Alternative Dispute Resolution Mechanism [ADR]

As we know that court of law is a process of “expense” and “suspense”, with so many cases lingering around, and taking loads of time, there exists a good alternative for commercial contracts.

In cases of conflict in commercial contracts, there exists a mechanism called alternative dispute resolution mechanism(ADR). Following are the steps involved:

  1. Negotiations :Negotiation is a dialogue between two or more people or parties, intended to reach an understanding and resolve point of difference.
  2. Mediation: In case bilateral negotiations fail, then mediation comes in. Typically, a third party, the mediator, assists the parties to negotiate a settlement.
  3. Conciliation: Conciliation is an alternative dispute resolution (ADR) process whereby the parties to a dispute use a conciliator, who meets with the parties separately in an attempt to resolve their differences.In conciliation the parties seldom, if ever, actually face each other across the table in the presence of the conciliator.
  4. Arbitration: Arbitration is a proceeding in which a dispute is resolved by an impartial adjudicator whose decision the parties to the dispute have agreed, or legislation has decreed, will be final and binding. There are limited rights of review and appeal of arbitration awards.

Advantages of arbitration over courts:

  • Parties can choose their own judges
  • Judges are always uneven, both parties selecting same number of judges, and all judges selecting the final and neutral judge
  • Panel can be well versed with the domain
  • Anyone can be the arbitrator
  • The results are not open in public domain, until and unless both parties agree
  • It can be carried out anywhere and anytime
  • An arbitration can’t be challenged in the court after award is announced.

It can be challenged in courts only under two scenarios:

  1. Very conclusively prove that judges are biased
  2. In cases where Arbitration panel questions the law (Why is tax 30% or so.)

This comes under Indian Arbitration and Conciliation Act, 1996, which is exact copy of the International Law, and is universally acceptable.

Is a party doesn’t pay Arbitration Award, then the other party can go to the court. Court will not reopen the case, but will take the award as final, and get other party to pay.

Cost of arbitration can be shared by both parties, or final panel can award the cost to one party.

Lok Adalat is a form of arbitration.

[This blog is captured from “Managing Commercial contracts” class notes (by Prof S. Shankar . Some information referred from Wikipedia/other listed sites.]

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Employment Contracts- Valid restrictions on the employees

– Disclosure of company confidential information.

– Starting a competing business

– Double employment

– Solicitation of company customers

– It is said that when Phaneesh Murthy was asked to leave Infosys, he was asked to sign a non-Solicitation bond. This was done so that he do not use his existing relations with the customers to pouch them. As a part of this bond, he was not allowed to setup his own first for one year. In that period, Infosys worked to strengthen the relationship with customers.

[This blog is captured from “Managing Commercial contracts” class notes (by Prof S. Shankar . Some information referred from Wikipedia/other listed sites.]

Salient features of a Bond

– A Bond is a form of contract.

– A Bond is never oral, its always in writing.

– A Bond has an obligation and the condition attached to an obligation.

– Obligation and its related conditions always rest with one person.

– If an obligation is not performed then the condition attached to it is executed.

– A Bond can be considered as a One sided contract (though there is no such legal term as one sided contract).

– A Bond will always be expressed in money terms, it is never in kind.

– A debenture is also sometimes called as Bond.

Indemnity is for indefinite period e.g. Defence agreements but bonds are for definite period.

– Indemnity arises only after the event happens. Bonds are void if conditions are fulfilled.

[This blog is captured from “Managing Commercial contracts” class notes (by Prof S. Shankar . Some information referred from Wikipedia/other listed sites.]

Key questions to ask when getting into contract

– What is the risk i am getting into by getting into an agreement ?

– It is not possible to cover all the risks in the contract.

– It is considered practical to list all the risks in the table and see how best to address these in the contract.

– The key question becomes- How do i cover the listed risks ? How can the contract help me to cover the risks ?

– Break-up a contract into table containing 2 columns- Essence and Collaterals

– Essence covers the conditions based on which other party and claim the damages.

– Collateral covers the basis on which contract can be cancelled.

[This blog is captured from “Managing Commercial contracts” class notes (by Prof S. Shankar . Some information referred from Wikipedia/other listed sites.]

Non Performance Risk- Warranty vs Guaranty

– The concept of Warranty and Guarantee covers for Non Performance Risk.

– The term Guarantee is coined by people for convenience.

– It is left to the contracting parties to define what they mean by “Warranty” and “Guaranty”.

– In lending agreements, collateral is a borrower’s pledge of specific property to a lender, to secure repayment of a loan. The collateral serves as protection for a lender against a borrower’s default – that is, any borrower failing to pay the principal and interest under the terms of a loan obligation.

– Terms and Stipulations are the one and the same things.

– Essence of any contract are warranties and conditions.

– Any breach in warranties means the right to claim damages.

– Any breach in conditions leads to cancellation of the contract (+ damages)

[This blog is captured from “Managing Commercial contracts” class notes (by Prof S. Shankar . Some information referred from Wikipedia/other listed sites.]

What does COMBITERMS 2000 mean ?

– COMBITERMS helps us understand who will bear the cost of shipment considering the various stages of shipment.

– COMBITERMS defines the cost sharing terms for a shipment between a buyer and a seller.

– COMBITERMS helps define the Trade terms for the different modes of the transport.

This site defines COMBITERMS 2000 as “Combiterms 2000 is based on Incoterms, a set of regulations containing international trade terms and standardized contract terms about how responsibility and the costs of transporting goods should be divided between buyers and sellers. They are fundamental, especially to international trade transactions, and are in line with the UN Convention on Contracts for the International Sale of Goods.”

Some examples below-

– In sea transport, the Trade term- FAS means Free Alongside Ship. If this is the trade term then Loading at the seller’s premises is the Seller’s responsibility whereas paying Import charges and Unloading at buyer’s premises is Buyer’s responsibility.

– In all modes of transport, the Trade term- DDP means Delivered buyer’s premises Duty Paid, exclusive of. In this trade term, Loading at the seller’s premises is the seller’s responsibility but paying the Import charges is Seller’s responsibility whereas Unloading at buyer’s premises is the Buyer’s responsibility.

– P-56 in the printed material provided in the class defines the COMBITERMS for Sea transport only.

– P-57 in the printed material provided in the class defines the COMBITERMS for all the modes of transport.

[This blog is captured from “Managing Commercial contracts” class notes (by Prof S. Shankar . Some information referred from Wikipedia/other listed sites.]

India’s adoption of H.S.N and Exim Policy

– India adopted H.S.N. System and is called as I.T.C (H.S).
– Software products are also covered in this classification system.
– Trade policies of India can be known from I.T.C (H.S). e.g. the Resitricted items like elements of Nuclear reactor, Weapons like AK-47 are clearly marked as “Resitricted”. Can be seen here- http://www.eximguru.com/hs-codes/8401-nuclear-reactors-fuel-elements-cartridges.aspx
– Even the Probhited items can be known by looking at I.T.C. (H.S)
  Example: http://www.eximguru.com/hs-codes/0208-other-meat-and-edible-meat.aspx

– In India, Foreign Trade Policy is called as an Exim Policy.
– Exim Policy is a set of guidelines and instructions established by the Director General of Foreign Trade in matters related to the import and export of goods in India.
– The Government of India, Ministry of Commerce and Industry announces Export Import Policy after every five years. Current Period is 2009-14.
– More details- http://www.exim-policy.com/
– US trade policy is also 5 years. Next one- 2013-18.
– Exim Policy cannot be changed even if the Govt. changes.
– It is because of change in Exim Policy only that there is no Customs duty on laptops in India since 2005. http://www.eximguru.com/exim/guides/how-to-import/ch_21_import_laptops_and_computers.aspx

[This blog is captured from “Managing Commercial contracts” class notes. Some information referred from Wikipedia/other listed sites.]

H.S.N- A classification system to Identify products

– H.S.N- Harmonised System Number
– It is the numeric given to explain a product.
– Looking at this number people can understand what product is being referred to.
– The utility of HSN numbers is more profound in the cases where say a buyer and seller are from different cultutes. A seller explaining his product without HSN number could lead to buyer percieving the product to be something different. Having HSN number in place ensures that both buyer and seller are discussing about the same product.

Overview of Select Institutions relating to International Contracts

[Capturing the “Managing Commercial contracts” class notes below on the mentioned topic. Some information referred from Wikipedia.]

– W.T.O
The World Trade Organization (WTO) is an organization that is working towards promoting the World trade. It intends to supervise and liberalize international trade.
Based in Geneva, Switzerland.

– I.C.C
International Chamber of Commerce. It is more of a trade body constituting of Businessmen, Individuals.
It is not a legal body and doest create laws but it is considered powerful and can drive things upto W.T.O.
As a global organisation, I.C.C work to further international trade by promoting open markets, sensible regulation and the rule of law.
I.C.C, for instance kept a close track of Vodafone tax case in India and welcomed the ruling of Indian Supereme court that India’s tax office has no jurisdiction over Vodafone’s purchasing of assets in India.
I.C.C helps in creation and distribution of model contract that could be used by Global organizations.
Based in Paris, France.

– W.C.O
World Customs Organization (WCO) is an intergovernmental organization.
The W.C.O is noted for its work in areas covering the development of international conventions, instruments, and tools on topics such as commodity classification, valuation,    rules of origin, collection of customs revenue etc.
W.C.O came up with HSN (Harmonized Systems number) used widely for classification of the product.
Based in Brussels.

– U.N.C.I.T.R.A.L
United Nations Commission on International Trade Law (UNCITRAL).
Helps to resolve issues specific to Trade.

– F.I.D.I.C
The International Federation of Consulting Engineers (commonly known as FIDIC, acronym for its French name Fédération Internationale Des Ingénieurs-Conseils)
An international standards organization for the construction industry, best known for the FIDIC family of contract templates.
Companies like L&T uses these contracts templates.

 

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