ALTERNATIVE DISPUTE RESOLUTION – An introduction (Part 1)

ALTERNATIVE DISPUTE RESOLUTION – An introduction

(Part 1)

The best method to resolve disputes is never to have them!

Disputes arise due to greed of any party to a contract, misunderstandings, egos, misinterpretation of clauses of a contract, being in a particular state of mind as to the relationships which suddenly does not hold to be true or due to certain nature of the persons involved who have not learnt to be accommodative. Disputes may arise in marriages or it may be family disputes, or it may be plain commercial disputes.

While it may be tempting to go to the courts to resolve disputes, it is a long-drawn process involving time, costs, health, broken personal and business relationships and at the end, one is not sure whether it was worth it. Indian courts are clogged with litigants and cases, and the judges are finding it difficult to dispense justice and the advocates have a dilemma as to how to juggle their time between their various clients and the many courts. Court cases are now a burden to the original litigants and possibly to their heirs when the same are not decided in the originally claimants’ lifetime. Even if the cases are decided in the claimant’s favour, it may be at a time when the purpose, of having at first instituted the case, being no longer relevant or the damages, if awarded, be no longer of any particular use. In the meantime, businesses and relationships suffer as adequate time and money cannot be invested in maintaining and growing both, cash flows are affected, and the charm of doing good in life is lost. Sometimes, despair sets in. 

  

An attempt to understand the alternatives available to a claimant and the opposite party to speedily resolve their differences is the purpose of this introductory write-up.

Alternative Dispute Resolution (ADR) is the process of speedily resolving disputes without resorting to court litigation. At the outset, let us be clear that ADR is meant for civil disputes and not for resolving criminal matters. Criminal matters are to be dealt with by the courts and the State, unless they are compoundable offences.

The forms that ADR may take are:

-        Negotiation

-        Mediation

-        Conciliation

-        Arbitration

NEGOTIATION

At the onset, the differences should be communicated to the other party. Many problems simply disappear if they are effectively communicated to the other party. If you are hurt – communicate. If you feel used – communicate. If you feel that something is going wrong in your relationships or business – communicate. It is no use burying your heads in sand. Let the other party know!

Once you have informed the other party of your grievances, be prepared to negotiate. Sitting across the table and talking will resolve most issues. There is no need to take the stand that you will take the matter up to the Supreme Court. Give peace and relationships a chance. Direct communication is the most effective form of dispute resolution. Learn to have a ‘give and take’ attitude for a win-win situation. For when you litigate, both are losers; when you negotiate, both are winners.

MEDIATION

When negotiation fails, it is time to take up the matter for mediation. Both parties may agree to seek the help of a mediator to resolve the dispute. Mediation is a voluntary process and needs the consent of both the parties.

The mediator, a neutral third party meets the parties in dispute, jointly and/or in private sessions, to help them negotiate a settlement of their disputes. A mediator is neither a judge nor an adjudicator. He simply assists the disputing parties to understand the nuances of their differences and, as a consequence, facilitates them to arrive at an amicable enforceable settlement.

CONCILIATION

Instead of going for mediation, the disputing parties may go directly for conciliation. Here again, conciliation is a voluntary process and needs the consent of both the parties.

The conciliator, like a mediator, is neutral third party who meets the parties in dispute, jointly and/or in private sessions, and helps them negotiate a settlement of their disputes. While a mediator cannot suggest solutions to the problem to the disputing parties, a conciliator may make suggestions, as he deems fit, to arrive at amicable results. He assists the disputing parties to understand the nuances of their differences, makes suggestions as to how alternative solutions to the problem could be examined by them and, as a consequence, facilitates them to arrive at an amicable enforceable settlement. A conciliation agreement is a once for all solution and enforceable as a decree received from a Court of Law.

ARBITRATION

Many commercial contracts contain an arbitration clause therein. The parties to the contract agree to resolve any future disputes those arise out of the contract be adjudicated by a neutral arbitrator who possesses the necessary qualifications and understanding of the applicable laws. The arbitrator, so appointed, acts as a private judge and hears both the parties, examines the evidences and the witnesses and grants an award. The award so granted is enforceable as a decree received from a Court of Law.

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To further understand the nuances of Alternative Dispute Resolutions processes let us understand the different processes in some detail.

Negotiation

We are not discussing much about the negotiation process as it is up to an individual to decide whether it is the right course for one to take. It does not have any legal backing other than one having to understand that the decisions arising out of it, if it forms a part of the contract, would be also enforceable as a contract. So, anyone who has negotiated and comes to an understanding, will not have a recourse, per se, if any party repudiates and the only course remaining would be the other three remaining ADR routes or through adverse action by suing in a court of law.

Negotiation is an art and not everyone’s cup of tea. Negotiation depends upon your ability to communicate. It depends on your ability to understand from the other’s point of view. It depends upon your ability to accommodate. It depends on your ability to sit across the board and discuss issues and resolve matters.

Negotiation also depends upon the individual standing and strength of the parties who are negotiating. Some parties may be on strong and firm grounds and some parties may have financial withholding power. If both the parties are not on equal footing, then it is possible that one of the parties may take advantage of the lower bargaining/financial power of the other party and renegotiate the contract to its own advantage.

For example, if one of the parties is the government of the nation or of the state or a conglomerate, then negotiations are generally one-sided, and it is up to the other party to accept or reject the contract. These types of contracts are very strong in the clauses in favour of the government and very weak as far as the other party is concerned. Therefore there are chances of grievances in government contracts or with contracts with large conglomerates. It all depends on how much one party needs the other or its services, or how much one is willing to forego.

As explained earlier, many problems simply disappear if they are effectively communicated to the other party. Sitting across the table and talking, resolve most issues. Direct communication is the most effective form of dispute resolution. A ‘give and take’ attitude leads to a win-win situation. Negotiate, so as to win.

Mediation

Mediation is a form of alternative dispute resolution in which a neutral third party (the Mediator) meets the disputing parties to assist them to negotiate a settlement of their dispute. Mediation is a voluntary confidential process of dispute resolution with the consent of all the parties. Mediators are neither judges nor are they adjudicators; they simply seek to facilitate the parties in arriving at a mutually acceptable settlement. The mediator does not pass any judgment, or even have an opinion expressed on which party is right and which party is wrong. He is a neutral third party who simply assists the disputants to discover and reach creative acceptable solutions in resolving the dispute.

Mediation is a preferred and recommended method of out of court dispute settlement. In mediation, a neutral professional (Mediator) trained in conflict de-escalation designs a process of facilitated negotiation between parties ensuring effective dialogue and discussions focussed on solutions to the disputes. The disputing parties mutually agree on the terms of settlement and mode of enforcement.

Mediators do not render binding decisions; they merely facilitate them. They guide the parties in dispute through discussions which are conducive towards a mutually acceptable agreement. The mediator is independent of the parties and completely impartial. He helps the disputing parties to realise their best interests and help them reach a settlement. If the mediation process fails to reach a settlement, the opposing sides are free to pursue other options, including arbitration and court litigation.

The Mediation Process

The process of mediation begins with a proposal for mediation. If one party makes the proposal seeking mediation, the other party may or may not accept this. In case both the parties have proposed mediation or when a proposal from one party seeking mediation is accepted by the other party, both the parties can jointly select a mediator. In the alternative, either or both the parties may approach an institution like the Centre for Mediation and Conciliation, which is based in Mumbai, seeking that the institution appoint a mediator. Once the parties, directly, or through an institution, agree on a mediator willing to mediate, the mediator will then take charge of the matter for mediation.

While any person can be a mediator, if acceptable to both parties, it is advisable to approach an institution who have trained mediators in its panel. The institution generally suggests a few names from its panel to the parties of which the parties may select one. In case the parties are unable to decide on the name, the institution could step in an appoint a mediator who, in its opinion, is suitable, capable and experienced enough to mediate in the subject matter of the dispute. Another advantage of approaching an institution is that the mediation process is based on set written rules and the fees are predetermined. Moreover, the facilities required for mediation is generally available with the institution.

Before the mediation begins it is better to plan the procedure that the parties would take. A mediator may have a preliminary discussion with the parties to plan for the same and set the agreed upon procedure. The participants need to be made to feel comfortable. It is highly advisable to get the parties to sign an undertaking to voluntarily mediate and the name of the mediator and/or the institution should be mentioned therein.

The actual mediation begins with the parties making their opening statements. The facts of the dispute from the point of view of both the parties are brought out. The mediation sessions are held at the mediator’s discretion and he carries both the parties along. It is not easy for the adversaries to be on the same table, if much time has gone by and bitterness has already set in. It is here that the skill of the mediator counts. The ability to listen, to re-frame the issues and to separate the wheat from the chaff and the psychological understanding of the people in the dispute will enable the mediator to direct the conversation to follow a constructive pattern. Any discomfort, which is expected and evident in the initial stages, are smoothened over.

The mediator hears both the parties in each other’s presence and, if felt necessary, also separately. Any declarations, admissions or proposals made in the separate sessions are not to be revealed by the mediator to the opposite party without the express permission of the party making such declarations, admissions or proposals. The entire proceedings are confidential and are ‘without prejudice’.

The parties to the dispute may be accompanied by their counsels or other parties from whom they may seek guidance during or in between the session and whose presence and guidance to the parties would benefit the mediation process. In other words, the parties to the dispute must remain personally present at all the mediation sessions and effectively participate therein. Organisations, if they are a party to the dispute, must depute only those representatives who are well-versed with the subject-matter of the dispute and are fully authorised to take decisions in the matter.

The mediator draws out from the disputing parties themselves solutions for settlements while acting as a neutral. He facilitates the discussions and the negotiations and guides the parties to an amicable settlement.

Mediation cannot be an unending process. Hence a deadline of up to three months is fixed initially when the procedure is formally decided. Normally, a mediation is completed in a very few sessions and a settlement agreement signed.

At times, there is no solution in sight even when the time allotted for the dispute resolution is over. However, there is a silver lining here. Now the parties know each other’s point of view and, on reflection, they may suo moto come together to settle even after the mediation process is over. If not, they may seek other ADR method like Arbitration, where the entire resolution process begins once again.

Advantages of Mediation

    1. Speed: The other methods of dispute resolution takes a very long time. Litigation in courts may takes years to conclude and, at times, not even in one’s lifetime. Arbitration takes about two years if not in the fast track mode. Even the fast track arbitration takes at least six months to reach the grant of the award. However, resolution of disputes through mediation takes about three months and could be reached even earlier.

    2. Saves Cost: Save time, save costs. Early resolution of any dispute enables an entity to then focus on its business. People are not into business to create disputes; they are there to earn returns for all stakeholders. Disputes sap energies and takes away the focus from business to resolutions. The lesser period of mediation process saves costs related to dispute resolution, like time spent on preparation of the case, arguments, submission of documents, advocate fees and the fees of the mediator and the costs paid to the institution involved, if any. Indirect costs to business like stalling of operations due to want of a resolution, funds blocked in disputes also add to costs and exponentially increase as time passes.

   3. Control: The disputing parties in a mediation have the ultimate control over the outcome of the mediation. They have the decision-making power. In other forms of dispute resolution, the decision-making and control is surrendered to an adjudicator, who may be either an arbitrator or a judge.

   4. Voluntary: There are some situations where mediation may be required by law. However, the process of mediation is voluntary, and no party is coerced to participate in the process or accept a settlement which is not acceptable to them.

   5. Confidential: The  concept of  confidentiality is  the  core of mediation. Any information received from/by the parties to the mediation is to be kept confidential. All discussions, offers, counteroffers and settlement discussions made by parties during mediation are ‘without prejudice’. The legal rights of the parties are not waived. A participant in mediation or the mediator cannot be summoned to court to testify as to anything discussed or offered during the mediation process. Even in court directed mediations or in pre-institution mediation, it is standard not to publish terms of settlement and make them available in public domain.

     6.  Interest-Based: Many disputes arise due to the factor of ego. Either one party feels hurt or the other party wants to hurt it. The root cause is not what one wants; it is why something is wanted. One party wants something, and the other party does not want to give it. In mediation, the disputing parties, with the assistance of a trained mediator, explore the real reasons behind the dispute and address them.

     7.  Negotiated agreement sans compromise: Any settlement in mediation should meet the business objectives and fulfil the parties’ interests. It is not ‘what could ideally be’; it is ‘what is reasonably possible’. There are many options available to the parties and usually the most-likely alternative that is available is chosen. If the options available are not suitable, the parties are free to not settle the dispute and not having to compromise. Mediation facilitates the disputing parties to come to a negotiated agreement that best serves business sustenance and growth.

    8. Preserves Relationship: The ideal situation is not to have any disputes. So, when differences arise, we should attempt to find a solution. Litigation should take place when all other avenues to settle the differences have been explored. Not making attempts to settle differences results in breakdown of relations, be they personal or business. Parties lose friends, well-wishers, families, clients, suppliers, partners in whom a lot of time, energy, finances and other capital resources had been invested. One cannot keep on rebuilding connections or making new substitute connections. Mediation assists to strengthen existing business and personal connections, synergise and do better. Differences may arise but clean closures thereof are the aims of facilitated negotiated settlement through mediation.

    9.  Retains Goodwill: When dispute resolution is confidential the world would not know. Hence, the image of the parties among the general public and the business community remains unblemished. Stability is conveyed to all stakeholders and goodwill retained.

Legal Backing for the Mediation Process

The parties may refer the dispute to mediation at any stage of the dispute. It could be -

ü before arbitration;

ü after commencement of arbitration but before passing of award by the arbitrator;

ü before initiation of legal proceedings in the Courts;

ü during the court proceedings but before the passing of the judgment order; or

ü at an appeal stage of court proceedings.

Pre-Institution Mediation

The Commercial Courts Act, 2015 has, by an amendment in August 2018, inter alia, brought into the Act with effect from 3^rd May, 2018 the concept of Pre-Institution Mediation and Settlement by incorporating Section 12A along with Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018 effective from 3^rd July, 2018.

It mainly states that a suit for commercial dispute, which does not contemplate any urgent interim relief under the Commercial Courts Act, shall not be instituted unless the plaintiff exhausts the remedy of pre-institution mediation in accordance with such manner and procedure as may be prescribed by rules made by the Central Government. The authority authorised by the Central Government shall complete the process of mediation within a period of three months from the date of application made by the plaintiff, provided that the period of mediation may be extended for a further period of two months with the consent of the parties. It is further provided that, the period during which the parties remained occupied with the pre-institution mediation, such period shall not be computed for the purpose of limitation under the Limitation Act, 1963.

If the parties to the commercial dispute arrive at a settlement, the same shall be reduced into writing and shall be signed by the parties to the dispute and the mediator. The settlement arrived at under this section shall have the same status and effect as if it is an arbitral award on agreed terms under section 30(4) of the Arbitration and Conciliation Act, 1996.

The rules bring out the procedure to be followed by the parties concerned including the mediator and the designated authority and the fee structure.

The benefit of the above amendment is that the parties to a commercial dispute need not go through the lengthy process of court litigation before making an attempt to settle the matter through pre-institution mediation through a recognised authority and failing therein. In other words, only those commercial disputes which were the matter of the failed pre-institution mediation, will be taken up for adjudication by the designated Commercial Court. This will save the time and money of most of the litigants as the outer time limit for completion of the mediation process is five months from its initiation.

The second benefit is that the settlement is treated as an arbitral award on agreed terms, and which is treated like a court decree, giving a finality to the settlement.

The final benefit is the extension of the limitation period applicable under the laws of limitation till such period and is useful in case the pre-institution mediation fails.  

Post-Institution Mediation

Under the Code of Civil Procedure, 1908

Sometimes, the court suo moto refers civil disputes to mediation. In such cases, the disputes are usually referred to the court annexed, government run mediation centres like the Main Mediation Centre under the aegis of the Bombay High Court at Mumbai.

Here it will be worth to examine the provisions of Section 89 of Code of Civil Procedure, 1908. Under this section where it appears to the court that there exist elements of a settlement which may be acceptable to the parties, the court shall formulate the terms of settlement and give them to the parties for their observations and after receiving the observation of the parties, the court may reformulate the terms of a possible settlement and refer the same for, among other methods, to mediation. Where a dispute had been referred to mediation, the court shall effect a compromise between the parties and shall follow such procedure as may be prescribed.

The Supreme Court has in the matter of Afcons Infrastructure Limited vs. Cherian Varkey Construction Company Private Limited 2010 (8) SCC 24 clarified that the court, u/s 89 of the  Code of Civil Procedure, 1908 shall refer for mediation to a suitable institution or person and such institution or person shall be deemed to be a Lok Adalat.

In the event of settlement of dispute in post-litigation mediation, the court fees paid by parties are refunded.

Under the Companies Act, 2013

As per section 442 of the Companies Act, 2013, the Central Government shall maintain a panel of experts to be called as the Mediation and Conciliation Panel for mediation between the parties during the pendency of any proceedings before the Central Government or the National Company Law Tribunal or the National Company Law Appellate Tribunal. On the application of any of the parties to the proceedings made at any time during the proceedings before the said authorities for referring the matter pertaining to such proceedings to the Mediation and Conciliation Panel, the relevant authority shall appoint one or more experts from the said panel. The relevant authority may also, suo motu, refer any matter pertaining to such proceeding to such number of experts from the said panel as it deems fit.

The Mediation and Conciliation Panel shall follow the prescribed procedure and dispose of the matter referred to it within a period of three months from the date of such reference and forward its recommendations to the appointing authority. These recommendations are, however, appealable by any party to the proceedings aggrieved by such (or part) of the recommendations.

Author’s Note:

This concludes the first part of the introduction to ADR. The write-up regarding Conciliation and Arbitration will be taken up in Part 2 subsequently.

The author thanks and acknowledges the various sources from which this write-up was drawn and inspired from.

Author’s Background:

The Author is a Mumbai based practicing Chartered Accountant with a degree in Law among various other professional qualifications. He is a certified Arbitrator and Mediator and in the panel as Arbitrator and/or Mediator with the Federation of Integrated Conflict Management, New Delhi; Main Mediation Centre, Mumbai; Mediation and Conciliation Panel maintained by Regional Director, Ministry of Corporate Affairs, Mumbai; and the Centre for Mediation and Conciliation, Mumbai. All views are personal.