May 23, 2020

Mediation: A game changer to resolve pending and potential disputes!


Practice shows that successful mediation would provide the parties a chance for further, successful collaboration in the future...

There is tremendous force in the Force Majeure Clause! Discussions in the legal and corporate world are revolving around the Force Majeure Clause in the executed contracts, if there exists a clause to that effect or otherwise whether a party can resort to Section 56 of the Contract Act, 1872 (“the Contract Act”) to invoke frustration.

Not many lawyers would have ever imagined until the pandemic grounded the world that the Force Majeure Clause often referred to as the 5am Clause would gain prime importance in the Covid-19 times.  It is being dissected, interpreted and would continue to occupy the minds of the legal fraternity and the corporate world in different sectors for some time to come. 

No matter how well the force majeure clause was drafted, was the Corona Pandemic foreseeable? Most lawyers and CFOs across the world are busy tracing the contracts that they have signed and are reading (between the lines) the ‘force majeure’ clause to (i) save themselves from performance of their obligations or (ii) to compel the other contracting party to perform or (iii) finding an excuse for not making any payment. In my view, the ultimate fate of claims rests on the terms and objectives of the contract, the contours of the force majeure clause in question, and the steps to mitigate losses suffered by parties, on a case-to-case basis. There is no one size fits all solution.

As we grapple with the Coronavirus pandemic, it has become increasingly clear that the commercial world will suffer from its fallout for a long time. COVID-19 has already caused substantial commercial loss and has obstructed the performance of many contracts for no fault of either party. It has caused significant supply chain challenges, triggered employment and landlord - tenant issues, raised liquidity concerns for commercial businesses. All this would mean potential litigation claims waiting to come to the fore. Most lawyers would welcome this including me; however, one might anticipate delays due to the backlog of old cases and fresh urgent matters being filed in courts on account of force majeure and/or frustration i.e. Covid 19.

This is notwithstanding the recent judgment of the Hon’ble High Court of Delhi wherein it granted an ad interim injunction and stay on the invocation of unconditional Bank Guarantees, on the ground that the lockdown due to the Covid-2019 pandemic was a condition of force majeure.

In the case of Aljo K. Joseph vs Union of India, the Supreme Court responded by stating that during the lockdown, landlords and tenants are renegotiating contracts, the petition was eventually withdrawn, as lawyers were not granted any relief.

What would be the best course of action for corporates. Companies in the manufacturing, services and real estate sectors, in particular, should look at mediation to end existing and potential disputes with suppliers, vendors, landlord/tenant, consumers and even lenders.

Mediation in my view will be the key to resolving many of the disputes that will arise as a result of COVID-19. Often, these disputes will be with parties that have, and want to continue, their commercial relationships and mediation can help them find a way forward together. The non-binding nature of mediation also means that a decision cannot be imposed on the parties. In order for any settlement to be concluded, the parties must voluntarily agree to accept it.

Most commercial contracts do provide for a detailed med-arb clause.  However, even if the parties had not contemplated resolving their disputes due to an absence of the Med-Arb Clause in the Agreement, the parties may draft an addendum by inserting a clause or those who are before court may consider moving a joint application by invoking Section 89 of the Code of Civil Procedure (CPC), read with Civil Procedure – Alternative Dispute Resolution Rules, 2006 which can be invoked after a dispute arises.  The provision under Section 89 is an attempt to bring about resolution of disputes between parties, minimize costs and reduce the burden of the courts.

Mediation has found increased statutory recognition in India in recent years. The legislature has recently introduced it in the Companies Act 2013, the Insolvency and Bankruptcy Code 2016, as well as the Commercial Courts Act 2015 (CCA), among others.  The Commercial Courts Act, 2015, which governs the dispute resolution procedure for commercial matters, was amended in 2018. Section 12A of the CCA was incorporated mandating a three month period for parties to explore the possibility of a settlement in pre-litigation meditation for matters above Rs. 3 lakhs. Section 32(g) of the Real Estate Regulation Act, 2016 enables conciliation mechanisms to arrive at a settlement for disputes. In addition, the new Consumer Protection Act, 2019, also provides for disputes to be first referred to mediation and the procedure to be followed as per Section 74(3) of the Act read with Section 101(2)(zf) and Section 102(2)(p) of the Act.

Mediation institutions e.g. the Delhi High Court has established “Samadhan”- the Delhi High Court Mediation and Conciliation Centre and has a well trained panel of legal professionals to fulfil the role of mediators, to assist parties in adopting a resolution-oriented approach towards reaching a settlement. WIPO has also suggested mediation and arbitration options to resolve licensing disputes. Moreover, Online Disoute Resolution (ODR) platforms like Presolve 360, amongst others, are vigourously promoting settlements and insisting parties to renegotiate contracts.

Various Supreme Court decisions in the recent past appear to point out that the Courts are gradually developing a favourable attitude towards mediation. In the landmark case of Afcons Infrastructure Ltd v. Cherian Varkey Construction Co. (P) Ltd, the Supreme Court observed that all cases relating to trade, commerce, contracts, consumer disputes and even tortious liability could normally be mediated.

The reference of the highly sensitive Ayodhya dispute to mediation has brought the mediation process to the attention of the general Indian citizen. It cannot be denied that it was a huge step taken by the Supreme Court to recommend Alternate Dispute Resolution (ADR) process in influencing the opinion of Indian citizens about the mediation process.

The role of courts and the arbitral process is adjudicatory in nature. In contrast, the process of mediation is very practical and flexible. Unlike a judge or an arbitrator, therefore, the mediator is not a decision-maker. The role of the mediator is rather to assist the parties in reaching their own decision on a settlement of the dispute. Many a time, it can prove to be speedier, more effective and economical than the other adjudicative processes. In the commercial world, interest in mediation as an ADR process has increased sharply in recent years. In part, this growth of interest is attributable to dissatisfaction with the cost, delays and length of litigation in certain jurisdictions. The growth of interest results also, however, from the advantages of mediation, particularly its appeal as a procedure that offers parties full control over both the process to which their dispute will be submitted and the outcome of the process.

In my view, most parties to commercial contracts would be wary of rushing to courts except those with deep pockets, having high stakes in the matter and unless it is completely unavoidable. Parties would be better off renegotiating their contracts going forward and ‘it’s business as usual’. The current climate would make clients rethink financially and preserve their existing commercial relations. Practice shows that successful mediation would provide the parties a chance for further, successful collaboration in the future. Therefore, the impact of mediation as an ADR process would highlight its value and immediate availability physical platform and online process to resolve existing and emerging disputes. In the end, resolving potential disputes through mediation might just be a swifter and wiser option.

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