i

Alternative Dispute Resolution Project

ON

Role of ADR in Resolving Commercial Disputes

SUBMITTED TO:

Ms. Tulika Shree

Faculty, ADR

SUBMITTED BY:

Abhinav Surollia

Roll no. 07

SECTION C

SEMESTER VI, B.A. LL.B (HONS.)

SUBMITTED ON:

February 15, 2016

HIDAYATULLAH NATIONAL LAW UNIVERSITY

Uparwara Post, Abhanpur, New Raipur – 493661 (C.G.)

 ii

Declaration
I, Abhinav Surollia, of Semester VI, Section C, declare that this project submitted to
H.N.L.U., Raipur is an original work done by me under the able guidance of Ms. Tulika
Shree, Faculty of ADR. The work is a bona fide creation done by me. Due references in terms
of footnotes have been given wherever necessary.

Abhinav Surollia

Roll No. 07

Section C, Semester VI
 iii

Acknowledgements
I feel highly elated to work on the project “Role of ADR in Resolving Commercial Disputes.”
The practical realisation of the project has obligated the assistance of many persons. Firstly I
express my deepest gratitude towards Ms. Tulika Shree, Faculty of ADR to provide me with
the opportunity to work on this project. Her able guidance and supervision were of extreme
help in understanding and carrying out the nuances of this project.

I would also like to thank The University and the Vice Chancellor for providing extensive
database resources in the library and for the internet facilities provided by the University.

Some printing errors might have crept in which are deeply regretted. I would be grateful to
receive comments and suggestions to further improve this project.

Abhinav Surollia

Roll No. 07

Section C, Semester VI
 iv

Contents
1. Declaration ii
2. Acknowledgements iii
3. Introduction 1
4. Research Methodology 3
5. ADR and Commercial Disputes 5
6. Benefits of ADR in Commercial Disputes 8
7. Conclusion 12
8. Bibliography 14
 1

Introduction
Commercial disputes include disputes arising from, for example, a payment default on
delivery of goods or a dispute concerning the payment and/or finalisation of projects. Usually
a dispute settlement clause in a commercial contract indicates the forum at which an existing
or a future dispute should be settled. This can be a local court via litigation as per the agreed
applicable law or an arbitration court as per the agreed arbitration rules. Commercial disputes
include disputes arising from, for example, a payment default on delivery of goods or a
dispute concerning the payment and/or finalisation of projects. Usually a dispute settlement
clause in a commercial contract indicates the forum at which an existing or a future dispute
should be settled. This can be a local court via litigation as per the agreed applicable law or
an arbitration court as per the agreed arbitration rules.

Alternative Disputes Resolution is a common term that refers to a broad selection of

practices, the principle of which is to manage and swiftly resolve disagreements at lower cost
and with as small unpleasant impact as possible on business and other relationship. The term
alternative dispute resolution also refers to any means of setting disputes outsides the formal
Courts/Tribunals established by the State in exercise of its sovereign function to decide
disputes between citizens and also disputes between itself and citizen.

There are two types of dispute resolution— RDR and ADR. RDR means Regular Dispute
Resolution which refers to the resolution of dispute through regular judicial proceedings or
through the formal legal system and ADR means Alternative Dispute Resolution which is an
alternative to the Formal Legal System. It is an alternative to litigation. It was being thought
of in view of the fact that the Courts are overburdened with cases. The said system emanates
from dissatisfaction of many people with the way in which disputes are traditionally resolved
resulting in criticism of the Courts, the legal profession and sometimes lead to a sense of
alienation from the whole legal system- thus, the need for alternative dispute resolution.

Alternative dispute Resolution methods are being increasingly acknowledged in the field of
law and commercial sectors both at National and International levels. Its diverse methods can
help the parties to resolve their disputes at their own terms cheaply and expeditiously.
Alternative dispute Resolution techniques are in addition to the Courts in character.
Alternative dispute Resolution techniques can be used in almost all contentious matters,
which are capable of being resolved, under law, by agreement between the parties.
 2

Alternative dispute Resolution techniques can be employed in several categories of disputes,

especially civil, commercial, industrial and family disputes. It is found that, alternative
dispute Resolution methods offer the best solution in respect of commercial disputes where
the economic growth of the Country rests.

The highly technical and formal procedures of courts have in fact stimulated the need for the
less formal and speedy dispute resolution mechanisms. The Arbitration Act, 1940, that had
been enacted for the effective and speedy resolution of disputes had become outdated. Its
ineffectiveness was emphasized by the Supreme Court of India in Gurunanak Foundation v.
Rattan Singh and Sons1 where in the Apex Court observed:

“Interminable, time consuming, complex and expensive court procedures

impelled jurists to search for an alternate forum, less formal, more
effective and speedy for resolution of disputes avoiding procedural delays
and this led them to Arbitration Act, 1940. However, the way in which the
proceedings under the Act were conducted and without an exception
challenged in the court had made lawyers laugh and legal philosophers
weep”

In the context of liberalization of the economy and globalization of world markets, the
Government of India realized that for the effective implementation of economic reforms in
India, it was necessary to introduce reforms in the business laws. As part of such an effort,
changes were also made in the arbitration law in India. The Arbitration and Conciliation Act,
1996, has been enacted in close similarity with the UNCITRAL Model Law on Arbitration
with the objective that, disputes arising in international commercial relations shall be
settled in a fair, efficient and expeditious manner2. This could be regarded as one reason
why the settlement of international disputes through arbitration has got a tremendous impact
in these recent years. There is also an opposite view stating that the unification in the
arbitration laws has brought about certain practical difficulties in arbitration due to the
changing dimensions of global trade.

This project work aims at examining the role of Alternative Dispute Resolution (ADR) in
resolving commercial disputes. The work also attempts to find out whether opting for ADR is
more effective than ordinary course of litigation in resolving commercial disputes.

1
(1981) 4 SCC 634.
2
Konkan Railway Corporation Ltd. v. Mehul Construction Ltd., (2000) 7 SCC 201.
 3

Research Methodology
Statement of Problem
Traditional Courts are flooded with cases and there is huge backlog of cases pending with
different courts at every level of Judiciary. Therefore there is a need for a mechanism to act
as an alternative to traditional courts and provide a speedier dispute resolution specially in
commercial disputes where the loss can multiply many fold with delay and traditional
litigation may hamper business relationship.

Aims and Objectives

The primary aim of this project is to highlight the importance or role which Alternative
Dispute Resolution ADR can play in resolving commercial disputes. The project attempts to
bring out the benefits ADR can provide in solving commercial disputes which is more
effective and efficient than resolution of disputes through ordinary course of litigation.

Scope and Limitations

Due to paucity of time the project covers in nutshell the role of ADR in resolving commercial
disputes and the benefits ADR has in solving commercial disputes are dealt in brief. The
disadvantages are covered in the conclusion. The project does not cover each and every
advantage or disadvantage that ADR provides in solving commercial disputes.

Objectives
1. To study the role of ADR in resolving commercial disputes.
2. To find out and understand the benefits of ADR in resolving commercial disputes.
3. To study in brief the disadvantages of ADR in resolving commercial disputes.
4. To provide a comparison between role of RDR and ADR in resolving commercial
dispute.

Hypothesis
It is hypothesized by the researcher that Alternative Dispute Resolution plays a vital role in
resolving commercial disputes. ADR is a quick and efficient method to resolve commercial
disputes.
 4

Research Questions
1. What is the contribution of ADR in resolving commercial disputes?
2. What are the advantages of ADR in solving commercial disputes?
3. What are the disadvantages of ADR in resolving commercial disputes?
4. Whether RDR is better option in resolving commercial dispute or ADR?

Methodology
This Research Project has employed doctrinal method of research. Accumulation of the
information on the topic includes wide use of primary sources such as cases as well as
secondary sources like books, e-articles etc. The matter from these sources have been
compiled and analysed to understand the concept.

Websites, dictionaries and articles have also been referred.

Mode of Citation

This project follows a uniform Bluebook 19th Ed. Citation format for footnotes and
bibliography.
 5

ADR and Commercial Disputes

Most commercial disputes have at least three dimensions; legal, commercial, and emotional.3
It is a well-established advantage that ADR processes, such as mediation and conciliation,
provide an opportunity for parties in a commercial dispute to consider and resolve all
dimensions of the dispute in a private and confidential environment which also preserves
good business relations. By contrast, litigated commercial disputes are ―concerned
essentially with the loss of, or entitlement to money or monies worth, between individuals or
corporations who have sought to protect their personal wealth or investments by invoking
their legal rights.4 Litigation has the advantage of finality but may hamper the continuation of
a business relationship.

Commercial disputes are somewhat unique in that they usually involve parties who have
known one another for a significant period of time and have had a business relationship. They
have had a long time to “live” with the dispute and think about it. Their issues are often well-
documented in terms of correspondence, meetings, contracts, etc. This aids in the dispute
resolution process. This pre-existing business relationship often provides an added
opportunity for dispute resolution. In addition to using monetary compensation as a tool or
negotiating point, the parties may be interested in continuing their relationship in some, albeit
modified, form or providing a business opportunity to the one of the other parties. For
example, instead of one party paying damages to the other, they may be able to provide a
profit-making opportunity that, in effect, provides compensation. Although these situations
are not present in all commercial disputes, counsel for the litigants should keep this element
on their radar in appropriate cases.

While commercial disputes are inevitable, the way they are handled can have a profound
impact on the profitability and viability of business.5 Poorly managed conflict costs money,
creates uncertainty and degrades decision quality. It is worthwhile to be noted that:

Conflict is a fact of life even in the best-run organization. It goes under

many names - disagreement, disharmony, dispute, difficulty or difference -

3
Runesson and Guy Mediating Corporate Governance Conflicts and Disputes (The International Finance
Corporation, World Bank Group, 2007) at 28. Available at www.ifc.org.
4
Aylmer ―Commercial Mediation in Ireland - An Opportunity for Progress?‖ (February 2007), online article
available www.efc.ie.
5
Nadja Alexander, Global Trends in Mediation, 49 (Second ed., Kluwer Law International) (2006).
 6

but the results of mismanaged conflict are the same: at best unwelcome
distraction from a heavy workload; at worst damage which may threaten
the very future of the organization.6

It is a well-established advantage that ADR processes, such as mediation and conciliation,

provide an opportunity for parties in a commercial dispute to consider and resolve all
dimensions of the dispute, including legal, financial and emotional aspects, in a private and
confidential environment.7 Commercial disputes often centre on very sensitive commercial
details which parties would prefer not to have disclosed in public. The confidentiality afforded
by mediation and conciliation is therefore highly attractive in resolving commercial disputes.
Furthermore, when commercial disputes arise, the most favorable outcome for those involved
is to have the dispute resolved quickly and to maintain a working business relationship with
the other party. Indeed, disputes inevitably arise and when they do, commercial clients will
want them resolved and finalized in a manner that is expeditious and as cost-effective as
possible. The speedy resolution of disputes is a huge incentive for commercial clients, never
more acutely than in recent times, and mediation has been proven useable in the vast majority
of commercial disputes, irrespective of how complex a case may seem or how many parties
are involved.8

Another emerging area for ADR in the commercial context is in the resolution of intellectual
property disputes. Indeed, in 1994 the World Intellectual Property Organization (WIPO)
established an arbitration and mediation centre for the resolution of such disputes. The WIPO
asserts that: ―

Disputes interfere with the successful use and commercialization of IP

rights. Providing means for resolving them as fairly and efficiently as
possible, without disrupting underlying business relationships, is therefore
an important challenge for international IP policy. ADR has a number of
characteristics that can serve this purpose, and as such offers an important
option for resolving IP disputes.9

6
CEDR, Conflicting priorities – best practice in conflict management,
http://www.cedr.com/articles/?item=Conflicting-priorities-best-practice-in-conflict-management (Accessed on
February 5, 2016).
7
Sarah Conway, Recent Developments in Irish Commercial Mediation: Part I (2009) 27ILT 43.
8
Sarah Conway, Recent Developments in Irish Commercial Mediation: Part II (2009) 27ILT 58.
9
WIPO Magazine, Issue No. 2, Resolving IP Disputes through Mediation and Arbitration (April 2006)
http://www.wipo.int/wipo_magazine/en/2006/02/article_0008.html (Accessed on February 7, 2016).
 7

Generally, the only remedy a court can impose in a trademark or patent infringement case is
an injunction against future infringements and, in certain cases, payment of monetary
damages. In mediation, however, the parties are free to fashion any innovative solution that
meets their particular needs or interests.

Mediation and Conciliation clauses are now regularly included in commercial contracts
supplementing more traditional clauses that referred to arbitration only as the appropriate
mechanism for resolving disputes. In such a clause, ADR is voluntary in the sense that the
parties consented to the inclusion of the clause in the agreement, and thus the process, at the
outset of their relationship. The clause usually stipulates that the parties will refer any dispute
that arises out of the contract to either mediation or conciliation, where these processes do not
result in a settlement; the parties are still free to have the dispute arbitrated or adjudicated by a
Court. By inserting ADR clauses, businesses establish procedures that will govern the
resolution of any disputes that may arise in the course of the contractual relationship, and, as a
result, avoid any delay in the resolution of the dispute.
 8

Benefits of ADR in Commercial

Disputes
Arbitration is preferred by many as a way to resolve commercial disputes. It has many
advantages over litigation in court, such as party control of the process; typically lower costs
and shorter time to resolution; flexibility; privacy; awards which are final and enforceable;
decision makers who are selected by the parties on the basis of desired characteristics and
experience; and broad user satisfaction. Following are the benefits of ADR in resolving
commercial disputes:

Party Control

Unlike litigation in court, arbitration is a creature of contract. This means that parties can
agree to design the arbitration process to accommodate their respective needs and can
continue to do so as the proceeding moves forward. Both at the contractual stage and after the
arbitration has commenced, the parties can determine the nature and scope of discovery
(including whether to allow depositions), the conduct of the hearing (including testimony by
live video), the length of time for the entire process, as well as pre-screening the arbitrators
for disclosure issues and availability.

Expense/Cost Effective

Attorneys’ fees and expenses are by far the most significant cost of litigation, and they
increase in direct proportion to the time to resolution of the case. Attorneys’ fees and
expenses can be minimized in arbitration because arbitrations are generally concluded in far
less time than cases in court.

While cases litigated in court do not have arbitrator or institutional charges, the International
Chamber of Commerce reports that those charges represent only 18% of the cost of
arbitration.10 This 18% (and substantially more) can be recouped quickly because of the
increased speed and efficiency of arbitration and the ability to tailor the arbitration to the
specific needs of the parties.

10
International Chamber of Commerce Commission on Arbitration, Techniques for Controlling Time and Costs
for Arbitration, http://www.iccwbo.org/uploadedFiles/TimeCost_E.pdf. (Accessed on February 5, 2016).
 9

Court cases generally require more counsel time and, thus, more expense for preparation and
trial than is needed in arbitration. For example, broad pre-trial motion practice and exhaustive
discovery pursuant to rules of civil procedure are not common in arbitration. Many hearing
related matters which consume time and money in court are usually not part of arbitration
such as extensive evidentiary issues, voir dire, jury charges, proposed findings of fact,
endless authentication of documents, qualification of experts, and cumulative witnesses.
Finally post hearing appeals and court proceedings are far more limited in arbitration than in
court.

Issues of speed and cost-efficiency are the hallmarks of the arbitration procedure, and are
often identified as the core reasons why arbitration very clearly surpasses litigation as a
suitable choice for dispute resolution, especially with respect to commercial disputes.
However, the prevalent high cost of arbitration in India prevents arbitration from being an
effective mechanism for resolution of commercial disputes. For this reason, arbitration is not
progressing in the manner it should in order to keep pace with the increase in commercial
disputes due to the inflow of international as well as commercial transactions.11

Flexibility

Arbitration is a flexible process which permits parties to organize procedures, schedule

hearings and deadlines to meet their objectives and convenience. Common practices which
result from arbitration’s flexibility include choosing a location for the hearing that will
minimize costs; taking witnesses out of order or interrupting a witness to accommodate
individual needs; continuing a hearing outside of normal business hours in order to complete
a witness or to finish the hearing; taking testimony of distant witnesses by video conference
or by telephone; ordering testimony so that all experts on a topic testify directly after one
another or even all at the same time; and using written witness statements for some or all of
the witnesses in lieu of time-consuming, oral direct testimony.12

11
Krishna Sarma, Momota Oinam & Angshuman Kaushik, Development and Practice of Arbitration in India –
Has it Evolved as an Effective Legal Institution?,
http://iisdb.stanford.edu/pubs/22693/No_103_Sarma_India_Arbitration_India_509.pdf (Accessed February 6,
2016).
12
American Bar Association, benefits of Arbitration for Commercial Disputes, 4,
http://www.americanbar.org/content/dam/aba/events/dispute_resolution/committees/arbitration/arbitratio
nguide.authcheckdam.pdf (Accessed on February 8, 2016).
 10

When negotiating their underlying commercial contract, parties often include provisions in
the arbitration clause which will enhance the efficient conduct of any arbitration that might
thereafter arise. Most commonly, such clauses set time limitations for concluding the entire
arbitration, as well as limitations on interim phases such as discovery and commencement of
the hearing. It is far easier for the parties to agree on such matters when they negotiate their
commercial contract than when a dispute has actually arisen and the parties are in an
adversarial relationship.

The flexibility of arbitration fosters a relatively informal atmosphere. Together with the
privacy of the arbitration proceeding, this serves to reduce the stress on the witnesses and on
what are often continuing business relationships between the parties.

Confidentiality

Arbitral hearings are held in private settings and are attended only by those designated by the
parties and their counsel, in contrast to trial proceedings held at the court house, which are
open to the public.

The parties can agree to maintain the confidentiality of the arbitration proceeding, unlike in
court, where requests to seal the record are seldom granted. Most arbitral institutions have
specific rules regarding the confidentiality of proceedings and awards and the laws of some
jurisdictions provide for confidentiality.13 As long as the proceeding stays in the arbitration
forum, confidentiality can be preserved by agreement of the parties.

Confidentiality is an important feature for many corporations, particularly when dealing with
disputes involving intellectual property and trade secrets or when there are concerns about
publicity or damage to reputation or position in the marketplace.

Arbitrator Selection

A great benefit of arbitration is that the parties can select their arbitrators, both under the
party appointed system and the list system, and thereby choose arbitrators with qualifications
tailored to the needs of the arbitration in question. These desired qualifications can include
attributes such as subject matter expertise; reputation for competence; temperament; number

13
Id at 5.
 11

of years of experience; number of arbitrations chaired; availability; and commitment and

ability to conduct an efficient, cost effective arbitration.

The ability of parties to select arbitrators with desired specific expertise and competence
contrasts with most court cases where judges are assigned randomly without regard to
whether they possess qualifications particularly suited to the dispute in question. An
additional benefit is the parties’ ability to provide for a panel of three arbitrators to hear
complex and/or high dollar disputes.

International Commercial Disputes

Arbitration permits the parties to choose adjudicators with the necessary special expertise to
decide a cross-border dispute, a choice which is not available in court. This special expertise
can include knowledge of more than one legal tradition (e.g., common law and civil law),
experience, understanding and ability in harmonizing cross-border cultural differences
between parties, and fluency in more than one language.14 In the international context,
arbitration provides a uniquely neutral forum for dispute resolution and enables the parties to
select decision makers of neutral nationalities or of recognized neutrality who are detached
from the parties and their respective home state governments and courts. Thus, arbitration
avoids any perceptions of potential bias and provides reassurance that the rule of law will be
observed. Arbitration also avoids delays in court which, in some jurisdictions, can exceed
five or even ten years.

A critical feature of international arbitration is the existence and effective operation of the
New York Convention to which over 140 nations are parties. The Convention enables the
enforcement of international arbitration agreements and awards across borders. In contrast,
judgments of national courts are more difficult and often impossible to enforce in other
countries.

14
Id at 7.
 12

Conclusion
A dispute’s nature and the parties involved determine the appropriateness of ADR in any
given situation. The amount of financial and time savings gained by choosing ADR over
litigation depends a great deal on the “intensity” of disputants’ “fixed positions” and
disputants’ ability to pick a qualified decision maker if they opt for third party-involvement.
Also, values and ultimate goals shape whether people view certain features of ADR as
drawbacks or benefits. Although ADR has potential disadvantages, record numbers of
disputants in intellectual property cases are deciding that its many perks make it a wiser
choice than the traditional court route.

Modern commercial ADR is growing in importance worldwide, driven not by mainstream

civil justice system reform but by businesses themselves seeking “commercially focused,
tailor-made dispute resolution mechanisms… a business-based solution, operated in and by
the private sector, for its own benefit.”15 While ADR processes can benefit from a supporting
legal framework and integration with the court system, some processes can proceed fully
independently of the courts, simply by agreement between the parties

ADR may not be suitable, however, where there is a need to establish a clear precedent or
public ruling, where there is an excessive power imbalance, where the parties are not
committed to negotiating and resolving the dispute, where negotiation may be perceived as a
sign of weakness, or where the parties cannot trust each other to abide by the terms of a
settlement. Some of the disadvantages that are found on the methods of alternative methods
of dispute resolution are that, the arbitrators is not subject to overturn on appeal may be more
likely to rule according to their personal ideals. Large corporations may exert inappropriate
influence in consumer disputes, pressuring arbitrators to decide in their favor or lose future
business. The burden of paying remuneration for the arbitrators is upon the parties to the
dispute, which may sometime be felt as a burden by the disputants. The parties can cure these
difficulties by prudently entering into the contract and deciding the terms of referring the
dispute, before choosing the alternative dispute redressal forum.

15
World Bank Group (2011) Alternative Dispute Resolution Guidelines, Washington: World Bank Group.
https://www.wbginvestmentclimate.org/advisory-services/regulatory-simplification/alternative-dispute-
resolution/upload/15322_ADRG_Web-2.pdf (Accessed on February 7, 2016).
 13

The advantages of alternative dispute resolution methods are so prominent that there is global
need and trend to adopt alternative dispute resolution methods to resolve the dispute as it is
quick as well as cheaper than that of adjudication through Courts of Law.

As argued by the father of our Nation Mahatma Gandhi, the role of law, is to unite the
parties and not to riven them.16 As compared to Court procedures, considerable time and
money can be saved in solving the disputes through alternative dispute resolution
procedures,17 which can help in reducing the workload of regular Courts and in long run can
pave way in solving the problem of judicial arrears before the Courts of law.

16
Mahatma Gandhi, The Story of My Experiments with Truth 258 (1962).
17
Hiram Chodosh, Global Justice Reform: A Comparative Methodology (2005).
 14

Bibliography
1. Runesson and Guy, Mediating Corporate Governance Conflicts and Disputes (The
International Finance Corporation, World Bank Group, 2007). Available at
www.ifc.org.
2. Aylmer, Commercial Mediation in Ireland - An Opportunity for Progress? (February
2007), online article available www.efc.ie.
3. Nadja Alexander, Global Trends in Mediation, (Second ed., Kluwer Law
International) (2006).
4. Sarah Conway, Recent Developments in Irish Commercial Mediation: Part I (2009)
27ILT 43.
5. WIPO Magazine, Issue No. 2, Resolving IP Disputes through Mediation and
Arbitration (April 2006)
http://www.wipo.int/wipo_magazine/en/2006/02/article_0008.html (Accessed on
February 7, 2016)
6. CEDR, Conflicting priorities – best practice in conflict management
http://www.cedr.com/articles/?item=Conflicting-priorities-best-practice-in-conflict-
management (Accessed on February 5, 2016).
7. International Chamber of Commerce Commission on Arbitration, Techniques for
Controlling Time and Costs for Arbitration,
http://www.iccwbo.org/uploadedFiles/TimeCost_E.pdf. (Accessed on February 5,
2016).
8. Krishna Sarma, Momota Oinam & Angshuman Kaushik, Development and Practice
of Arbitration in India – Has it Evolved as an Effective Legal Institution?
http://iisdb.stanford.edu/pubs/22693/No_103_Sarma_India_Arbitration_India_509.pd
f (Accessed February 6, 2016).
9. World Bank Group (2011) Alternative Dispute Resolution Guidelines, Washington:
World Bank Group.
https://www.wbginvestmentclimate.org/advisory-services/regulatory-
simplification/alternative-dispute-resolution/upload/15322_ADRG_Web-2.pdf
(Accessed on February 7, 2016).
10. Hiram Chodosh, Global Justice Reform: A Comparative Methodology (2005).
 15

11. American Bar Association, benefits of Arbitration for Commercial Disputes,

http://www.americanbar.org/content/dam/aba/events/dispute_resolution/committees/a
rbitration/arbitrationguide.authcheckdam.pdf (Accessed on February 8, 2016).