have done so.12 However, in those 44 States the application
of the Convention is dependent on what is considered as commercial under the national law. This
is a potentially serious problem for anyone wishing to invoke the Convention in one of those
States. In some legal systems the word “commercial” is a technical term of great legal
significance. In other legal systems the word has no particular legal connotation. In spite of those
differences, reference to the national law does not seem to have become the problem for
application of the New York Convention that it might.

4. MODERN Law

The question of what was to be included in “commercial” was squarely faced for the first time
during the preparation of the Model Law, adopted in 1985. Since it was envisaged that the Model
Law, once adopted by a State, would co-exist with a national arbitration law for all other
arbitrations (both domestic and international non-commercial), it was necessary to specify its
scope of application. While there was little disagreement as to the types of transactions to which
it should apply, there was great hesitation on the part of some delegations to expand the
definition of “commercial” beyond what was envisaged in their national law for other purposes.
The solution was to relegate the matter to a footnote the first time the word “commercial”
appeared in the text. The footnote reads as follows:5

“The term ‘commercial’ should be given a wide interpretation so as to cover matters arising from
all relationships of a commercial nature, whether contractual or not. Relationships of a
commercial nature include, but are not limited to, the following transactions: any trade
transaction for the supply or exchange of goods or services; distribution agreement; commercial
representation or agency; factoring; leasing; construction of works; consulting; engineering;
licensing; investment; financing; banking; insurance; exploitation agreement or concession; joint
venture and other forms of industrial or business co-operation; carriage of goods or passengers
by air, sea, rail or road.”

5
This inelegant legislative drafting technique was nevertheless followed by a number of States when they
adopted the Model Law. For example, Singapore, International Arbitration Act, Schedule 1.

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 5. Nature and Purpose of Arbitration in International Commercial Disputes

In the recent wave of globalisation of international trade, finance and investment, there happens
to have been a progressive change in the global legal field. Law is a vital instrument for
globalisation. In the global marketplace, the private dispute resolution system in international
commerce has proved popular over time. Recently, in many countries, old arbitration laws have
been modernised and new arbitration laws have been enacted to respond to the present needs of
the international business community in this day and age of globalisation. As such, many
countries have followed the UNCITRAL Model Law, which purports to globally harmonise the
law and practice in the field. Thus, there has been an increasing trend towards the modernization
of arbitration laws in international commercial disputes across borders. Since economic
globalisation aims at cross-border transactions with minimal interference from the state, the
liberalisation of the private justice system through modernised international commercial
arbitration is considered to be vital for the purpose. This is the aim of the Model Law in the
process of harmonisation and globalisation of the private justice system in international business
transactions. For settlement of international commercial disputes, international arbitration has
proved effective in the global marketplace. Arbitration in international commercial disputes is
believed to contribute to market integration by safeguarding and improving the efficiency of
international private transactions.6

6. Difference between a domestic arbitration and an “international”

arbitration

The modern view is that arbitration is governed by the law of the place in which it takes place.
Therefore, in that sense every arbitration taking place within a State is a domestic arbitration in
that State. However, many States draw a distinction between arbitrations that are considered to
be domestic and those that are considered to be international. One of the consequences may be
that the types of disputes that may be submitted to arbitration are different in an international
arbitration. For example, in some States claims of anti-trust violation may be submitted in an
international arbitration but not in a domestic arbitration. Similarly, some States permit the State
or State entities to enter into valid arbitration agreements only if the arbitration would be

6
Qureshi, K. (2006) “Practice Points: The International View of Arbitration” Law Society Gazette 26

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international. Finally, following the lead of the Model Law, many States have different laws
governing domestic and international arbitrations. It follows that the distinction between
domestic and international arbitrations is a matter of national law. There is no generally accepted
distinction and there does not need to be since the New York Convention applies to “foreign”
awards.7

International arbitration is often affected by several factors alien to domestic arbitration. For
instance, different laws are likely to be relevant to an international arbitration process while in
domestic arbitration only the national law is put into consideration. Also, in international
Arbitration, the chairman of the arbitration tribunal may come from a completely different
country from the parties. Further still, the procedure adopted in an international arbitration may
not mirror any domestic litigation procedure, and international arbitration often relies upon
conventions to allow enforcement of its arbitral award.8 It is not just the fact that international
arbitration arises in the context of international contracts that makes it different. In the
international dispute resolution community, it is widely accepted to be a different ball-game
entirely, involving different practices and rules, and being represented by a different community
of arbitrators and legal practitioners. Although the procedural laws of many countries provide for
"international" arbitrations to take place, care must be taken to ensure that an "internationalized"
form of a domestic arbitration practice is not confused with genuine international arbitration
practice as it exist outside and beyond the rules of any particular jurisdiction. An international
arbitration need not have any connection with the state in which the arbitration takes place, other
than the fact that it is taking place within the territory of that state.

7. Confidentiality in Arbitration Proceedings

Because parties generally choose the place of arbitration and the proceedings are not held in
public, Arbitrations are deemed to be confidential most especially since the information
disclosed in an arbitration tribunal cannot be disclosed to a third party. However, we must
mention that witnesses are not usually subject to the confidentiality obligation and a challenge of
an arbitral award in a regular court under S.68 of Arbitration Act 1996 can be heard either in

7
http://unctad.org
8
Molife, P. Hong- Lin Yu, (2001) “The Impact of National Law Elements on International Commercial
Arbitration” International Arbitration Law Review.

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public or in private and there is no assurance that a hearing made in private will not be made
public unless it raises an extremely sensitive issue. A good example of this is the case of
Department of Economic Policy and Development of the City of Moscow V. Banker’s Trust Co
Industrial Bank. Confidentiality is seen as one of the main advantages of arbitration as a dispute
resolution system, yet different jurisdictions recognise confidentiality to varying extents. This
arises from the notion that private arbitration derives simply from the fact that the parties have
agreed to submit any dispute between them to arbitration. It is implicit from this that strangers
shall be excluded from the hearing and neither the tribunal nor any of the parties can insists that
the dispute shall be heard or determined concurrently with, or even in consonance with, another
dispute. The requirement that arbitration is held in private extends to the documents and any
award rendered in the process of the hearing. In international disputes, Arbitrations involving a
state and a foreign investor raise different questions. The public interest in such arbitrations
means that confidentiality cannot apply in the same way as it does to arbitration between two
companies. It is trite that democratically-elected governments must be accountable and open.
Keeping proceedings and awards secret does not enhance that openness. However, on appeal the
confidentiality is lost but a very insignificant number of cases go on to appeal, and even this risk
can be eliminated by inserting into the agreement a clause excluding the right to appeal. This is
also an important factor as regards the risk of costs and delays due to appeals in court
proceedings. It is, however, true to say that because of this very element, only limited feedback
comes to light as to how arbitration is actually conducted especially in international business
disputes and this may be seen as a disadvantage.

The disadvantages of litigation discussed above give parties to international commercial disputes
added incentive to try different means of dispute resolution. Because these methods supplement
litigation, in countries in which litigation is the norm they are considered "alternative." Many
parties, in light of their cultural heritage, favor extrajudicial methods of ADR because they allow
parties to reach a win-win outcome in which all participants save face. This is especially true
among Asian nations, and "increasing receptivity of American business to ADR over the last
decade is due in part to exposure to nonwestern dispute resolution mechanisms. "Parties often
use ADR in international commerce because it allows a neutral forum, free from bias toward
either party. They most often turn to arbitration, negotiation and conciliation.

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 A. Arbitration

Arbitration, perhaps because of its resemblance to already familiar domestic litigation, is the
most popular method of resolution of international commercial disputes and allows parties to
avoid many of the problems associated with litigation. "Differences between legal systems have
traditionally made arbitration attractive: it is by its essence the most international means of
settling disputes" because it provides a neutral option. Arbitration is also the most formal and
oldest method of ADR in international commerce. The merits of arbitration of international
commercial disputes are well documented. "Arbitration provides a neutral forum away from
either party's home jurisdiction, protecting against real and imagined prejudices and unfamiliar
legal practices." Use of arbitration also reduces legal expenses and time needed to settle
disputes.

B. Negotiation

In the commercial world, negotiation is the workhorse used for interaction between business
partners, as well as when disputes arise. In fact, "negotiation is so common in commercial
settings that in some ways it scarcely merits separate status as an ADR technique." Negotiation
can be direct or facilitated by an intermediary, such as a conciliator, who helps disputants to
negotiate with each other and transforms the dialogue into a conciliation. Failure to reach a
mutual agreement through negotiation prompts the parties to turn to other ADR methods or
outside elements of pressure that will enable them to reach a settlement. 9 Successful negotiation,
however, obviates the need for further dispute resolution

C. Conciliation

Conciliation, alone or as a step in the ADR process, provides another option for resolution of
international commercial disputes. Whether conciliation or arbitration is preferred to resolve a
particular dispute will depend upon the cultural and legal traditions of the parties. Conciliation,
perhaps the most ancient mode of dispute resolution, has widely been preferred domestically in
the Far East for hundreds of years. It appeared on the international level in the early part of this
9
Sigvard Jarvin, The Role of Conciliation, Contract Modification and Expert Appraisal in Settling
International Commercial Disputes, 4 INT'L TAX & Bus. LAW. 238, 238 (1986).

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century. Use of the method, which utilizes an impartial third party who provides
recommendations to the disputants in an attempt to resolve the conflict, experienced a drastic
decline after World War II. In recent years, however, conciliation has generated a great deal of
interest in the West 128 and, as result of its comeback, is now found in every stratum of the
transnational business system.

Conciliation works well for parties that refuse to submit to jurisdiction, whether that of another
state or of an arbitral tribunal. This makes the process well suited and extensively used in
international relations, especially in commercial settings.10 Several organizations, such as the
ICC and the American Arbitration Association, provide assistance with conciliation to resolve
international commercial disputes. By agreeing that the process will be governed by institutional
rules, such as the ICC's Conciliation Rules or the United Nations Commission on International
Trade Law (UNCITRAL) Conciliation Rules, parties can avoid the possibility of further
disagreement involved in designing their own procedures.

8. Relationship between Arbitration in International Commercial Disputes

and National Courts

The judgments in the recent English cases have expressed support for the arbitral system. Huge
dicta in the cases regarding the reasonable expectations of business persons highlight the
underlying aim of international arbitration to provide a business-friendly method of dispute
resolution. The recognition of this reality invites an analysis of how far, beyond the theory and in
practical terms, it has been possible for these cases to be dealt with in a way readily
understandable by and serving the needs of commercial litigants and whether there are other
relevant underlying factors which have contributed to the decision-making. In the House of
Lords decision in Fiona Trust V. Privalor, Lord Hoffmann commented that it is the reasonable
expectation of businessmen that they will receive “a quick and efficient adjudication” of their
disputes with minimal “risks of delay”. In particular, it is most likely that the parties would have

10
The General Agreement on Tariffs and Trade (GATT) incorporates variants of conciliation throughout
the trade dispute settlement process in recognition of the limitations of the strict application of law in the
international trade system. Most of the multinational free trade agreements allowed under GATT also
provide for some form of conciliation to resolve disputes.

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intended that all issues arising out of their agreements should be decided in one forum and there
would be “no rational basis” for any other view.11

CONCLUSION

11
https://www.arcjournals.org

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The inability to quickly resolve international commercial disputes is too costly, given the
importance of international trade to each country. As a result of the continuing expansion of
companies into the dynamic arena of international business, the demand for alternative methods
of dispute resolution will grow further. The conjoined ADR method used by the Japanese that
combines conciliation and arbitration promises to be the most flexible alternative for the
resolution of international commercial disputes. International contracts, especially those between
East Asian and Western parties, should include advance dispute resolution provisions that
specify both the use of a conjoined ADR process and the selection of a facilitator well-socialized
in the cultures of the disputants to assure the speedy, amicable resolution of international
commercial disputes.

BIBLIOGRAPHY

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 https://www.arcjournals.org

 Qureshi, K. (2006) “Practice Points: The International View of Arbitration”

Law Society Gazette 26

 Sigvard Jarvin, The Role of Conciliation, Contract Modification and Expert

Appraisal in Settling International Commercial Disputes, 4 INT'L TAX &

Bus. LAW. 238, 238 (1986).

 http://unctad.org

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