CHAPTER-II
CONCEPTUAL FRAMEWORK OF ADR
2.1. Concept of ADR
The concept of arbitration has its root in the development of commerce itself. The popular
story of King Solomon on the true mother of a baby is considered the first case of
arbitration in biblical history. The word arbitration is etymologically derived from the Latin
word arbitari, which means to judge. A conflict is defined as a struggle or disagreement
arising from differing beliefs or principles between individuals.
According to Black's Law Dictionary, a dispute is a disagreement or controversy,
especially one that has resulted in a legal battle. The coexistence of society and conflict is
a reality, as conflict exists in all forms of society. It can be argued that, when handled
tactfully, conflicts can act as catalysts for societal progress by encouraging innovative and
peaceful transformations.
Arbitration is often used for the resolution of commercial disputes, particularly in the
context of international commercial transactions. 1 Arbitration is also frequently employed
in consumer and employments matters, where arbitration may be mandated by the terms of
employment or the commercial contracts. 2
Conflict is a natural part of life and need not always be negative, aberrant, or dysfunctional.
And in fact, Conflict is at the root of personal and social change. All disputes or conflicts,
however, do not have to follow the negative course. Peaceful resolution of disputes
between persons is our universally recognized norm, as it is an ingredient of civilization. 3
3
Prof. D. Bharat B. Karki, Practice of Conciliation in the settlement of commercial Disputes in Nepal, Annual
survey of Nepalese Law, 2002, at 1.
The courts and the judges have been serving as the justice giver and have been very reliable
institution to display fair, impartial, and reasonable decisions in many disputes. They are
an essential and unbreakable part of the justice system. However, the courts and its
complicated procedure have been a huge challenge for the people in recent times. The
relationship between the parties and confidentiality are also not taken into account in the
civil cases which makes it harder for people to opt for the court procedure and settle their
disputes.
Alternative Dispute Resolution serves as substitute to the formal justice system and tries to
address the defects of the formal justice system or court proceeding by making it easier for
the parties to take judicial help. It is a legal system as well as an innovative modern
institution of society that provides a scope for non-formal legal and judicial dispute
settlements with the consent of the parties. 4 Alternative Dispute Resolution (ADR)
involves resolving conflicts through methods other than traditional courtroom proceedings.
It encompasses a range of practices and approaches designed to facilitate the resolution of
legal disputes without resorting to formal litigation. Initially, ADR included various
techniques for resolving conflicts without going to court. However, given the evolution of
contemporary methods like caseload management and the increasing integration of ADR
into litigation, it may be more apt to view ADR not merely as an alternative to litigation
but rather as a versatile technique suitable for the broader spectrum of dispute resolution. 5
The essence of Alternative Dispute Resolution (ADR) revolves around the principle of
"Talk it Out, Not Fight it Out." This approach, also known as effective dispute resolution,
steers clear of a win-lose mentality or an adversarial outlook. Unlike methods reliant on
imposed resolutions, ADR adopts a win-win philosophy and emphasizes a problem-solving
approach. These non-litigation, non-violent decision-making techniques prioritize conflict
4
DAVID KELLY et al., BUSINESS LAW, P.69 (4th ed. 2007)
5
ALBERT FIADJOE, ALTERNATIVE DISPUTE RESOLUTION; A CHANGING WORLD
PERSPECTIVE 2, (Cavendish Publishing 2013).
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resolution. In contrast to the courtroom's adversarial processes, ADR places a strong
emphasis on fostering effective communication and negotiation. 6
According to Stephen J. Ware, “ADR can be defined as encompassing all legally permitted
processes of dispute resolution other than litigation.”
According to Black Law Dictionary, ADR refers to a "procedure for settling a dispute by
means other than litigation, such as arbitration or mediation." 7
Over time, the concept of Alternative Dispute Resolution (ADR) has gained widespread
acceptance and practical application. The growing preference for alternative methods of
settling disputes among individuals has expanded the scope of study in this field. Numerous
methods of dispute resolution exist, each carrying its own unique significance.
2.2. History of ADR
The practice of resolving disputes outside of court is not a recent development; societies
globally have employed non-judicial, indigenous methods for conflict resolution for a
considerable period. What is noteworthy is the current widespread endorsement and
expansion of Alternative Dispute Resolution (ADR) models, the heightened integration of
ADR within the court system, and the growing utilization of ADR as a tool to achieve
objectives beyond just settling individual disputes.
When delving into the anthropological and sociological examination of traditional
societies, we observe that the Bushmen of Kalahari, for instance, were known for their
reluctance to engage in conflict and instead sought the intervention of others. 8 Similarly,
societies like the Hawaiian Islanders, the Abkhazian of the Caucasus Mountains, and the
6
ASHWINIE KUMAR BANSAL, ARBITRATION AND ADR (2nd ed.) 2, (Universal Law Publishing
2009).
5
Black's Law Dictionary P.91 (9th ed. 2009).
7
Black's Law Dictionary P.91 (9th ed. 2009).
8
JEROME T. BARRETT & JOSEPH P. BARRETT, A HISTORY OF ALTERNATIVE DISPUTE
RESOLUTION: THE STORY OF A POLITICAL, CULTURAL, AND SOCIAL MOVEMENT, P. 2
(Jossey-Bass A Wiley Imprint 2004).
12
Yoruba of Nigeria resolved disputes amicably by involving family members, elders, and
the district's elderly leader.
The roots of Alternative Dispute Resolution (ADR) extend back to as early as 332 B.C.,
where it was employed to address conflicts between Greek states. 9 Furthermore, the origins
of ADR can be traced to China, specifically in the practice of mediation known as tiaojie,
rooted in Confucian ethics (551-479 B.C.). Confucius emphasized the preservation of
natural harmony, viewing adversarial proceedings as contrary to this harmony. Chinese
mediation not only addresses conflicts when they arise but also aims to prevent them,
embodying a comprehensive approach to conflict management, akin to total quality
management.10
In the Western world, the roots of Alternative Dispute Resolution (ADR) can be traced
back to ancient Greek mythology, but it goes beyond mere myth. Around 400 B.C., the
city-state established the position of a public arbitrator. In India, a system of arbitration
known as Panchayat has been in use for over 2500 years, where decisions made by the
'Panch' (arbitrators) held such high status that they were considered irreversible.
The origins of Alternative Dispute Resolution can also be found in England, dating as far
back as 1066. English citizens convened informal courts to address private disputes. These
gatherings were often led by respected male members of the community, and interestingly,
the king would adopt the decisions of these citizens instead of taking the cases to the King's
Court. While arbitration likely predates many legal systems, it hasn't developed a
substantive code of principles universally. Instead, it remains, with few exceptions, a
matter of free decision, with each case being considered in light of practical expediency
and decided in accordance with the ethical or economic norms of a specific group. 11
9
Robert Massey, History of Arbitration, (WV Unlv., 2005).
10
Borut Strazisar, Alternative Dispute Resolution, vol.3 LAW JOURNAL OF HIGHER SCHOOL OF
ECONOMICS, 10.17323/2072-8166.2018.3.214.233, P. 214, P.215 (2018).
11
Wolaver E, The Historical Background of Commercial Arbitration, 2 UNIVERSITY OF
PENNSYLVANIA LAW REVIEW AND AMERICAN LAW REGISTER, P.132.
13
Nepalese History of ADR:
Nepal has a rich tradition of employing alternative methods for dispute resolution that
spans several decades. Prior to the establishment of formal justice systems and the
enactment of the Pradhan Nyayalaya Act in 1952, various amicable means of settling
disputes were prevalent. The roots of Alternative Dispute Resolution (ADR) in Nepal can
be traced back to the longstanding practice of local communities seeking the guidance of
village elders to resolve conflicts through consultation with the involved parties.
The indigenous communities in Nepal have a history of practicing their unique form of
arbitration and mediation, often referred to as arb-med, since ancient times. This practice
has taken various forms throughout different historical periods, such as Tumyang in the
Kirat period, Panchali in Lichchhavi, and Panchayat in the Malla period. 12
The practice was formalized by the Arbitration Act 1981, which was then replaced by the
Arbitration Act, 1999 supplemented by the ratification of New York Convention, 1958 in
1998. Contract Act 2000, the Company Act 2006, the Mediation Act 2011 and Foreign
Investment and Technology Transfer Act 2019 are some of the attempts made for the
formalization of the practice of ADR in Nepal.
Alternative Dispute Resolution (ADR) has played a vital, vocal, and vibrant role in the
historical narrative of humanity. In essence, it can be argued that societies, kingdoms, and
dynasties across diverse jurisdictions utilized various methods for settling disputes. These
mechanisms were intricately linked to the local context, encompassing traditions, religion,
norms, behavior, and culture.
2.3. Types of ADR
In the realm of Alternative Dispute Resolution (ADR), parties have a range of options to
choose from based on the nature of the dispute and the desired outcome of the settlement.
There are primarily four types of processes, each with the potential for further subdivisions:
adjudication-based processes, recommendation-based processes, facilitation-based
12
Nyima Gyaltsen Gurung, Alternative justice in Dolpo, THE RECORD, Apr. 12, 2022 (last visited
Jan.25,
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processes, and hybrid processes. Each of these processes holds its own significance in their
respective fields. Some notable ones include:
a. Negotiation:
Negotiation stands out as the most prevalent form of dispute resolution. According to
Goldberg, Sander, and Rogers, negotiation is essentially "communication for the purpose
of persuasion."13 It unfolds as a cooperative process where both parties collaborate to seek
a solution that is mutually beneficial, often aiming for a win-win situation through
cooperative bargaining.
Even if the dispute may not pertain to a critical matter, negotiation remains a viable method
for resolution, allowing individuals to personally participate in a give-and-take process or
delegate representatives to engage on their behalf. 14
Negotiation is a versatile process employed in various contexts, including business,
nonprofit organizations, government branches, legal proceedings, international relations,
and personal situations like marriage, divorce, parenting, and everyday life. Legal
practitioners, in particular, frequently utilize their negotiating skills, surpassing other
aspects of their legal expertise.
b. Mediation:
Mediation serves as a process for resolving disputes with the assistance of an impartial
third party who aids the conflicting parties in reaching a negotiated resolution. It involves
the acceptable intervention of a third party without decision-making authority into a
dispute. The primary objective of this third party is to facilitate the parties in finding an
agreeable resolution to the dispute. The term ‘mediate’ is derived from the Latin term
“mediare” which means to ‘to be in the middle’. The mediator in contrast to judge, has no
power to impose an outcome on disputing parties.15
13
GOLDBERG, STEPHEN B, et al. DISPUTE RESOLUTION: NEGOTIATION, MEDIATION AND
OTHER PROCESSES 66, (Wolters Kluwer 2014)
14
EDWIN W. TUCKER et al., THE LEGAL AND ETHICAL ENVIRONMENT OF BUSINESS 122, (Irwin
199).
15
STEPHEN B. GOLDBERG et al., DISPUTE RESOLUTION: NEGOTIATION, MEDIATION AND
OTHER PROCESSES 103, (Aspen Publishing 2nd ed. 1992).
15
According to Black's Law Dictionary, mediation is described as a private and informal
dispute resolution process where a neutral third party, the mediator, helps the disputing
parties reach an agreement, yet holds no power to impose decisions on them
The Oxford Dictionary defines mediation as "a form of alternative dispute resolution in
which an independent third party (mediator) assists the parties involved in a dispute or
negotiation to achieve a mutually acceptable resolution of the points of conflict." Notably,
the mediator, whether a lawyer or a specially trained non-lawyer, lacks decision-making
powers and cannot compel the parties to accept a settlement.
c. Arbitration:
Arbitration stands as a dispute resolution method that involves one or more impartial third
parties, typically agreed upon by the conflicting parties, whose decisions are binding. This
process entails submitting the dispute to a neutral and non-judicial third party known as the
arbitrator, who issues a conclusive decision to settle the dispute. Arbitration typically arises
from a pre-dispute agreement, often outlined in an arbitration clause within an agreement,
although it can also be initiated after the dispute has already emerged.
When a dispute is presented to an individual or a panel for decision after its occurrence, it
is termed arbitration. The decision rendered in this process is referred to as an award, and
it carries binding implications for the involved parties.
Arbitration is commonly utilized for resolving civil suits of a commercial nature, covering
a broad spectrum of disputes, including contract disagreements between businesses and
consumers, employment claims, real estate matters, and construction issues. In a general
sense, disputes related to rights in personam can be settled through arbitration, while those
arising from rights in rem are typically not subject to arbitration.
In Nepal, the Arbitration Act of 2055 and the Arbitration (Court Procedure) Rules of 2059
serve as substantive and procedural laws, respectively, enacted to govern the resolution of
disputes through arbitration.
d. Med-Arb:
The most common combination of mediation and arbitration is med-Arb, in which parties
attempt to resolve their dispute using mediation and proceed to arbitration only if they are
not successful in reaching a settlement. Most ‘Med-Arb’ proceedings call for a third-party
Neutral to first mediate or help the parties agree to as many issues as possible and then, by
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agreement of the parties, to arbitrate or make a decision on those that remain. The same
neutral person may perform both roles.
i. Arb-Med
After a hearing, the arbitrator formulates an award, but does not share it with parties. The
common procedure is to place it is sealed envelope. The parties then proceed to mediate
their dispute. If they are successful, their agreement is the outcome of the process. If they
are unable to agree, the sealed award is binding to the parties.
After a hearing, the arbitrator formulates an award, but does not share it with parties. The
common procedure is to place it is sealed envelope. The parties then proceed to mediate
their dispute. If they are successful, their agreement is the outcome of the process. If they
are unable to agree, the sealed award is binding to the parties.
ii. Mini- Trial
Parties often choose a neutral to preside over the mini- trial who is an expert in the field
and who can assist them with their negotiations afterward. Mini- trial is a combination of
adjudication and negotiation. Like mediation, both parties are free to terminate the minitrial
process at any time. During a mini-trial, an impartial advisor, chosen by the parties,
presides over the proceedings. The selection of the advisor may be based on their
familiarity with the subject matter at the heart of the dispute or their expertise in the relevant
legal aspects. If the mini-trial fails to result in a settlement, the parties retain the option to
move forward with other dispute resolution methods such as mediation, arbitration, or
litigation. This approach allows for a flexible and adaptive resolution process that can be
tailored to the specific needs and preferences of the parties involved.
2.4. Characteristics of ADR
Following are key characteristics of Alternative Dispute Resolution (ADR);
a. Voluntary Process
ADR is generally a voluntary process, where parties willingly choose to participate in the
resolution of their disputes outside of the formal court system.
b. Party Autonomy
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ADR emphasizes the empowerment of parties, allowing them to have more control over
the resolution process, including the selection of the neutral third party and the terms of the
agreement.
c. Informality
ADR procedures are typically less formal than traditional court proceedings. This informal
setting often encourages open communication and flexibility in finding solutions.
d. Confidentiality
ADR processes often maintain a level of confidentiality, protecting the privacy of the
parties involved. This can foster a more open and candid exchange of information
e. Speed and Efficiency
ADR is generally known for its efficiency in resolving disputes, offering a quicker
alternative to traditional litigation. This can be particularly beneficial in cases where a
prompt resolution is desirable.
f. Cost-Effective
Compared to traditional litigation, ADR is often more cost-effective. The streamlined
process and reduced formalities contribute to lower expenses for the parties involved.
g. Preservation of Relationships
ADR methods, such as mediation, focus on preserving relationships between the parties.
The collaborative nature of these processes can lead to more amicable resolutions,
especially important in ongoing relationships.
h. Expertise of Neutrals
ADR allows parties to choose neutrals with specific expertise relevant to their dispute. This
ensures that the resolution process is guided by someone with knowledge in the subject
matter.
i. Flexibility in Solutions
ADR encourages creative and flexible solutions. Parties have the opportunity to craft
agreements that may go beyond what a court could order, tailoring solutions to their unique
needs.
j. Global Applicability
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ADR is applicable across diverse cultural and legal settings, making it a versatile approach
to dispute resolution that can be adapted to different jurisdictions and contexts.
2.5. Importance of ADR
Alternative dispute resolution has been in use to address the shortcomings of the formal
justice system. It serves as a choice for parties to enhance the way they settle disputes. Its
application extends beyond domestic boundaries, being employed internationally to
address issues ranging from minor to significant. This form of dispute resolution holds
great significance in meeting the diverse needs of the people.
Stephen B. Goldberg and others have enumerated the following reasons for the justification
of the ADR process.
a. To lower court caseloads and expenses,
b. To reduce the parties’ expenses and time,
c. To increase voluntary compliance with reductions,
d. To improve public satisfaction with the justice system
e. To provide assemble forums to people with disputes,
f. To restore influence of neighborhood and community values,
g. To teach the public to try more effective processes than violence or litigation for
settling disputes.
2.6. Limitations of ADR
While Alternative Dispute Resolution (ADR) methods offer various advantages, they also
come with certain limitations. Some common limitations include:
a) Enforceability
ADR outcomes, especially those of mediation, may lack formal enforceability. If one
party refuses to comply with the agreement reached, enforcing it might require court
intervention, which can negate the time and cost savings initially associated with ADR.
b) Lack of Precedent
ADR decisions do not create legal precedent, making it challenging to establish a
consistent body of case law. This lack of precedent can contribute to uncertainty in how
similar cases might be resolved in the future.
c) Power Imbalance
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In situations where there is a significant power imbalance between the parties, the weaker
party may feel pressured to agree to terms that are not in their best interest. This can be
particularly relevant in mediation, where there isn't a neutral third party making decisions.
d) Limited Discovery
ADR processes, such as arbitration, may involve limited discovery compared to formal
litigation. This can result in parties not having access to crucial information, potentially
affecting the fairness of the resolution.
e) Quality of Neutrals
The effectiveness of ADR heavily relies on the skills and neutrality of the chosen mediator
or arbitrator. If the neutral third party lacks expertise or displays bias, it can compromise
the fairness and legitimacy of the process
f) Non-Binding Nature
While parties may reach an agreement through ADR, particularly in mediation, such
agreements are often non-binding. This means that a party can later choose not to follow
through with the agreed-upon terms.
g) Public Policy Concerns
ADR outcomes may not always align with public policy or legal principles, raising
concerns about fairness and justice, especially in cases involving issues of public
importance.
h) Limited in Certain Cases
ADR may not be suitable for certain types of disputes, such as those involving complex
legal issues or cases requiring a formal legal precedent.
i) Unwillingness to Participate
If one party is unwilling to participate in ADR, it can hinder the effectiveness of the
process. Both parties need to be willing to engage in good faith for ADR to be successful.
j) Confidentiality Challenges
While confidentiality is a benefit, it can also be a limitation. In some cases, the confidential
nature of ADR may hinder the development of clear legal principles or impede the ability
to expose wrongdoing in the public interest.
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