Investment & Alternative Dispute Resolution, A Symbiotic Relationship.

“The way in which the proceedings under the (Arbitration) Act are conducted and without exception challenged in courts has made lawyers laugh and legal philosophers weep.” This quote by the Indian Supreme Court in the Guru Nanak v Rattan Singh and Sons adequately sums up the chaos that incurs when the true purpose of Alternative Dispute Resolution is not grasped by the machinery that regulates it. The expected benefits of ADR get lost in transition when we fail to use it for the purpose it was conceptualized.  

Nepal International ADR Center is an active member of the commercial dispute resolution scene in Nepal. It is working its way ahead with collaboration with various national and international ADR institutions to deliver top-notch services both to the domestic market and to the international market. It aims to reduce Nepal’s dependence on foreign arbitral institutions for business disputes and to help Nepal pool in more investment.

Nepal is predominantly a litigation-averse country. People opt for consensual and community-based dispute resolution instead of court based formal litigation. Our culture and history of consensus-oriented mode of dispute resolution through community mediation has been practiced at times through the village panchayat and now through judicial committees at the local level. Now however, if we aim to change the course of our economic development, we must add international modes of Dispute Resolution to our current practices.  

To make this stride, we need domestic institutions which have the capacity to solve disputes with rules of their own and with professional expertise. Most of the transnational business disputes that Nepal faces don’t get solved in national courts. They are solved by independent arbitration tribunals around the world. Nepal loses a great chunk of its development money on settling business disputes through alternative dispute resolution offered by foreign firms or at foreign locations. While it is difficult to procure exact data on how much money goes abroad annually, the volume of international trade and the existence of disputes give us an idea that the amount is significant. If we could only include Nepali dispute resolution firms in the business agreements that Nepal does with other nations, we would be retaining so much of that money inside our country. Retention of national wealth is one way to improve our economy. Another is through inviting foreign investment to us. 

Nepal has not been able to attract much foreign direct investment (FDI) despite policy reforms initiated to attract it. Among many, one glaring reason is lack of dispute resolution mechanisms in Nepal, specifically International Commercial Arbitration. International commercial arbitration is a system of private commercial law that enables firms to more effectively enforce contracts by allowing them to avoid inefficiencies that arise from domestic courts. It is a means of resolving disputes arising under international commercial contracts. A positive association has been found between arbitration quality available in a country and FDI. The economic benefits for a State perceived as “arbitration friendly” are plenty. Countries can increase FDI volumes and prevent FDI diversion by strengthening their arbitration regimes. They can do this, for example, by improving the domestic laws that pertain to international commercial arbitration and assuring their effective enforcement by domestic judiciaries. Since Nepal is gaining pace in this regard, it is imperative for Nepal to also focus on strengthening domestic ADR firms such as the NIAC. 

Like many developing countries Nepal too is more focused on other ways to increase FDI instead of improving its Dispute Resolution game. It gives tax cuts, tries to organize investment summits and so on all the while relying on major ADR Centers like ICSID, JAMS, KIRCA, etc. for dispute resolution services. While these are good ways to draw the attention of international investors, the sure shot way to get them investing is to assure them that in case any dispute arises between Nepal and them, we will resolve that dispute in an effective and cost-efficient manner on our own. The legal cornerstone of arbitration is the New York Convention. The NY Convention requires signatories to recognize and enforce awards made in international arbitration proceedings unless certain relatively restrictive conditions are met. Being a signatory of the New York Convention, the award given by our ADR Center will be enforceable throughout the member nations. 

That is why, the work of NIAC which provides international standard dispute resolution services even for domestic disputes is notable for Nepali investment scene. Now we have an alternative to mainstream ADR Centers. At the time of contract drafting for major business deals, Nepal can suggest using NIAC for dispute resolution in case any dispute arises. We have a snappy model clause that contracting parties can include in their contracts. With a trusted roster of accomplished arbitrators and mediators, NIAC is bound to provide impartial awards. 

Especially with its association with Asia Pacific Center for Mediation and Arbitration – APCAM, the credibility and expertise of NIAC has increased. Availability of an acclaimed roster of international arbitrators and mediators, in a set price model, following the same rules in all eight countries of the region is a pulling factor for settlement of transnational disputes that once went straight to the chosen few international ADR centers like ICSID, ICC, LCIA, etc. Even though many major institutions are available in the countries of the region, cross-border dispute resolutions and enforcement of those decisions have been difficult. Resolving contractual and commercial disputes in various jurisdictions requires knowledge of a number of facets that affect each country. In this regard, NIAC with its association with APCAM is a force to reckon. 

Now, it is imperative to establish an ADR regime in Nepal with NIAC at the heart of it if we aim to grow ahead in our economic spheres. Only when Nepal jumps up its domestic ADR game can we expect increased FDI and sturdy development. NIAC can be the torch bearer for Nepal to get global recognition.

Shreya Nepal,

Executive Officer, NIAC 

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