Why Making Mediation Compulsory Will Not Yield Desired Results for Commercial Dispute Litigants
Article The Effectiveness of Mediation Mandates in Resolving Commercial Disputes Many argue that mandating mediation can be an effective way to resolve disputes outside of the court system. However, when it comes to commercial disputes, mandating mediation may not be the best solution for litigants. One major issue with mandating mediation is that it goes against the very nature of the voluntary and consensual process of mediation. Commercial disputes often involve complex legal and business issues, making it difficult to force parties to participate in a mediation process they may not want to be a part of. Additionally, mandating mediation could lead to a distorted power dynamic between parties. The party with more resources and power may use the mediation process as just another tool to pressure the other party into settling. This could result in an unfair advantage and ultimately, an ineffective mediation. In conclusion, while mandating mediation may seem like a good idea in theory, it may not be the most effective solution for resolving commercial disputes. It is important for parties to engage in mediation voluntarily and with a willingness to reach a mutually beneficial resolution.
Parties involved in a legal dispute may not view mediation as a wise way of settling their disagreements. Let's explore the reasons behind this perspective.
On March 24, 2023 at 8:09 AM in India Standard Time, the following blog post was written:
On March 24th, 2023 at 8:09 AM in Indian Standard Time.
It is currently 8:09 AM in India on March 24th, 2023.
Lately, there has been a growing preference for private methods like online arbitration and mediation in India for resolving business disagreements. India has had a system for resolving conflicts through arbitration and conciliation since 1996. Efforts are being made to regularize mediation in India, and this has led to the introduction of the Mediation Bill. This proposal seeks to make pre-litigation mediation compulsory for commercial and civil disputes. Although the primary goal of this initiative is to ease the workload of the judicial system, parties involved in a dispute may be affected.
Understanding Pre-Litigation Mediation: A Guide
According to the proposed law, before filing a civil or commercial lawsuit in court, any party must first try to resolve the issue through mediation. If mediation fails, only then can they proceed to court. The law requires both parties to attend at least two mediation sessions, regardless of whether they have a prior agreement. If a party fails to attend the first two mediation sessions, the court may impose penalties on them during the subsequent legal proceedings.
There have been previous efforts in India to require parties to attempt mediation before taking legal action. One such initiative took place in 2018 when Section 12A was introduced into the Commercial Courts Act of 2015. This provision stated that a commercial lawsuit cannot be filed until the parties have tried to settle their dispute through the mediation process. Furthermore, any agreement reached by the parties during mediation will be treated as an arbitration award.
An evaluation of how this regulation operates within the Commercial Courts Act could offer invaluable observations towards the effective operation and influence of the upcoming mediation legislation.
Has the Mandatory Use of Mediation Been Effective?
When someone wants to address a disagreement related to business matters, they consider a few things. Two important ones are how long it will take to resolve the issue and how much it will cost. The Commercial Courts Act states that before beginning a lawsuit, both parties must try to resolve things through mediation. This process should take no more than three months. The person trying to resolve the dispute will have to pay for lawyer fees, court fees, and transportation expenses. If the resolution process takes longer, it will cost the person even more money.
In the e-Courts portal, district-level commercial courts in Mumbai reported the total workload and status of mediation applications. The chart displayed illustrates data spanning from 2020 to 2022, which reveals that more or less 31% of all filed applications were awaiting resolution for over three months.
Moreover, according to the chart, there has been a rise in the quantity of mediation applications received between 2020 and 2022, while the overall number of unresolved applications has decreased by roughly half. Correspondingly, there has been an enhancement in disposal rates. When calculated as a percentage of the entire workload, the 2022 disposal rate is almost twice that of 2021. However, these disposal rates do not necessarily indicate the efficacy of the mediation process.
According to what's been reported by the courts, there are three categories of disposals that are defined under the Commercial Courts Act:
Resolved: Instances where mediation has proven effective, and the involved parties have harmoniously reached a mutual agreement.
Unsuccessful: Instances in which an attempt at mediation was made but didn't result in a resolution;
(iii) No Go: Instances where the other party has declined to engage in the mediation procedure.
The chart underneath exhibits the quantity of handled instances grouped into each of these classifications.
Over the course of three years, the vast majority (roughly 96-98%) of resolved cases were found to be unsuccessful. Only a very small percentage (less than 2%) were either successful or settled outside of court. This suggests that many people are hesitant to try out mediation and prefer to take their disputes straight to the courts. Unfortunately, forcing people to mediate when they don't want to only slows down the process even more, adding at least 3-5 months to the resolution time. It also ends up costing parties more money and non-financial resources.
Why Does Making Mediation Mandatory Not Work?
The high number of failed commercial disputes mediations calls for an in-depth examination of the root causes, instead of resorting to forceful tactics suggested in the Mediation Bill.
To start, many business contracts have clauses that encourage parties to settle their disputes outside of court. This means that using mediation ordered by a court can be repetitive and unnecessary. Additionally, some people involved in disputes may not view mediation as a fair way to solve issues. If one party is at a disadvantage, they may feel forced to agree to mediation and not fully participate. These parties might not see the value in mediation and could end up going to court regardless of the monetary consequences. In other words, a big fine might not be enough to convince someone to use mediation.
What is Possible to Do?
Mediation is a process that is meant to be decided upon willingly. When it's required, it strips a party of their right to take their grievances to court and it also makes an already long and expensive litigation process even more cumbersome. The government should only get involved when there is a failure in how the market is functioning. In cases where the market isn't failing, people can find other ways to resolve disputes that are best for everyone involved. Since the legal system isn't always reliable, people often have a lot of reasons to look for alternatives to resolve their disagreements. In these situations, having the law require mediation isn't likely to lead to a better outcome.
Numerous individuals have observed enforced negotiation being carried out in different regions like Singapore, France, some territories in the United States, and Australia. Many have inferred that it could be the remedy for the problems encountered by litigants in India.
Undeniably, mediation can be advantageous for those involved in a dispute. Firstly, it is a more harmonious and cooperative procedure. This can be useful in maintaining positive connections between businesses, which is especially crucial in industries where there are numerous smaller entities, long-lasting partnerships, and powerful monopolies.
However, as the proof provided indicates, there is an issue with people in India being hesitant and displaying favoritism toward the mediation process. Making it mandatory will not solve this issue. Thus, the initial action to take for enhancing the application of mediation is to assure the involved parties of its effectiveness and impartiality. This comprises of generating knowledge about the process and its advantages, determining standards for the preciseness and impartiality of the dispute resolution process, and regularly evaluating its results.
Pavithra Manivannan works as a Senior Research Associate at the XKDR Forum in Mumbai.
The opinions presented in this post belong to the writer, and may not reflect the opinions shared by BQ Prime or its editorial staff.
