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ON ALTERNATE DISPUTE RESOLUTION (ADR)
The General Assembly of the United Nations in its Resolution No. 40/72 dated December 11, 1985, recommended:
All States give due consideration to the model law on International Arbitration, in view of the desirability of uniformity of law of arbitral procedures and the specific needs of international commercial practice.
A number of countries enacted laws to give legal force to the United Nations Commission on International Commercial practice.
A number of countries enacted laws to give legal force to the United Nations Commission on International Trade Law, 1966 (Uncitral Model Law) within their jurisdiction.
Informal dispute resolution has a long tradition in many of the world’s societies dating back to 12th century in China, England and America. The business world has recognized advantages that the ADR in one form or the other is a right solution. It is felt that ADR is less costly, less adversarial and thus more conducive to the preservation of business relationships, which is of vital importance in the business world. The impact of ADR on international commerce is great and number of ADR centres are being established in several countries. Before we look to the situation in India so far as the ADR is concerned, a brief look at the experience of ADRs in other countries would be useful.
The ADR movement has been successful in several countries of the world, particularly, in united States of America and England. The Supreme Court of United States gave a verdict in 1854 that the Arbitrator had the right to issue binding judgments. This led to the passing of federal Arbitration Act in 1925. Finally, the American Arbitration Association (AAA) came into existence and, today, AAA is one of the largest private ADR services in the United States.
There are more than 80 community based ADR centers in America and it has further expanded into more areas like public and private school systems and has been successful in areas like banking industries, manufacturing industries and the expansion of ADRs. It is continuing and its scope has expanded in view of inclusion of ADR clauses in domestic and international commercial agreements.
In the U. K. over 90% of disputes mediated by the Center of Dispute Resolution (CEDR) result in Settlement. CEDR is the leading provider of mediation services to business in the U.K. Most leading lawyers any many other professional are already members of ADR bodies and number of ADR schemes have been started covering public bodies and there are more than 1.5 billion pounds value involved in the cases handled by CEDR.
CEDR has been successful even in settling international disputes from Africa, the U.S., Sweeden, Belgium, France, Sri Lanka, Russia, Egypt, Hong Kong and elsewhere. The reasons why ADR has been successful in many of the western countries is because of several advantages, which the ADR has got over the traditional court system.
The advantages are :
(i) ARBITERATION AGREEMENT : Arbitration agreement defines the dispute or types of dispute referred to arbitration. It may also specify how the tribunal is to be appointed and procedure to be adopted in the proceedings. In essence it is the arbitration agreement that gives rise to bilateral nature of arbitration to the exclusion of third parties.
(ii) PRIVACY AND CONFIDENTIALITY : An arbitration is heard in private. Public have no right to attend the hearing before the arbitral tribunal.
(iii) ADJUDICATION : Once an arbitration tribunal has been appointed, it must proceed with the reference by adjudicating the issues and making an award unless the tribunal is released from that obligation.
(iv) DOMESTIC AND INTERATIONAL : Many disputes referred to arbitration are domestic and are conducted under consumer schemes that provide a tribunal with relevant expertise and simplified procedure. Likewise, many international disputes are also settled through arbitration.
(v) FILEXIBILTIY : Arbitration can be much more flexible both in time and procedure. The parties can chose a tribunal who will act promptly and as arbitration is always by consent of parties, the parties can choose the most suitable procedure. The parties can also be represented by anyone of their choice. They are not bound by rules limiting appearance of the persons of particular legal qualifications.
(vi) NEUTRALITY AND EQUALITY : Where the parties come from different countries, arbitration may be preferable to litigation because quite often neither party is willing to submit to the jurisdiction of the National Court of the other. Arbitration offers them neutrality in the choice of law, procedure and tribunal. In so doing, the parties may be more confident that there will be equality of treatment.
(vii) ENFORCEABILTIY OF AWARD : Another important advantage of arbitration is the extensive enforceability of the award. As a result of various international conventions, arbitration awards are recognized and are enforceable in many countries than the judgments of English Court.
(viii) FINALITY : An arbitration tribunal passes one or more awards and each of these awards is final as to the matter decided.
THE LAW APPLICABLE TO INTERNATIONAL COMMERCIAL ARBITRATION AGREEMENT : This has two main aspect, namely, the procedural law and the substantive law applicable to the proceedings. The concept that an arbitration is governed by the law of the place where it is held, and that this is the ‘seat’ or ‘forum’ of arbitration, is well established both in the theory and practice of international arbitration. This principle came to be incorporated in the Geneva Protocol of 1923 and the New York convention of 1958. The importance of the place of arbitration became reduced because of the International Conventions to which various countries became parties.
However, the importance of the place of arbitration cannot be under-estimated. Its legislation determines the likelihood and extent of involvement of national courts in the conduct of the arbitration, the likelihood of enforceability of the awards, and the extent and nature of any mandatory procedural rules that one will have to adhere to, in the conduct of arbitration.
Most arbitration laws state that the arbitral procedure, including the constitution of the arbitral tribunal, shall be governed by the will of the parties and by the law of the country in whose territory the arbitration takes place. The parties are free to agree on the place of arbitration failing which, the place shall be determined by the arbitral tribunal, having regard to the circumstances of the case including the convenience of parties.
So far the law applicable to the substantive issues is concerned, the parties can choose the law which will be applied. This principle is found in the Rome convention of the European Community, 1980.The international conventions and model rules on international commercial arbitration bear witness to this freedom of the parties to choose for themselves the law applicable to their contract. The UNITRAL Rules provide that the arbitral tribunal shall apply the law designated by the parties as applicable to the substance of the dispute.
Position in India : Arbitration has been indeed a striking feature of Indian life. In ancient times, disputes were being settled by referring them to a person or persons in whom the parties had trust and confidence. The head of a family, the chief of a community or the selected resident of a village was acting as a Pancha. The decisions of such Panchayath were accepted as binding. In SITANNA vs. VEERANNA reported in Privy Council (AIR 1934 PC 105), the award of a Panchayath relating to a family inheritance dispute was upheld holding that reference to Panchayath was a time honoured method of deciding such dispute. Under the Bengal Regulation 1772, cases involving accounts disputes, etc, were referred to arbitration. Civil Procedure Codes of 1859 and 1908 contained provisions for arbitration. India continues to be a party to three important International Conventions, namely, the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards, 1958, the Geneva Protocol on Arbitration Clauses, 1923 and the Geneva Conventions on the Execution of Foreign Arbitral Awards, 1927. These are set out in the three schedules of the Act.
The Supreme Court of India in Badat & Co. vs. East India Trading Co. (AIR 1964 SC 538) held that non-convention foreign awards are not enforceable in this country. This position appears to continue even now. The Indian Arbitration Act 1889 was the first direct enactment. It was replaced by the 1940 Act. Even the 1940 Act was found to be inadequate in dealing with the disputes arising out of foreign trade and investment transactions. The world is becoming small and distances are becoming less, on account of the mobility and advance in Science and Technology and communication media. Commercial Transactions are now not restricted to any particular country or region but are conducted on a global basis. The 1940 Act did not provide a speedy, effective and transparent mechanism to meet the changing needs. That Act was found weak in several areas and drawing inspiration from UNCITRAL Model law, the Arbitration and conciliation Act, 1996 was enacted. One other reason for the new Act coming into being is the decision taken by Chief Ministers and Chief Justices on 4th December, 1993. It was felt in the conference that ADR procedure would save valuable time and money apart from bringing other advantages available under the ADR system.
The new law marks the beginning of an important chapter in the history of legal and judicial reforms in India. The new law leaves in to the parties to agree on the place of arbitration. It further permits the parties to refer any matter which is arbitral to arbitration. The new law gives maximum freedom to the parties in all matters. The new law empowers the parties to agree on a procedure for appointing arbitrators and the parties may further agree to abide by the procedural rules provided for an arbitral institution for the purpose. The new law empowers the Chief Justice of High Court or Chief Justice of India to appoint arbitrators where the parties are not in a position to agree on a procedure for appointment of arbitrators. Following the UNCITRAL Model law, the new Act gives powers to the parties to challenge the appointment of an arbitrator on specific grounds. The new law also provides for agreement between parties to the effect that the award need not contain reasons. Under the new law the scope of judicial scrutiny even when the award is not a specking order, is limited. The only ground on which the courts would go into the merits on the award, is on the question of the arbitral award being in conflict with public policy of India. However, huge expenditure and delay are involved in arbitration proceedings. The arbitrators will have to hold regular sittings like law-courts and take control of the proceedings. The alternative Dispute Resolution System will become meaningful only if excessive expenditure and protraction of proceedings resulting in undue delay are curtailed. In this task, there is more responsibility for the arbitrators and the role of lawyers in this respect is very important.
The ADR mechanism is intended to cover negotiation, mediation, conciliation and arbitration. The ICADR is a unique Centre intended to cover almost all disputes including commercial, civil, labour and family disputes. The ICADR has the following main objects to achieve:
(i) to propagate, promote and popularize the settlement of domestic and international disputes by different modes of ADR;
(ii) to provide facilities and administrative and other support services for holding conciliation, mediation, mini-trials and arbitration proceedings;
(iii) to promote reform in the system of settlement of dispute and its healthy development suitable to the social, economic and other needs of the community;
(iv) to appoint conciliators, mediators, arbitrators etc., when so requested by the parties;
(v) to undertake teaching in ADR and related matters and to awards diplomas, certificates and other academic or professional distinction;
(vi) to develop infrastructure for education, research and training in the filed of ADR;
(vii) to impart training in ADR and related matters and to arrange for fellowships, scholarships, stipends and prizes.
CONCLISION : The growth of International trade is bound to give rise to international disputes which transcend national frontiers and geographical boundaries. For the resolution of such disputes the preference to international arbitration vis-à-vis litigation in national courts is natural because of arbitration being preferred to litigation in courts and the foreign element being preferred in the international arbitration to the domestic element in the national courts. This is also because there is no international court to deal with international commercial disputes.
In situation of this kind, recourse to international arbitration in a convenient and neutral forum, is generally seen as more acceptable than recourse to the courts as a way of solving any dispute which cannot be settled by negotiation.
It is therefore clear that the Indian Law with regard to International Commercial Arbitration Act has made great progress. It is to be hoped that the new law will help in resolving the international disputes and thus pave way for reduction of burden on the regular Courts. We have no choice but to quickly device effective alternative options in order to ease the present weight on the courts. I hope the ADR movement though it is now in its early stages, will make rapid progress in the coming days and for this we need the co-operation of professionals, Industrial and commercial groups. I may point out that a Regional Centre at Hydrabad is working nicely and we are trying to establish a Regional Centre at Bangalore also. I end this paper with the fond hope that in the coming days the ADR will enable us to solve many of the problems relating to dispute resolution and the need of the hour is to propagate, promote and popularize settlement of domestic and international disputes by different modes of ADR.
HON’BLE SRI JUSTICE N.K.JAIN, CHIEF
JUSTICE HIGH COURT OF KARNATAKA dated 15.05.2003
