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Summary Week 1 – Introduction to ADR: what dispute resolution mechanism is preferred?
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CHAPTER 1 – Introduction to ADR: what dispute resolution mechanism is preferred?1.1 Case study - ‘Gerald Naber's dream’
Gerald Naber is an entrepreneur and inventor. In 2002 he started elaborating innovative software being
capable of controlling large quantities of self-driving vehicles. At a certain moment Naber envisaged the
software suite - which provides flexible, effective and integrated control and is capable of fully supporting
baggage handling operations, from check-in through to final reconciliation and loading – also to be of
specific interest to airports.
Naber felt ready to make a boatload of money. In order to ensure a risk free fashion, he decided to set up a
company. And in order to ensure that the company would not be bothered by tax authorities, he set up a
limited liability company in the British Virgin Islands, a well-known tax haven. 'Sunshine Inc.' seems to
Naber a name befitting to both his own future ambitions and the prospects of the BVI.
Cooperation between Sunshine and VDLI?
In 2003 Naber (on behalf of Sunshine Inc.) contacted Van der Lande Industries B.V., (further referred to as
VDLI) a private limited liability company duly established and incorporated under the laws of the
Netherlands. VDLI sells integrated baggage handling solutions to airports worldwide.
VDLI's CEO Mariska de Wit - who is a bit of celebrity in the industry and notorious for her cut-throat
negotiation skills -recognized the potential instantly. She acted promptly, and offered Sunshine a letter of
intent (“LOI”). With the LOI, the parties agreed to make their best efforts to cooperate and to jointly
develop a fully automated baggage handling system on the basis of Sunshine's software and VDLI's
hardware.
The need for further development: Sunshine engages Logico
In her conversations with Naber, De Wit at multiple occasions noted that the software Naber developed was
written in the relatively unfamiliar Axiom (A#) language. She recommended Naber to have the code
rewritten into C#, a code more commonly used in the baggage handling industry, as well as other logistic
industries. If Naber’s software would be written in a code that is more commonly applied, it would be far
more easier to hook up the system with other computer systems at airports, such as for instance the systems
used at check in and by customs authorities.
De Wit suggested Naber to engage Logico to do the job. She worked with Logico in the past and is
particularly impressed by the outsourcing services offered by Logico B.V. (“Logico”). In short, Logico -
which is the Dutch subsidiary of Logico Inc., a US company established in Delaware but listed on the New
York Stock Exchange - offers its clients the possibility to have software developed by engineers in Ukraine.
Ukrainian engineers are top of the line, highly skilled and much cheaper than Dutch engineers.
Rewriting a piece of software in a different language is not an easy task. An engineer cannot simply
translate code into another coding language. Rather a complex governance for the process is required.
Logico and Sunshine Inc. agreed to use the Rational Unified Process or RUP methodology. RUP is an
iterative software development process framework created by the Rational Software Corporation, a division
of IBM. RUP is not a single concrete prescriptive process, but rather an adaptable process framework,
intended to be tailored by the development organizations and software project teams that will select the
elements of the process that are appropriate for their needs. RUP is a specific implementation of the Unified
,Process. In laymen's terms: RUP allows the client to steer the development process and to add or omit parts
of the software where required. This is what Naber needs, as he’s not yet sure whether there are possibly
other fields in which his software might be commercialized. He wants to keep all options open.
Commencement and conduct of the project
In 2004, the project commenced. Essentially, Logico's Dutch engineers and Sunshine's engineers
cooperated behind a computer screen to analyze the existing (Axiom coded) software and record this in a
so-called Use Case. These Use Cases are basically the orders on the basis of which the Ukrainian engineers
are to build the Sunshine Inc's software application in the C# language.
The project however moved slowly. After a year only parts of the software were (re)built. Naber felt
unsatisfied and contacted Logico's CCO (Chief Commercial Officer) Claus von Iersel. Von Iersel, a true
salesman of German origin, was keen to note that the main reason for the project not moving at great speed
was that (i) Sunshine's engineers failed to check and approve Use Cases for development in Ukraine, and
(ii) Sunshine was - in contravention of the agreement for upfront payment of the fees for the software
developers - EUR 870,000 behind in payments.
Naber promised matters would get better soon if Logico showed willingness to agree to a different
approach. He suggested that he and his engineers would make the Use Cases and manage the software
development in Ukraine themselves. This way, Naber reasoned, the expensive Dutch engineers – who did
nothing more than looking at computer screens anyway - could be cut out of the project, saving money that
can be invested in extra functionality of the software.
Things did, however, not get any better. Naber/Sunshine remained unsatisfied with the quality of the
software. Logico, on the other hand, had its own reasons to feel unsatisfied, as Sunshine kept lagging (way)
behind the payment schedule. In October of 2007, Logico already ceased providing source codes to
Sunshine, but at that time it wrote to Sunshine that the project would be terminated entirely if the
outstanding invoices – at that time amounting to over EUR 3.4 million – would not be settled properly
within a month.
Naber felt unfairly treated, not only by Logico but also by VDLI, De Wit more particularly. How could she
have ever recommended Logico? In fact, in a recent newspaper article she has voiced her disappointment
with the quality of Logico's services in the past 5 years.
Naber decides swift action is required and that action against VDLI and De Wit would be a good first step.
Sunshine might need Logico's services in the future and VDLI has agreed to be Sunshine's business partner.
Lastly, De Wit deserves legal trouble for misinforming him (and for being a witch more generally).
A new contract player enters…
The airport services industry VDLI is in is a fast moving business. Not long after the contract between
VDLI and Sunshine was concluded, VDLI was acquired by Toyota Inc. (“Toyota”), the Japanese car
manufacturer. Toyota sees synergies between its expertise in the vehicle industry and VDLI’s cont(r)acts in
the airport and warehousing business. Also, the software developed by this Naber guy might be of interest.
, The deal is structured as such that Toyota will take over all VDLI’s debt. This, Naber considers to be an
opportunity. After all, Naber feels Sunshine has a claim for damages vis-à-vis VDLI for it having wrongly
informed Naber on the qualities of Logico.
1.2 Introduction
Commercial disputes or conflicts arise all the time. Although commercial parties have a range of
approaches at their disposal to manage and resolve conflicts, these approaches vary in the way the dispute
or conflict is addressed, or settled. Conflict management and resolution approaches and procedures can be
positioned ‘spectrum-wise’ from individual private decision making by the parties themselves to
procedures that involve increased authoritative or coercive decision-making by third parties. In the
remainder of this course, you will be dealing with procedures whereby a third party, whether a national or
international court or arbitral tribunal, decides on the basis of legal norms how a dispute is to be settled. It
should be noted, however, that the majority of disagreements are handled informally by the parties
themselves with a view to managing their conflict and resolving the disagreement. Therefore, before
addressing these adjudicative methods of dispute resolution, we will address more informal approaches to
resolving disputes that centre on the collaborative participation of the parties themselves and their capacity
to resolve a dispute with the assistance of a neutral third party. We will focus in particular on mediation.
Preliminary questions:
1. Consider the nature of commercial relationships and the reasons why commercial conflicts or disputes
could arise. What different strategies for resolving such conflicts or disputes are available to the
parties?
2. What dispute resolution mechanisms can you mention? Discuss for each mechanism:
a. What are its fundamental characteristics?
b. Why are these characteristics essential in order for the mechanism to be successful?
c. What are the benefits of the mechanism for commercial parties?
d. What are the disadvantages?
Required reading
- Nadja Alexander, International and Comparative Mediation, Global Trends in Dispute Resolution,
Kluwer Law International 2009 (Kluwer Arbitration via UM databases) (Chapters 1 and 4).
- Gregory Travaini, “Multi-tiered dispute resolution clauses, a friendly Miranda warning”,
Kluwerarbitrationblog.com: http://kluwerarbitrationblog.com/blog/2014/09/30/multi-tiered-dispute-
resolution-clauses-a-friendly-miranda-warning/.
- Didem Kayali, “Enforceability of Multi-Tiered Dispute Resolution Clauses”, 27 Journal of
International Arbitration (2010), 551-577 (available via Kluwer Arbitration).
- Ned Beale and Cara Gillingham “Dispute escalation clauses in England and Wales: a new high water
mark” 26 International Company and Commercial Law Review (2015) 102-105 (available via
Westlaw).
- Keith Han and Nicholas Poon, “The Enforceability of Alternative Dispute Resolution Agreements”, 25
Singapore Academy Law Journal (2013) 455 (available via HeinOnline).
- Linklaters’ Commercial Mediation – A Comparative Review 2013: http://www.linklaters.com/
Publications/Commercial-mediation-comparative-review 2013/Pages/Index.aspx
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