Alternative Dispute Resolution in International Commercial Law
Dr. Mostafa Noshadha
Today, one of the most important aspects in international commercial agreements is how to resolve dispute with regard to understanding the interoperation or acting agreement provision. Commercial disputes influence speed, privacy, information, investment and financial security. When creating such regulations and agreements, we must consider the effects of such regulations on the flow of business. To select the most effective method, we should be aware of:
— Commercial dispute resolution mechanism,
— Advantages and disadvantages of an agreement according to circumstances and the subject.
In recent years as a response to this need, we have seen the formation and use of new methods for peaceful settlement of commercial disputes. These methods are known as Alternative Dispute Resolution (ADR).
ADR typically refers to processes and techniques of resolving disputes that fall outside of the judicial process. In such processes person(s) who resolve dispute is formed based on determination of the parties and often heard by a “private person(s)/ private party (ies)” who are selected and agreed by the parties. I will explain briefly about such methods in this article.
Methods of ADR in international commercial law
Methods of Alternative Dispute Resolutions (ADR) in international commercial law are ways in which the parties of an agreement in case of a dispute replace state courts (Judicial court) with resolution via impartial “Third Person(s) or Third Party(is)”, whom the parties involved have selected.
These methods are non-judicial and non-government in nature. The characteristics of these methods are flexibility, rapid and low coast dispute resolutions. Additionally, the parties have the right to choose trusted and skilled person(s) for negotiation and conversation for dispute resolution in friendly and confidential way.
The principles and rules of such methods are logical alternative to dispute resolution. For instance, having a right to choose such method makes ADR a flexible tool to resolve disputes, as the parties have the right to select methods and/or rules governing how to deal with nature of dispute or procedures in resolving issues. In these methods parties may with regards to the law and in peaceful way resolve the dispute. The parties do not have any commitment to execute or act on such decisions or recommendation, except arbitration that acting on their decisions is binding for parties. Non-formal procedures of some methods in ADR resolve dispute quicker. If the method brings an unsatisfactory result, the parties have the right to try other methods.
I will now explain some methods of Alternative Dispute Resolution in International Commercial Law in summary form:
Conciliation (compromise) is voluntary privacy practice resolution, in which a third party is selected by the parties involved as the conciliator, who takes a close up view of an agreement between two parties. The third party facilitates their dialogue and provides a compromising non-binding verdict. In this method, the aim is not to condemn one side or the other. The conciliator tries to provide mutual consent. This mediation helps provide and maintain a healthy business relationship for both parties involved.
Today, in many countries, international institutions have set rules on conciliation or concessions. The provisions of the conciliation and arbitration of the international chamber of commerce in 1998 (on 2001 changed to ADR) and UNCITRAL conciliation rules 1980 are considerable.
Arbitration is a private dispute resolving in which judges have authority and legitimacy of the process, whereby the parties agree on a compromise document called “Arbitration Agreement”. This agreement may be as an “Arbitration Agreement” or independent form of “Arbitration Clause” in the original contract.
Procedures in arbitration are not formal as in judicial courts, but the principles of prosecution are binding. This form of Arbitration is a semi-formal way of resolving disputes and quicker than court proceedings. Arbitration fees are less expensive than courts and usually arbitrators are selected by mutually-trusted parties.
Thus, Arbitration verdicts have “the effect of res judicata” and it is closer to judicial procedure as we may even call it a “Private Hearing”.
Negotiation is a way in which the parties try to resolve their dispute without a third party. This method does not require adding conditions to a contract or separate agreement. This is a private, non-formal and non-mandatory method.
In this method, all negotiation procedures will be handled by the parties in a friendly atmosphere. But this method will only work if the parties have mutual understanding and are willing to resolve disputes and are economically, socially and politically somewhat equal, because a stronger party may influence negotiations.
This is particularly important in international disputes.
Bon Offeces is a private, non-formal and non-official method that the third party plays in dispute resolving. The third party does not interfere directly in the parties’ negotiations but confidentially offer the conciliations and recommendations to each party and provides a way for conciliation and dispute resolution.
After negotiating which it is the most non-formal and private method, the third party with minimum interference or mediation and only to create a condition for negotiation for both parties involved, Bon Offeces assist to resolve dispute.
This method is mostly used for special disputes with the aim of positive effects on the parties’ negotiation process and according to a special agreement accepted by the parties. Duty of enquete (investigator commission) is only to define the incident.
Enquete declare their point of view (opinion) to the parties and they have a right to accept or reject it.
Mediation is a private and voluntary method for dispute resolution, through which the third party impartially and directly encourages the parties towards dispute resolution.
The examination procedure is informal and unofficial, and the mediator assists in clarifying the dimension(s) of dispute. The mediator organizes a meeting for the parties’ negotiations about the dispute subject, and recommends possible and conceivable resolutions. Therefore, mediation is possible in a friendly and productive atmosphere. This is not a binding judgment for the parties involved. The mediator just recommends and tries to prepare a friendly atmosphere for compromise. Examination via mediation is quicker and less expensive than the arbitration process. So, most parties agree to mediation for dispute resolution first and if the mediation does not work, they try the arbitration method.
The concept of Impartial Evaluation may be summed up as a process through which the parties may obtain an initial expert and neutral assessment of the merits of their respective cases at the very initial stage of a dispute, as well as an independent recommendation regarding settlement options.
Impartial evaluation is like an expert in a court of justice. They provide information and expert analysis according to laws, but they remain neutral and follow the conditions agreed upon by the two parties.
The way of obtaining
This method is used when negotiations are defeated and the parties agreed on a neutral person to carry out assessment of the facts and issues of the dispute, and by providing advisory opinions to move the parties back to negotiation again.
Private judgment (summary proceedings)
In Private Judging (Summary Proceedings) as well as other alternatives, a dispute is resolved via agreement of the parties with a neutral third party. A retired judge is appointed by the parties in a dispute to preside over a “private trial”. The judge’s objective is to determine the dispute quickly, with finality, in accordance with the law.
Combinational methods (multi-stage methods)
The parties in selection of dispute resolution obtain concessions as a quicker process, which costs less and is informal. Thus, they choose methods like negotiation, as those are more private and simple. In case the parties do not get desired result, they may try other means of ADR that are more or less the same. These methods of ADR are combinational or multi-stage methods. These methods may be combined by any arrangement of methods but the most common combinations are:
— Combination of conciliation and mediation. In this combination, the parties agree that the third party first act as a mediator and if it is not successful, the third party acts as conciliator.
— Combination of mediation and arbitration. By this combination, the parties agree that the third party acts as a mediator and if there is no result they try the arbitration system.
— Combination of conciliation and mediation and arbitration. In this method, the parties try conciliation, mediation and finally arbitration as ADR.
Mediation and last offer to arbitrator
The parties first agree to use the mediation method and make their best offer to the arbitrator(s) and he/she selects the best offer. The Arbitrator(s) must choose one of the offers and may not change the offers because the philosophy of this method is each party is choosing the other party’s offer, tries to exert all their effort in mediation. In this method, the parties may ignore the mediation method and move directly to try the last offer of the arbitrator.
The role of ADR in commercial disputes
— A dispute in commercial relationships is inevitable but it is not the end of the commercial relationship. Therefore, traders tend to use this method for dispute resolution, which does not harm the future of their business relationships.
— Speed and security are of particular importance for a commercial relationship because traders are usually in touch with big capital and investment, and disputes may stop the capital flow. Also, an obligation to perform the contract in a specific period of time makes this twice as important. ADR procedures are far quicker than court procedures.
— Costs in ADR are less than judicial proceedings. The cost arbitration proceedings usually limit the companion of judges and in judicial proceeding the parties incur extra expenses too.
— Commercial disputes usually require specialized expertise and knowledge of business. Judicial court judges are mostly specialized in legal knowledge and they are less familiar with commercial subjects. Obviously, they may not examine procedures as thoroughly. But in ADR, the parties may agree on a third party professional for dispute resolution to achieve a better outcome.
— Protection of commercial secrets is one of the most important points in trade. In ADR, examination procedures are confidential and private.
— Businessmen are usually interested in results and accept a judge’s ruling. ADR allows the third party in accordance with general principles of commercial law and refers to a special convention or trade agreement based on fairness, even if the law has no duty to act. But in judicial review the judge must examine the case in accordance with specific laws.
Through the materials presented in this article it can be concluded that the current method of mediation is not enough to resolve such issues quickly and efficiently.
The ADR method of dispute resolution offers a new solution that can be much quicker, less expensive, and more efficient and confidential in a much friendlier environment to induce more productivity.
Since 1970 many organizations and companies have used ADR at international level.
I believe that with the help of suitable laws and organizations specializing in these procedures ADR can be introduced as a healthy alternative in problem resolution.