Unit- IV

Conciliation:-

There are, besides arbitration, other types of alternative dispute resolution (ADR) that are
binding on the parties, in contrast, non-binding types of ADR that has caused a stir on the
domestic and international commercial scene is mediation, or conciliation, as a mode of dispute
resolution.
The process of ‘conciliation’ has yet to achieve a stable meaning, and is often used
interchangeably with mediation. In earlier usage, conciliation usually referred to a process that
emphasized facilitation of communications among disputants without third party
recommendations, as contrasted with mediation, which allowed for more activist third party
intervention. Ironically, this understanding appears to have been reversed in international dispute
resolution, where a conciliator is regarded as a third party who makes a non-binding
recommendation to resolve a dispute. In any event, in most contexts today, conciliation and
mediation are considered synonymous, and both may involve activist intervention by the third
party.

International developments:-
If the exporter prefers dispute resolution out of court he should therefore insert into the contract
of sale an alternative dispute resolution clause which embraces mediation and conciliation or an
arbitration clause. Arbitration under the Rules of the ICC is open to members and non-members.
The method of settlement might be conciliation or arbitration, or conciliation followed by
arbitration in case the conciliation effort fails. The initiative for such proceedings might come
from a State as well as from an investor. A procedure for optional conciliation may be adopted
under the ICC Rules of Conciliation which entered into force on January 1, 1998. An
Administrative Commission for Conciliation is constituted at the ICC and for each dispute a
Conciliation Committee of three members is set lip by the President of the ICC. The party
requesting conciliation may apply either through his National Committee or to the international
headquarters of the ICC directly. If no request for conciliation is made or the conciliation has
failed, the dispute proceeds to arbitration. No person having sat on the Conciliation Committee
for the settlement of the dispute in question may be appointed as arbitrator. The Court of
Arbitration does not itself settle disputes but if the parties have not agreed on the arbitrator(s),
the Court will appoint upon a proposal of a National Committee of the ICC.

The ICC Court of Arbitration is a popular arbitral tribunal for the settlement of disputes arising
from international commercial contracts, but has jurisdiction only if the parties have agreed to
ICC arbitration. Arbitration may be preceded by optional conciliation.

Article 4 of DSU sets out the obligations in respect of holding consultations between members.
Generally these must take place within 30 days and will normally last no longer than 60 days.
Where there is either a failure to enter into consultations or the issue remains unresolved after 60
days, the complainant has a right to request the establishment of a panel. The dispute panel has
no mandate to assess the effectiveness of the consultations. Opportunities are also given for
conciliation and mediation under Art.5.

The UNCITRAL Conciliation Rules:- The UNCITRAL Rules are, however, more detailed than
the ADR Rules. For instance, Arts 3 and 4 cover the issue of appointment of conciliators
extensively. Presumably, this was felt necessary, since UNCITRAL does not provide the type of
services offered by the ICC in the appointment of conciliators. There are also provisions on the
stages that the conciliator has to follow during the process, in Art 5. Further, there is an attempt
to introduce finality to the settlement agreement reached by the parties, in that Art 13(3) provides
‘that the parties by signing the settlement agreement put an end to the dispute and are bound by
the agreement’. However, the parties are not bound by this provision if they use the UNCITRAL
Rules, since they are free to exclude or vary the Rules at any time, according to Art 1(2). For
instance, they could agree that the agreement is a ‘gentleman’s agreement’ or binding ‘in
honour’ only. Or they may make the agreement subject to conditions. For instance, Buyer B,
claiming losses of £1 million for defective goods supplied by seller S, may settle for £100,000
provided S pays the amount within seven days of signing the agreement. The settlement
agreement could read: ‘S promises to pay B £100,000 within seven working days of the signature
of this agreement. If he does so, the dispute is settled and B shall not raise the complaint in any
manner or forum. If S does not pay as aforesaid, B shall be free to pursue any legal remedy as if
this agreement has not been concluded.’

Consent is required to initiate conciliation, and parties also have to agree to settle the dispute.
Apart from preserving the commercial relationship of the contracting parties, the costs of
conciliation are not as high as those of arbitration or litigation. On the downside, conciliation
does not always reach settlement since parties are free to walk away from the conciliatory
process at any stage. They can turn to litigation or arbitration after carrying on with the
conciliatory process for a fair while, thus doing away with one of the advantages that conciliation
offers – reduction in costs. Further, it may be tactically disadvantageous to enter the conciliation
stage, should the parties go to trial, since many of the reasons and arguments are likely to have
been rehearsed during the conciliatory process.

A recent development on the international scene that is likely to have a global impact emanates
from UNCITRAL. With harmonisation in mind, it adopted the Model Law on International
Commercial Conciliation (hereinafter ‘Conciliation Law’) in 2003. Various versions of the draft
are available on its website. It covers the most obvious matters pertaining to mediation:
appointment of a neutral party, conduct of conciliation, communication between conciliator and
parties, admissibility of evidence in other proceedings, and enforceability of settlement. The
Conciliation Law applies to international commercial conciliation, although parties may
expressly agree to apply the provisions to domestic commercial conciliation (Art 1). Conciliation
is defined in Art 1(3) as follows:
For the purposes of this Law, ‘conciliation’ means a process, whether referred to by the
expression conciliation, mediation or an expression of similar import, whereby parties request
a third person, or persons (‘the conciliator’) to assist them in their attempt to reach an amicable
settlement of their dispute arising out of relating to a contract or other legal relationship.
The conciliator does not have the authority to impose upon the parties a solution to the dispute.
The definition does not promote a particular technique – facilitative or evaluative – and is
sufficiently broad to accommodate the variety of techniques currently in use. Presumably,
instead of imposing a certain technique, it was felt best to follow the current global trend and
leave it to the market forces to decide the most appropriate one.

Conciliation Agreement:-
Conciliation in most cases is a creature created by agreement between the parties. The
UNCITRAL Rules, for instance, recommend the following model clause:
Where, in the event of a dispute arising out of or relating to this contract, the parties wish to seek
an amicable settlement of that dispute by conciliation, the conciliation shall take place in
accordance with the UNCITRAL Conciliation Rules as at present in force.

The Conciliation Law addresses the issue of resorting to arbitral or judicial proceedings in
Art 13 as follows:
Where the parties have agreed to conciliate and have expressly undertaken not to initiate during
a specified period of time or until a specified event has occurred arbitral or judicial proceedings
with respect to an existing or future dispute, such an undertaking shall be given effect by the
arbitral tribunal or court until the terms of the undertaking have been complied with, except to
the extent necessary for a party, in its opinion, to preserve its rights. Initiation of such
proceedings is not of itself to be regarded as a waiver of the agreement to conciliate or as a
termination of the conciliation proceedings.

It seems according to the article that a party can apply for stay of arbitral or judicial proceedings
while the conciliation process is taking place or where there is an express provision stating that
they will not initiate arbitral/judicial proceedings for a specific period. This is similar to a Scott v
Avery clause.

Presumably, where one party notifies another party of its intention to enter into conciliation on
the basis of their agreement, it will be construed widely as conciliation proceedings. However,
Art 13 leaves the door open for the party to initiate judicial or arbitral proceedings even during
conciliation proceedings, that is, to obtain interim measures on the basis that this is necessary for
preserving its rights.

It is expected that the Conciliation Law will have a wide impact of the kind witnessed by the
UNCITRAL Model Law on Arbitration.
Settlement agreement and enforceability:-
Although it is possible for the settlement agreement to be oral, it is normally reduced to a written
document signed by the parties concerned. Short of want of authority, duress or fraud, a written
agreement would prevent the parties from claiming that a settlement was not agreed and would
give a clear indication of the terms. A statement to the effect that the settlement agreement is
binding would also aid enforceability. The UNCITRAL Conciliation Rules reflect this
arrangement in Art 13(2) and (3) as follows:
(2) If the parties reach agreement on a settlement of the dispute, they draw up and sign a written
settlement agreement. If requested by the parties, the conciliator draws up, or assists the parties
in drawing up, the settlement agreement.
(3) The parties by signing the settlement agreement put an end to the dispute and are bound by
the agreement.
The advantage of opting for such a conversion, in an international context, is ease of recognition
and enforcement across borders.

Mediation:-

There are, besides arbitration, other types of alternative dispute resolution (ADR) that are
binding on the parties, in contrast, non-binding types of ADR that has caused a stir on the
domestic and international commercial scene is mediation, or conciliation, as a mode of dispute
resolution.

Use of a third (neutral) party to aid the contracting parties to iron out their differences and arrive
at an amicable solution is the distinctive feature of mediation. Although the terms ‘mediation’
and ‘conciliation’ are used interchangeably here, there is some suggestion that in mediation the
third party plays an evaluative role (i.e., by expressing his opinion), whereas in conciliation the
role is a facilitative one (i.e., the third party does not advise parties of his own opinion). This
distinction is by no means well settled, neither is it widely accepted. For instance, an American
writer describes the processes thus:

While differing somewhat in language and detail, most modern definitions of mediation contain
two common elements: (1) third party facilitation of dispute settlement, and (2) lack of third
party power to determine the resolution of the dispute. In other words, the principle of self-
determination is paramount. The disputants, not the third party intervener, maintain the exclusive
power to decide on a resolution of their dispute. Since the mediation process does not share the
trappings of the judicial or arbitral process (e.g., handing down of awards or judgments, the
adjudicative role of the arbitrator or judge), it is not harsh in nature. It helps focus the parties’
minds on the nature of the differences, to try to see if they can come to some agreeable
arrangement, thus preserving their business relationship.

This positive aspect of mediation has contributed to its enthusiastic reception by businessmen,
academics and practitioners alike. As The Hon Lord Goff of Chieveley, colorfully observed:
“cost and delay have been identified as two of the principal enemies of justice in the modern
world; and, since time is money, it is really cost that we are talking about. But, in addition,
formal arbitration has become to some extent afflicted by arthritis, the disease which, as time
passes by, seems to attack nearly all institutions as it does nearly all human beings. ADR is seen
as the one means of escaping from the inflexible processes towards which substantial arbitrations
seem to gravitate. ADR, if effective, may produce not only a less expensive but, also, a less
traumatic resolution of disputes – especially important where the parties may wish to continue to
do business together in the future.”

Mediation, however, has its fair share of criticisms. For instance, it has been said that prejudice,
power imbalance and bigotry are rife in mediation and that most mediations go against the grain
of rule of law. It is also said that mediator neutrality is a myth and that the sex and ethnic
backgrounds of the mediator and of the participants affect the outcomes. In most cases involving
commercial disputes, parties are accompanied by their legal advisers. Moreover, the advantage
of mediation is its flexibility, its ability to arrive at a solution acceptable to both parties even if it
does not strictly adhere to positive law.

Mediation, by and large, is voluntary. Consent is required to initiate mediation, and parties also
have to agree to settle the dispute. The core features of mediation, associated issues and
solutions are the subject matter of this chapter. However, before proceeding with this task, a brief
account of international developments and developments in England in respect of mediation is
provided.

International developments:-

The two international organisations, the United Nations Commission on International Trade Law
(UNCITRAL) and the International Chamber of Commerce (ICC), have played an important role
in the promotion of arbitration, have drawn up mediation rules, thus providing a framework.

The ICC ADR Rules which came into effect on 1 July 2001, cover issues such as
commencement of ADR proceedings, selection of a neutral (i.e., mediator), fees and costs, and
contain safeguards, such as confidentiality and neutral immunity. The ADR Rules leave it open
to the parties to choose the ADR technique that most suits their needs for resolving the dispute
amicably. In the absence of agreement, mediation is the technique to be adopted.

International organisations, such as BIMCO, which play an active role in drafting standard forms
in respect of sea transportation, have also responded to the arrival of mediation on the dispute
resolution horizon with a mediation clause incorporated into the standard dispute resolution
clause.

Although BIMCO highlights the key benefits of mediation, the clause is drafted with the
intention that it will be used to mediate parts of a large dispute during an arbitration process. The
arbitration process, it seems, will continue alongside mediation. The motivation behind this
approach was to ensure that parties did not use mediation as a delaying tactic.

Mediation agreement:-
Mediation in most cases is a creature created by agreement between the parties. The ADR Rules,
set out a number of different Model Laws reflecting a variety of possibilities, ranging from
optional ADR and an obligation to consider ADR to an obligation to submit to ADR followed by
ICC arbitration, as required.

Confidentiality and mediator immunity:-

One of the benefits often highlighted by the proponents of mediation is confidentiality.
Confidentiality pervades the whole process, from the caucus meetings to the settlement stage.
Indeed, one of the opening statements in mediation concerns the obligation to keep anything said
by the parties in a common meeting or a caucus meeting confidential unless otherwise agreed.
The imposition of confidentiality has obvious advantages – it opens the door for frank and open
discussions between the mediator and each of the parties in their private meetings with the
mediator, as well as between the parties during the course of the mediation including the
settlement stage.

The ADR Rules similarly (in Art 7) provide:

In the absence of any agreement of the parties to the contrary and unless prohibited by applicable
law, the ADR proceedings, including their outcome, are private and confidential. Any settlement
agreement between the parties shall similarly be kept confidential except that a part shall have
the right to disclose it to the extent that such disclosure is required by applicable law or
necessary for purposes of its implementation or enforcement.

A confidentiality agreement is likely to be challenged on a number of grounds. For instance,

where one of the parties alleges that signature on the settlement agreement was obtained by fraud
or duress, or indeed that there was no settlement agreement since the person who signed did not
have any authority. The court, in these circumstances, will inevitably (in the interests of justice)
have to encroach on matters deemed confidential. The Conciliation Law, unfortunately, fails to
tackle the confidentiality aspect head-on by indicating the acceptable threshold – for instance, in
the interest of national security and public interest – thus introducing a degree of uncertainty in
international commercial mediation.

Mediation online-
As with arbitration, the provision of online mediation has been the subject of discussion since the
late 1990s. A number of private organizations offer online dispute resolution, which includes
mediation besides negotiation and arbitration. In a legal context, mediation is perhaps more
conducive to the electronic medium than arbitration, since issues such as juridical seat are not
relevant. This does not mean that online mediation is free of legal obstacles.
In the absence of statistics on the web sites, the success of cyber mediation can be assessed only
on the basis of empirical research. On the down side, lack of face to face contact in real space
and the associated non-verbal communication techniques that play an important role in mediation
may prove a major handicap. Current technology in the form of video conferencing does not
seem to be sufficiently sophisticated for the effective use of non-verbal communication.

Conclusion
There is no denying the attractiveness of settling a dispute through co-operation, instead of
conflict.
As LJ Rix observed in Rolf v De Guerin, litigation can be ‘destructive and wasteful’. In a
commercial context, leaving the parties to settle their differences before turning to the state legal
machinery should cause no great inconvenience since businesses, at least in the developed
countries, should be used to self-regulation. Mediation, however, will work only where parties
enter into it in good faith and intend to abide by their agreement. Without the spirit of co-
operation, use of mediation is simply part of the armor in what may prove to be a long and hard
battle for resolving a dispute.
Some of the unpredictable aspects of mediation that may be a cause for concern could be dealt
with through harmonization. The UNCITRAL Conciliation Law has the potential to generate
some degree of predictability. Whether it has done enough is highly debatable.
 PERMANENT COURT OF ARBITRATION

History

In July 1899, the sovereign Powers, meeting in The Hague at the first International Peace
Conference, adopted a “Convention for the Pacific Settlement of International Disputes,” which
established a global institution for international dispute resolution: the Permanent Court of
Arbitration. In the same way in which the 1899 Hague Peace Conference – the world’s first
successful egalitarian assembly of a political character – can be said to have been a precursor of
the League of Nations and the United Nations, the PCA – as conceived by the drafters of the
1899 Convention – was a precursor of all present-day forms of international dispute resolution,
including the International Court of Justice (“ICJ”).

The PCA is perfectly situated at the juncture between public and private international law to
meet the rapidly evolving dispute resolution needs of the international community. Under its own
modern rules of procedure, which are based upon the highly regarded and widely used
UNCITRAL Arbitration Rules, the PCA administers arbitration, conciliation and fact finding in
disputes involving various combinations of states, private parties and intergovernmental
organizations. Not only do states more frequently seek recourse to the PCA, but international
commercial arbitration can also be conducted under PCA auspices. The majority of the PCA's
most recent and innovative sets of rules and procedures originated in expert working groups and
steering committees established to identify existing gaps in the international dispute resolution
framework and, in appropriate cases, to develop procedural rules to fill such gaps.

Appointment and Selection of Arbitrators and Other Adjudicators

Each Member State of the PCA is entitled to nominate up to four distinguished jurists for
inclusion in the general list of Members of the Court. They are listed as a part of the website as
well as in the PCA's Annual Report. Parties to dispute resolution may, but are not obliged to,
select arbitrators or other adjudicators from among them.

Non-State Parties

Initially conceived as an instrument for the settlement of disputes between States, the PCA was
authorized, in the 1930s, to use its facilities for conciliation, and for the arbitration of
international disputes between States and private parties, thus making it available for resolving
certain commercial and investment disputes.7 In 1962, the PCA elaborated a set of “Rules of
Arbitration and Conciliation for settlement of international disputes between two parties of
which only one is a State,” which undoubtedly inspired the subsequent adoption of the 1965
Agreement8 establishing the International Centre for Settlement of Investment Disputes (ICSID)
at the World Bank.9 In subsequent years, however, following two world wars and the
establishment of the International Court of Justice and its predecessor, the Permanent Court of
International Justice, the PCA came to be underutilized by the international community.
UNCITRAL Link

The revitalization of the PCA began in earnest in the 1990s. In 1991, the PCA convened a
working group of experts for the purpose of making recommendations on improving its
functioning. Since then, the PCA has expanded and internationalized its staff, increased
worldwide awareness of its facilities and services, and improved and modernized the functioning
of its system of dispute settlement primarily by adopting several sets of procedural rules, nearly
all of which are based closely on the comparable UNCITRAL texts. The PCA recognized that
despite their commercial genesis, the UNCITRAL Rules reflect practices and principles accepted
in worldwide arbitration culture and would “provide fair and effective procedures for peaceful
resolution of disputes between States concerning the interpretation, application and performance
of treaties and other agreements although they were originally designed for commercial
arbitration.”

Jurisdiction of the Institution

Pursuant to the various Optional Rules, the following parties may, in principle, agree to bring a
case before the PCA:
• Any two or more States;
• A State and an international organization (i.e. an intergovernmental organization);
• Two or more international organizations;
• A State and a private party; and
• An international organization and a private party.

The PCA Rules of Procedure for Arbitrating Disputes Relating to Natural Resources and/or the
Environment and the Optional Rules for Conciliation of Disputes Relating to Natural Resources
and/or the Environment contain no requirement that one of the parties be a State or organization
of States. Private parties may agree to use the administrative and other facilities of the PCA in
arbitrations conducted under the UNCITRAL Rules, and the PCA is contemplating adopting its
own institutional version of the UNCITRAL Rules for this purpose. There is no requirement that
a State agreeing to PCA dispute resolution be a party to the 1899/1907 Conventions, and
accession to the Conventions does not establish any type of compulsory jurisdiction.

Subject Matter- The potential subject-matter jurisdiction of PCA arbitral tribunals is unlimited.
In each case however, the scope of jurisdiction is governed by the wording of the applicable
arbitration agreement. The PCA Rules of Procedure for Arbitrating Disputes Relating to Natural
Resources and/or the Environment expressly provide that “The characterization of the dispute as
relating to the environment or natural resources is not necessary for jurisdiction, where all the
parties have agreed to settle a specific dispute under these rules.” (Art. 1)
Time Limits

The various rules of procedure do not place any temporal limits upon the referral of disputes to
PCA arbitration. Such restrictions may be found in the arbitration agreement.

Institution of Proceedings

Under the various PCA Rules, the party initiating arbitration (the “claimant”) initiates arbitration
by serving the other party (the “respondent”) with a notice of arbitration, which must contain the
following information:
(a) A demand that the dispute be referred to arbitration;
(b) Names and addresses of the parties;
(c) Reference to an arbitration clause or arbitration agreement;
(d) Reference to the treaty, agreement, contract or other legal instrument (e.g., constituent
instrument or decision of an international organization) out of which, or in relation to which the
dispute arose;
(e) General nature of the case and indication of the amount involved;
(f) Relief or remedy sought; and
(g) Proposal as to the number of arbitrators.
These provisions are taken nearly verbatim from the UNCITRAL Arbitration Rules, which,
because they are intended for commercial disputes, tend to assume that arbitration will be based
on a future-disputes clause contained in a commercial contract, and that there will, therefore, be
an identifiable claimant and respondent. In the case of arbitration initiated by means of a
submission agreement, particularly involving States, neither party may wish to be designated as
claimant or respondent. It is therefore recommended that parties drafting a submission agreement
include specific language setting forth the agreed deviation from, or alternative to, those
provisions that presuppose a claimant-respondent relationship, such as those concerning
initiation of proceedings, appointment of arbitrators, and filing of written submissions.

Decision/ Award

The final decision of the tribunal is in the form of a written award decided by the majority of
arbitrators. The award must include the reasons for the decision, unless the parties have agreed
that no reasons are to be provided. While the 1899 and 1907 Conventions contemplate that
awards will be made public, the PCA Rules require the agreement of the parties for this. Article
32- The award is final and binding upon the parties and is to be executed without delay. If the
parties reach a settlement before the end of the proceedings, they may request the tribunal to
record their agreement in the form of an award on agreed terms.