This article is written by Arush Mittal, a student currently pursuing B.A. LLB. (Hons) from Hidayatullah National Law University. This is an exhaustive article which deals with arbitration and negotiation as a means of settlement of international disputes.

Introduction

The creation of the United Nations in 1945 and the League of Nations in 1919 was to maintain international peace and security. A cause of violence and war is due to the disputes between the states internationally and therefore these disputes must be settled. There have been a lot of treaties for the peaceful settlement of disputes regarding international law. 

In Chapter VI of the Charter of the United Nations, Article 33, paragraph 1 talks about the Pacific settlement of international disputes by applying the methods of arbitration, negotiation, mediation, judicial settlement, etc. If the continuance of any dispute would lead to breaking the international peace and security, such dispute should be settled by using the techniques by the choice of the party that are listed in the Charter of the United Nations.

This article particularly deals with the disputes in international law and the recognition of arbitration and mediation that play a major role in the settlement of these disputes.

Disputes in international law

The judgment of the Permanent Court of International Justice in the case of Mavrommatis Palestine Concessions, 1924 (Greece v. UK), an international dispute was defined as:

‘A disagreement on a point of law or fact, a conflict of legal views or interests between two persons(States)’.

Two concepts of an international dispute are as follows:

• The disagreement that has caused the dispute must be specific. The subject matter of the dispute should be clear.
• There must be conflicting assertions in the disagreement. One party must claim what it wants and the other party must have a conflicting claim to it.

A dispute indicates that a certain disagreement has reached a point where the use of dispute resolution must be made as if the dispute continues, it would threaten the relationship between the states leading to disruption of peace. A dispute results from the energetic social interaction between the states.

Every country must try to identify and deal with the disputes that, in any way, might pose as a social risk. Generally, the parties in the dispute seek state intervention or the state intervenes at its own discretion to stop the dispute from turning into an international threat. But in most of the cases, third-party intervention is said to be the appropriate way to which both the parties have consented. Peaceful settlement of disputes falls into three categories as listed below:

• Adjudicative – This method involves the dispute settlement with the help of tribunals that are arbitral or judicial.
• Diplomatic – This method involves the dispute settlement by the party themselves or by a third party.
• Institutional – This method involves the dispute settlement with the help of the United Nations or some other regional organization.

Arbitration as a means of settlement of the international dispute

The process that involves the agreement of the parties to solve a dispute is called arbitration. Disputes in arbitration are resolved with a binding effect of the parties by the third party that acts in a judicial manner to resolve the dispute. According to the Halsbury’s Laws of England 2008, the decision that is given by the tribunal for arbitration is known as an award. The settlement of the dispute is done by an unbiased third person who is elected by the consent of the parties.

Arbitration is a widely used concept to settle international disputes. It is one of the Alternate Dispute Resolutions where the third party is selected by the parties in dispute and gives the parties a right to settle a dispute in a way other than litigation. Litigation and arbitration are two different concepts. Arbitration does not take place in the court of law, an impartial third party called the arbitrator is chosen by the parties that are in a disagreement, both the parties consent to abide by the decision of the arbitrator and this decision is re-examined rarely by any court.

The whole process of arbitration requires each party to appoint one or more arbitrators. The appointed arbitrators appoint the arbitrator called an ‘umpire’. The arbitration tribunal usually consists of three arbitrators who decide the final judgment by a majority. There is always an odd number of arbitrators.

Recognition

For the first time, arbitration was defined in the Hague Convention for the Pacific Settlement of Disputes in 1899 as ‘the settlement of differences between states by judges of their choice and on the basis of respect for the law’. The same definition was used in the Hague Convention of 1907. Settlement of diplomatic disputes helped arbitration grow. Arbitration is recognized as the most equitable concept to settle international disputes as it mixes the concept of judicial as well as diplomatic procedures. Arbitration is very flexible in nature as it allows the parties to choose their impartial arbitrator and the proceedings that take place can be kept confidential.

Arbitration can either solve a particular dispute or a series of disputes that arise among the parties. Initially, commerce and labor were the fields where arbitration was extensively used but since then, it has expanded its horizon. Arbitration is even used on disputes related to auto insurance claims. A lot of international business issues are resolved by making use of arbitration.

Basically, arbitration is the resolution of disputes without the need to go to court. A lot of times, even the attorneys recommend their clients to go for arbitration to resolve a particular dispute. After an oral argument and hearing the presentation of both the parties, the impartial third party gives the judgment.

Advantages

Arbitration has a lot of advantages. Some of the advantages are listed below:

• The parties agree to the decision of the arbitrator as he is an impartial and fair third party.
• The dispute that takes place between the parties gets resolved a lot faster. Arbitration takes less time than a court to give the decision.
• The cost of arbitration is not expensive. The fee that is paid to the arbitrator is very less when compared to paying an expert witness to testify at a trial. Usually, the arbitrators’ fee is split equally by the parties. The preparation of arbitration costs much lesser than the preparation of a trial. The rules of evidence are not more strict in an arbitration than a trial as it is not mandatory for the witness to testify, instead, producing the documents would be enough. For example, if one of the parties wants some doctors to come to testify who are not in that state, the cost of bringing them to the state would be very high. In the case of an arbitration, just the documents which are required from the doctors would be used.
• It is the discretion of the parties whether they want to keep the arbitration confidential or not. A trial is not a private procedure but an arbitration can be private if the parties consent to such a measure.
• After an arbitration is over, there are not many opportunities for the parties to appeal. Therefore arbitration brings a dead end to the dispute that arose among the parties. This is not the same as a trial because in a trial the parties can appeal against the decision.
• There is a sense of informality in an arbitration as the parties can pick up any convenient location that they want. It is compulsory for a trial to be held in a courtroom. The overall process of arbitration is simplified making it a lot less formal than a trial.
• The parties have greater control over this method as the arbitrator is appointed by the parties themselves who already have some knowledge about the dispute that leads to a better decision. In a trial, the judge does not know about the dispute beforehand and is not selected by the parties.

Disadvantages 

There are a few disadvantages to the process of arbitration as well. Some of the disadvantages are as follows:

• After the arbitrator gives the decision of the dispute, the parties lose their right to appeal. This means that even if the decision was inaccurate, nothing could be done to correct the decision.
• The rules of evidence in arbitration are not strict which means that an arbitrator accepts the evidence that a judge from a trial would not accept. This might lead to an inaccurate resolution of the dispute.
• There is no cross-examination of the documents that are produced in an arbitration.
• There are limited discoveries in the case of arbitration. However, in litigation, discovery is a part of the process to get the useful documents. Therefore, a lot of times, arbitration is done after litigation is completed.
• If the parties had signed a contract which says that arbitration is necessary in case of a dispute and if one of the parties wants to go for arbitration, the other party has no choice but to follow arbitration. Therefore, one party can force the other party for an arbitration.
• The standards of arbitration are not clear as though it has to follow the law, sometimes arbitrators consider giving the decision that would be fair both the parties neglecting justice.

Famous cases

There are a lot of cases that represent talks about mediation as an important way of providing alternate dispute resolution. Some of the cases are listed below:

Philippines v. China

This case is also known as the South China Sea Arbitration where the arbitrator was the Permanent Court of Arbitration situated in Hague, Netherlands. This case was brought forward by the Republic of the Philippines under Annex VII of the UNCLOS (United Nations Convention on the Law of the Sea) against the People’s Republic of China. It was mainly concerning the issues of the South China Sea which also included the Nine-dash line of China. 

The contentions of the Philippines stated that the nine-dotted line claimed by China violates the UNCLOS agreement regarding the territorial seas and the exclusive economic zones. It said that China cannot be given its continental shelf that was defined in the convention since most of the South China Sea cannot sustain life. To this, China refused arbitration in 2013 because a lot of treaties with the Philippines state that negotiation should be used to settle the border dispute. 

In 2015, the arbitral tribunal took up 7 of the 15 submissions that the Philippines had made. In 2016, the Permanent Court of Arbitration made a decision in favor of the Philippines. The decision stated that China has no historical rights on the nine-dash line map to which China has refused.

Croatia v. Slovenia

Slovenia and Croatia had become independent countries after the breakup of Yugoslavia in 1991. Since the borders between the countries were not determined, several disputes arose on land borders as well as sea borders. There were attempts made to resolve the dispute by the Drnovsek-Racan Agreement in 2001 but Croatia did not agree to it. 

In 2017, a binding ruling was passed by the Permanent Court of Arbitration which included the following:

• Ruling on the disputed parts of the land borders.
• Ruling that drew a border for the Gulf of Piran.
• Ruling that allowed Slovenia to have access to international waters using a corridor crossing the Croatian water in the North Adriatic Sea. 
• This ruling also included several other disputes regarding the border areas.

Slovenia had implemented this ruling but Croatia was totally against it as it had discovered some talks between the member of the arbitration court and the representative of the Slovenian Government.

Iron Rhine Case

The Iron Rhine is a non-operational freight railway that connects Monchengladbach in Germany and Antwerp in Belgium. The Treaty of London of 1839 between Belgium and the Netherlands allowed Belgium to build a canal or a road over the Dutch territory but Belgium would have to fund such constructions. The Iron Rhine Treaty of 1873 also approved Belgium of this right. In 1868 the construction had started and in 1879 operation of the first train had begun.

The Dutch government contended that the railroads of the Iron Rhine run through De Meinweg which is a nature reserve and hence a possibility of destroying the habitat of several species. After failed negotiations, this dispute was taken to the Permanent Court of Arbitration that had passed the ruling in 2005.

In the ruling, the concern of the Dutch for the nature reserve and the right of Belgium under the treaty of 1839 was acknowledged. The ruling held that the Treaty of 1839 still applied to Belgium and therefore it had a right to use and make constructions on the Iron Rhine. Both the countries would have to split the cost of repairs, constructions and maintenance of the Iron Rhine.

Negotiation as a means of settlement of the international dispute

The method to settle differences without any dispute or argument and reaching a compromise is called negotiation. The parties who are in a disagreement always aim for the best outcome they can achieve. For a successful outcome, the principles of maintaining a relationship, mutual benefit and a sense of fairness should be considered. There are two forms of negotiations, specific and general. The specific forms are used in most of the circumstances that include domestic disputes, industrial disputes, inter-state disputes and international disputes. The general form of negotiation can be used and applied in various activities.

Basically, negotiation is a method to settle disputes peacefully by being flexible in various aspects. This method can be applied in every kind of dispute such as technical, legal or political. It is a direct or indirect communication among two parties where they have opposite interests and they want to resolve such differences. Negotiations can either be used to settle an existing difference or lay the groundwork for a better relationship among two parties or more for the future.  

Every negotiation is different from the other. It may differ by the process used, the number of participants and even the subject matter. Just like the other dispute resolution methods such as litigation, mediation and arbitration, negotiation is also used by the states internationally to settle the disputes and differences.

Recognition

Negotiation helps the parties to come to a solution that would satisfy the parties mutually. A settlement which was negotiation can be called an agreement and after the signature, it works as a contract among the two parties. There is a recognition of three types of negotiation styles which are as follows:

• Competitive Negotiation – In this style of negotiation, the opposite parties do not think about the mutual benefit and compete to maximize their own profit by the loss of the other party. There is a lot of criticism on this type of negotiation as it breaks the mutual trust among the parties and promotes a sense of competition between them.
• Co-operative Negotiation – In this style of negotiation, there is no sense of competition as it focuses on the co-operation. The goal of this type of negotiation is to promote the concept of mutual benefit and fairness among the parties.
• Principled Bargaining – This is the most prevalent style of negotiation that is recognized the most as it ensures an agreement. It does hard bargaining (parties are competitive) as well as soft bargaining (parties are c-operative) to finally reach an agreement and the difference among them comes to an end.

A negotiator advances the interest of the party he represents so to reach a favorable outcome. The role of the Justice Counsel varies with the mandate of the negotiating team and various other circumstances. When negotiation is done on behalf of the client, the counsel must make sure that no divergence takes place among the client and the mandate.

Advantages

There are a lot of advantages of negotiation, some of them have been listed below:

• Negotiation is the most flexible method that resolves disputes as only those parties are involved that have a conflict of interest. The negotiation is done totally in accordance with the parties as they have the freedom to set up a place, whether they want it to be private or public, etc. Due to this, the chances of reaching a conclusion to the differences is high.
• The Co-operative type of negotiation guarantees that there would be a successful result of the dispute resolution as it takes into account the mutual benefits that would be beneficial for both the parties.
• Negotiation is not a mandatory process. If one of the parties is not willing to participate in it, it can be avoided.
• There is no compulsion for the parties to appoint an impartial third party. If none of the parties wants the matter to be judged by another party as it is of a sensitive nature, they may settle it without the help of the third party.
• A decision of the court binds not only the parties but also other members. However, a negotiation only binds the parties that were involved in the negotiation.
• Negotiation allows the parties to design the agreement in such a way that it would reflect the interests of both the parties in good faith.
• Negotiation is less expensive than litigation.
• The method of negotiation is comfortable as it does not require any witnesses and is a speedy process.
• After the negotiation comes to an end, there is an improvement in the relations of the parties concerned. 

Disadvantages

Though negotiation has a lot of advantages, it also has a few disadvantages. Some of the disadvantages are listed below:

• Sometimes, even if the negotiation has a successful outcome, the weaker party may be at a disadvantage as the stronger party would put the claims that the weaker party would have to agree to.
• For a successful negotiation, both parties should have a clear understanding of the dispute. If there is any kind of uncertainty among the parties, they would not be able to take part in the bargaining process effectively.
• Since there is an absence of an impartial third party, the differences may be unable to reach an agreement as it would be difficult to settle some crucial issues. It may also lead to one party taking advantage of the other.
• The process of negotiation can be terminated by any party at any time they wish. This would lead to the waste of all the money, effort and time that was spent by the parties.
• Some issues cannot be settled by the parties. Due to which there is no chance of mutual concession as the parties do not have the willingness to make those concessions.
• The method of negotiation does not ensure the good faith of either of the parties.
• Sometimes the disagreement of the parties leads to an impasse. An impasse occurs when one of the parties is adamant over its goal due to which no middle ground is reached and because of this, the disagreement among the parties comes to an end.
• Due to the unsuccessful negotiation of the parties, it may result in a strained relation between the parties. This may further result in the termination of the business and other contractual relations among them.

Famous cases

A lot of cases talk about negotiation and how it is beneficial or harmful to reach an agreement. Some of these  cases have been mentioned below:

Microsoft-Nokia Deal

In 2013, Microsoft had publicly announced a deal that it had with the Finnish mobile phone company, Nokia of $7.2 billion to acquire the handset and service business of the company. It was an international negotiation deal between both parties as both the parties had strong incentives to interlink with each other. The mobile phone company Nokia had lost its ground in those years to those manufacturers of smartphones who had started developing mobile phones of touch screens, such as Apple and Samsung.

Since Nokia was not performing well in its handset business, it started to focus on the patent portfolio, mapping business and the telecommunications equipment. Ballmer had approached Stephen Elop, CEO of Nokia about the possibility of an acquisition at the time of the Mobile World Congress Conference that took place in Barcelona. Negotiations on such a plan were carried out by Ballmer and Risto Siilasmaa publicly in 2013. Ultimately Nokia was acquired by Microsoft for $7.2 billion.

Cyprus Crisis

In 2013, the economy of the Mediterranean country of Cyprus was going to collapse as the lawmakers had abandoned the 10 billion euro bailout amount. Due to which, President of the nation, Nicos Anastasiades had to come up with another plan. Cypriot Bank was suffering from losses while dealing with Greece and therefore the Cypriot Government had shut the bank.

The European Commission, the European Central Bank and the International Monetary Fund teamed up to provide a bailout package for which Cyprus had to deduct tax on the bank depositors of the Cypriot bank. Cyprus had three options left – default the payment and quit euro, sell if off to Russia or patch a new deal with Europe. 

The third deal in the negotiation was the best for Cyprus and therefore it agreed to the bailout offered by the euro. Cyprus government confiscated 9.9% as tax from the bank depositors who held an amount of more than $136,000 is the Cyprus Bank. Negotiators in such a situation are faced with harsh implications and sometimes no deal is better than an existing deal.

The Collapse of North and South Korea Talk

South Korea and North Korea had decided to meet in Seoul to talk about the decade-old division and settle the enmity among themselves by a negotiation. This would have been the highest level of dialogue between these two nations. There was a news story that said the South Korean government had appointed a vice unification minister in place of the chief as the delegate for the meet. North Korea demanded South Korea to choose a senior delegate for the meet. South Korea escalated this issue by saying that the chief delegate of North Korea was still of a lower status.

The night before the meet, North Korea pulled out of the negotiation stating that South Korea had insulted them. Various experts had criticized South Korea as they had botched their chance to negotiate with North Korea. This shows that the negotiators are sometimes so concerned about their sense of face that they destroy the chance of helping out a counterpart.

Nuclear Deal with Iran

The United States of America and five other nations had agreed to freeze Iran’s nuclear program temporarily. It was a 6-month accord that gave time to the international negotiators for negotiating a more comprehensive pact that would take care of the nuclear threat Iran is posing. This negotiation had reached an impasse when Hassan Rouhani, President of Iran, insisted that their country had the right to enrich uranium and therefore the nuclear program cannot be frozen.

There are certain sacred values in the negotiation that the party is unwilling to compromise to. Such a sacred value for Iran was the termination of the nuclear program. Ultimately it was negotiated and agreed that Iran did not have a right to enrich uranium but Iran could continue to do so at a very low level. To which Iran had agreed and the matter had come to an end.  

Conclusion

The settlement of an international dispute has become of prime importance as it avoids any kind of threat of violence or war. Settling such disputes ensures peace and security globally. There are various ways of settling the dispute and differences that emerge internationally. International arbitration and negotiation are a specialized mechanism that helps the dispute to reach an end and lays down a final binding order on the parties.

This article has talked about arbitration and negotiation as the method of alternate dispute resolution. The article also summarizes the need for arbitration and negotiation by talking about the advantages and famous case laws that made use of these techniques to settle a dispute peacefully. It ensures the peaceful settlement of the dispute and makes sure that the relations among the international powers do not deteriorate.

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