May 26, 2014

International trade dispute settlement between small private parties without arbitration clause

In my day job, I come across complaints from various small time exporters and importers of goods regarding cheating/dispute by their overseas counterparts and vice versa. The overseas complaints usually get routed through the commercial or diplomatic consulates or Indian missions abroad. Indian complaints pour in through various export promotion bodies, export inspection agency, DGFT and so on. Usually, the complaints might be related to quality or payment. The payment related disputes are usually rooted again in quality or quantity related disagreements. 

A recurrent feature I have observed in these complaints is that there is no good commercial contract agreement, in writing, between the parties. At times, parties do have a contract, but they lack an arbitration clause in case of dispute. Trade is usually based on trust in such cases. Emails or telecons are usual methods of sealing the deals. Many a times, I have seen disputes arising after the parties have been dealing with each other for years. They shrug when I question as to why there is no arbitration clause in the contract. We trusted each other, is the usual reply. Trust is in short supply when it is actually needed. 

I would address in brief as to how such cases are handled and what can be done in case disputes arise when an involved party belongs to India (as an exporter/importer). I must add here that cases where the contract includes arbitration clause follows an entirely different path. India has a reasonably sound 'The Arbitration and Conciliation Act 1996', drawn on the lines of UNCITRAL model law. After the recent judgement by Hon'ble Supreme Court of India in the BALCO case (pdf judgement in the link), it has acquired significant teeth. Arbitration decisions seated in India, as well as those abroad, are honoured by Indian courts if the contract is properly drafted with clear arbitration clause. The problem arises when there is no arbitration clause in the contract, or if there is no formal contract document at all, and a dispute arises. 

India has established a reasonably fair mechanism to address trade grievances by the method of setting up of what is known as Regional Sub-Committee on Quality Complaints (RSCQC). This is a formal body under the Foreign Trade Development and Regulation Act (FTDR), deriving its power from its various sections directly or indirectly. You can read more about this mechanism here. It addresses following three types of complaints against Indian exporters/importers:
(i) Quality complaints;
(ii) Complaints other than quality complaints against registered exporters; and
(iii) Complaints other than those at (i) & (ii) above. 
Well the third one is funny but it covers wide range of disputes. One can go through the details of dispute resolution mechanism here. The RSCQC committees have enough teeth to punish erring exporters/importers if required. It has been functioning well in recent days and trade disputes, outside the arbitration, are being resolved through this. 
The 'Regional Committees' are composed of:

1. Joint Director General of Foreign Trade -Chairman 04
2. Bureau of Indian Standard-Member
3. Office of Agricultural Marketing Advisor-Member
4. Small Industries Service Institute-Member
5. Reserve Bank of India-Member
6. Officer-in-charge of Export Promotion attached to the office of Jt.DGFT-Member
7. Export Promotion Council/Commodity Board/Trade Association-Invitees
8. Export Inspection Agency-Member-Secretary. 
The above committee is usually adequate and competent to understand international quality (and other) disputes and come to a reasoned conclusion in the matter. Having been part of such committees, I am reasonably sure of the efficacy of the mechanism. 

However, there is no better better cure to international disputes than having a good contract with a fair arbitration clause. 

This is about India's mechanism to address international disputes that lack arbitration clause. I wish I had a link to see the mechanisms adopted by all other countries at one place.