The Mechanics of the ADR Mechanism

Although in certain circumstances litigation becomes necessary, there are times when litigation is best avoided. Alternate Dispute Resolution (ADR) mechanism has been steadily gaining favour from both the judiciary and the civil society owing to low cost and quick redressal.. “The courts should not be the places where resolution of disputes begins. They should be the places where the disputes end after alternative methods of resolving disputes have been considered and tried.” .~ Sandra Day O’Connor (First woman to serve on the US Supreme Court).To state the obvious, the decision to take legal action requires careful planning and is taken as part of a larger strategy. Legal battles are costly requiring a high degree of commitment over a significant period of time. Although in certain circumstances litigation becomes necessary, there are times when litigation is best avoided. Alternate Dispute Resolution (ADR) mechanism has been steadily gaining favour from both the judiciary and the civil society owing to low cost and quick redressal..Resolution Alternative To Courts: Alternate Dispute Resolution.ADR mechanism includes a variety of procedures and each procedure is an alternative to court adjudication. It is informal and founded on agreement between the parties. This process is aimed at drastically curtailing the supervisory role of the courts and ensuring efficient and speedy trial giving finality to the decision. The ADR mechanism is considered a suitable way of settling commercial dispute, for a plethora of reasons, viz., ADR proceedings are conducted in privacy and the awards are kept confidential; the judge is usually an expert in the subject matter of the dispute; the dates for meetings are fixed as per convenience of all concerned, amongst others..We take a closer look at each of the three essential ingredients of the ADR mechanism:.Negotiation.Various tools can be employed in negotiation, including persuasion or manipulation. Here the dispute is approached with a view to settling it to the mutual advantage of each party. The contract between the parties should not be interpreted, as lawyers would, rather it should be construed from the perspective of an entrepreneur. Although in the eyes of law every word in the contract is crucial, in practice a contract between two businessmen reflects an understanding, which can be admitted to negotiation in case of a dispute. Negotiation thus involves a compromise..Conciliation Or Mediation.When negotiation fails, conciliation (also referred to as mediation) is the next logical step. It is a structured negotiation presided over by a facilitator, with the skill, training and experience necessary to help the parties resolve their dispute. It is a confidential, non-binding process which is geared towards assisting the parties in structuring a mutually acceptable resolution to their dispute(s). Since the process leaves control of the settlement in the hands of the disputants, and because it is geared to producing solutions that accommodate the fundamental needs of both the sides, conciliation/mediation as a tool for dispute resolution is appropriate for circumstances where the conflicting parties have had or expect to have a continuing relationship in future. In conciliation, the parties to the disagreement present their case to a neutral “judge”, i.e., the conciliator or mediator who assists in settlement, which is normally acceptable to the two parties. The conciliator/ mediator is not an arbitrator and is not bound by law in order to do what he thinks is just and reasonable..Arbitration.It is a well acknowledged fact that arbitration ensures an inexpensive, flexible and quick resolution of disputes. Entrepreneurs are able to avoid adverse publicity of their businesses by opting for the extra-judicial process of arbitration. Consensus of the concerned parties is the key element of arbitration. The parties agree to submit their dispute to a person, referred to as the arbitrator, who decides the matter by applying the same law which the courts would have done. It is thus a ‘judicial determination of disputes’. However, the arbitrators (unlike the courts) can frame their own rules, and are not bound by the technical rules of evidence or of procedure..Amongst all the ADR mechanisms, arbitration is by far the most commonly used method. The reasons are numerous:.– Arbitral awards are treated as final and binding in law..– Arbitrator is a neutral judge and has competence in the subject matter of the dispute..– The parties are free to agree upon the procedure to be adopted..– The arbitration process is not time consuming..– Arbitration ensures privacy and economy for the disputing parties..– Parties may choose their forum for settlement of disputes..Cautionary Note.No person can by an agreement oust the jurisdiction of the courts in relation to disputes between them, unless the law itself so permits. Indian arbitration law has thus been enacted in a manner which protects the rights of the parties to an agreement to choose their own forum for the purpose of determining their disputes which they might have agreed upon to be decided by the private forum..ADR: THE GLOBAL PERSPECTIVE.Globally efforts are now being made to bring about dispute resolution in an informal manner; with speed; and at least expense. The reason for this trend is not far to seek! For the business community, pursuing litigation is not only time-consuming, but also an expensive proposition. Businessmen, particularly those involved in cross-border transactions, are focused on making optimal use of their time, energy and resources with the result that ADR is now preferred over court-room battles to iron out differences between the parties..A major method of resolving disputes in ‘International Commercial Transactions’ is via arbitration. It is only if the parties have failed to enter into an Arbitration Agreement, that litigation in the national courts of one of the parties is considered. Litigation has thus become a ‘fallback option’ for dispute resolution in the arena of international trade and commerce. Interestingly, recent trends indicate that commercial entities are increasingly turning to Mediation or Conciliation as the favoured method of dispute resolution. When compared to Arbitration, Mediation offers a number of advantages. It is a form of facilitated negotiation, allowing the parties to reach a commercial resolution to their dispute. Since mediation usually takes hours or days, it is much faster, costs less, and highly flexible. Additionally, the location, date/ time, language and the degree of formality is also within the choice of the parties. Lastly, in instances where the parties hail from different cultures, business or legal, the choice of an appropriate mediator(s) helps in bridging the differences and opens up channels of communication..A quick glance at the global scenario of ADR mechanism reveals its popularity in various countries. As a result of the large-scale integration of ADR movement in USA, today approximately 90% of the civil disputes are settled outside the courts. Similarly, in Europe, mediation is seen as a promising mechanism for the resolution of disputes. If France expanded the legislative basis for judicial conciliation and mediation, in Japan, every judge is expected, both by law and litigants, to move a case towards settlement, which has the force of statutory law. The Hong Kong International Arbitration Centre, one of the largest arbitration service centre in Asia, is of the view that “Arbitration as compared to litigation has become very popular for resolving the disputes. Similarly, conciliation and mediation find an increasing measure of support in future.”.ADR: THE INDIAN EXPERIENCE .In India, ADR is not a recent phenomenon. However, it has been organized, institutionalized and used more widely only in recent years. In order to effectively implement the ADR mechanism, organizations like Indian Council of Arbitration (ICA) and International Centre for Alternative Dispute Resolution (ICADR) were established. The ICA, established in 1965, promoted by the Ministry of Commerce is a leading institute for administration of arbitration. It provides arbitration facilities for all types of domestic and international commercial disputes and conciliation of international trade complaints received from Indian and foreign parties, for non-performance of contracts or non-compliance with arbitration awards. Similarly, Consumer Redressal Forums and Lok Adalats were also revived. More importantly, the Arbitration Act 1940 which was widely considered ineffective was repealed, and a new and effective legislation was put in place, viz., Arbitration and Conciliation Act, 1996. The new Act which is based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, gave the much-needed impetus to arbitration as well as conciliation in the country..The Legal Services Authorities Act 1987 was also amended to encourage the use of ADR methods. But perhaps the most noteworthy development was amendment of section 89 of the Code of Civil Procedure 1908 (CPC) in the year 2002 which introduced the concepts of conciliation, mediation and pre-trial settlement methodologies for effective resolution of disputes. These amendments in the CPC incorporating provisions for pushing matters to arbitration and other forms of ADR together with formation of tribunals for handling specific types of cases has helped in reducing the time taken for disposal of cases in courts. It is crucial to note that the judiciary has also been encouraging out of court settlements to deal with the increasing backlog of cases pending in the courts..Despite the obvious advantages of using ADR mechanisms, India has not given adequate recognition to this mode of resolution. Experts say that since our society is prone to litigation, exploring consensus in order to arrive at an amicable solution is, very often, not an option. There is thus a need to spread the awareness of ADR and to encourage its systematic implementation so that its effectiveness reaches out to a large section of the society. We have to look at extending or creating facilities, services, and infrastructure which will enable the implementation of ADR tools thereby leading to effective ADR practice. Pre-trial conciliation and fixing the targets for dispensation of justice are sine qua non for success of any ADR mechanism, which is currently lacking in India. We need more organizations such as the Indian Council of Arbitration (ICA); International Chamber of Commerce (ICC) India chapter; and Federation of Indian Chambers of Commerce and Industry’s (FICCI) ‘Arbitration and Conciliation Tribunal’ which render specialized services, promote ADR, and play a critical role in resolving disputes, especially commercial disputes..ARBITRATION LAWS .Domestic Arbitration.The 1996 Act consolidates and amends the law relating to domestic arbitration. It has made several noteworthy changes:.– The arbitral award must contain reasons unless the parties have agreed that no reasons are to be given [section 31(3)].– When the parties are unable to agree on a procedure for appointment of arbitrators, the Act lays down procedure for appointment of arbitrators in the case of international arbitration as well as domestic arbitration (section 11).– Arbitrators are required to be independent.– An arbitral tribunal will not be bound by the Code of Civil Procedure 1908 or the Indian Evidence Act, 1882.– The scope of judicial scrutiny of the award is restricted. The grounds on which an application for setting aside an award can be entertained by the court is clearly defined, such as lack of capacity of party, invalidity of the arbitration agreement under the law, violation of principles of natural justice and the arbitrator exceeding the terms of reference.– There is emphasis on party autonomy. Except some mandatory provisions, almost all the provisions are subject to the agreement of the parties, such as number of arbitrators, rules of procedure, place of arbitration and language of the arbitrators etc.– Stress is on a minimum intervention by the courts in the arbitral process. It is therefore, not easy to obtain a stay from the court on the arbitral proceedings.– The arbitral award, after a period of three months from the date of the award, becomes final, and is enforced as if it was a decree of the court, without going through the erstwhile process of its becoming a ‘Rule of Court’.– Part III of the Act, for the first time in the country, provides a detailed statutory framework for the conduct of independent conciliation proceedings outside the court. It is based on the conciliation rules adopted by the UNCITRAL in 1980, which were conceived in the context of dispute resolution in International Commercial Arbitration. .Minimum Court Interference.Courts in India do not review the merits of an award in an arbitration, unless it is at the request of a party and only under restricted grounds of challenge laid down in the 1996 Act..Arbitration Agreement.Since the 1996 Act does not prescribe any “model arbitration agreement or clause”, the parties to a contract may either enter into a separate arbitration agreement or may agree upon an arbitration clause in the main contract/agreement itself. Nevertheless, it is desirable to bear in mind certain technicalities while drafting an arbitration agreement or clause..International Commercial Arbitration .The usefulness of arbitration in solving commercial disputes, especially those with an international dimension, cannot be over-emphasised. Backed by an open economy and pro-business environment, India now offers substantial legal and business expertise to the disputing parties. With the statutory adoption of the UNCITRAL Model Law for International Commercial Arbitration and the UNCITRAL Rules of Arbitration, with relevant modifications to fit into its institutional framework, India has witnessed a sharp increase in commercial arbitration as opposed to commercial litigation. In addition to domestic arbitration, the 1996 Act also consolidates and amends the law relating to international arbitration. Although there are no bilateral Conventions between India and any other country concerning arbitration, India is a party to the two major international conventions on arbitration, viz., Geneva Convention on the Execution of Foreign Arbitral Awards, 1927 (‘Geneva Convention’); and New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards (‘New York Convention’)..Maximum Court Support .The courts in India offer support and encouragement for international commercial arbitration matters. At the request of a party, the courts:.– enforce foreign arbitral awards made in New York Convention countries;– enforce awards made in international arbitrations taking place in India;– issue a wide range of interim measures of protection, including, interim injunctions to preserve the status quo; securing the amount in dispute; securing costs of the arbitration etc..At the same time, as in the case of domestic arbitration, there is minimum court-interference, ie, a foreign award is open to review by courts only according to a limited set of criteria..DRAWBACKS OF ARBITRATION MECHANISM.Despite the various benefits which ADR mechanism has to offer, there are certain drawbacks as well, particularly in the arbitration mechanism. Some of the notable problem areas are:.Firstly, once the parties have decided that the dispute will be resolved by arbitration and that such decision will be final and binding, the courts may interfere not to “do justice” between the parties, but only to ensure that such private administration of justice is not opposed to public policy. However, it has been seen that the courts usually tend to broaden their duty to ensure that ‘justice is meted’ in conformity with the courts, which defeats the very purpose of arbitration and other ADR tools..Secondly, if the arbitrator’s award is unfair or illogical, the aggrieved party will have no choice other than accepting it and will be barred from raising the dispute in the court..Thirdly, at times instead of shortening the length of dispute resolution, arbitration process becomes protracted. Since in India, the concept of a separate Arbitration Lawyers Bar does not exist, it prevents arbitration matters from being heard continuously on a day-to-day basis during regular working hours. Usually, lawyers are engaged for arbitrations that are conducted over the weekends or after court hours..Fourthly, although with the establishment of Indian Council of Arbitration (ICA), institutional arbitrations made a beginning in India very early on, it failed to bring about an effective change in the culture and mindset of the arbitrators as also the lawyers involved in arbitration matters..Fifthly, very often arbitration lawyers, particularly in case of international commercial arbitration, do not understand the multi-cultural and the multi-jurisdictional aspects of international business. This very often leads to failure in tactful handling of the matter..Lastly, with the court matters moving towards arbitration there is today a greater demand for good arbitrators available at reasonable fees. However, the shortage of trained arbitrators in the country is a cause for concern..ADR A REFRESHING WAY FORWARD.In India, ADR mechanism may not be as widespread as desired, but in commercial cities, commercial arbitration has more possibilities as compared to commercial litigation. This is because now-a-days the business community is more concerned with finality rather than with legality of decisions so that they know as to where they stand..In 2011, the Law and Justice Ministry released a booklet, “Innovating for Tomorrow – Giving wings to Tomorrow’s dreams”, summarising the vision for the future, which includes reducing the backlog of cases in the Indian Courts and reducing the average duration of arbitration proceedings from fifteen years to three years. The Ministry wants to improve efficiency by ensuring that ADR becomes the preferred method of dispute resolution in India in the future, which would be a key tool in reducing the number of pending cases in the Indian courts. This demonstrates that reforms are expected as the Ministry continues with its plans to make widespread changes to the 1996 Act. In this connection, the Ministry had released a Consultation Paper in 2010 which received widespread support from the legal and business communities. National consultations are underway with the key stakeholders, including judges of the Supreme Court and the High Court, advocates and representatives from all the arbitration institutions. Such changes will take time, but can only benefit India in coming closer to its aim of becoming a hub for international arbitration. ADR is certainly growing in popularity in India, and the Law Ministry’s enthusiasm is not entirely unfounded. One hopes that this will continue and is supported by the anticipated reforms..For young lawyers this field has opened up opportunities in a hereto unexplored area. It has given them a third option- an option beyond litigation and corporate practice. There are now specialized courses available in this arena. For instance, Chartered Institutes of Arbitrators (London) offers courses in India. Similarly, London Court of International Arbitration has also opened up a branch in India. But perhaps the best way for law students to sharpen their skills in this area is active participation in moot court competitions, which polishes their problem solving ability within a stringent time frame..Richa Kachhwaha holds an LL M in Commercial Laws from London School of Economics and Political Science. Currently, Richa is involved in legal writing and editing with over years 7 of experience. She is also a qualified Solicitor in England and Wales.