Cross-posted on Linkedin
The first time I participated in a commercial mediation was over 15 years ago and it remains the most fruitful activity I’ve been involved in over my legal career.
For the uninitiated, mediation is what it sounds like i.e. ‘samjhauta.’ Of course, in the adult world terminology is important and therefore mediation has been lumped into the larger field of ‘Alternate Dispute Resolution’ or ADR which is simply a way of resolving a dispute outside of court.
In India, the thrust for ADR (including mediation) truly began in the nineties with the Arbitration and Conciliation Act, 1996 and later with an amendment to the Civil Procedure Code. However, until relatively recently, mediation was the red-headed stepchild of the ADR family, playing second fiddle to arbitration.
In 2018 an amendment to the Commercial Courts Act, 2015 made it mandatory for a plaintiff desirous of instituting a suit under the Act (which covers a wide range of commercial disputes), to first attempt pre-institution mediation and settlement. The mandate of this new section and the associated rules is only to ‘attempt’ a pre-institution mediation. There is no obligation to actually undergo the mediation process or arrive at a settlement. However, it clearly shows the intention of lawmakers to push ahead with ADR in a big way.
This idea is further enforced by the Mediation Bill, 2021 that was introduced in the Rajya Sabha in December 2021 and seeks to make it mandatory for civil litigants to attempt pre-institution mediation prior to bringing suits (with exceptions). It isn’t just lawmakers who are pushing for mediation but judges as well. In recent remarks at a lecture in Pune, Supreme Court Justice D Y Chandrachud noted1 that courts in India are ‘extremely burdened’ with cases and spoke of the role that mediation can play to alleviate the pressure.
My own experience of 15 years ago was for a dispute that arose between two well-known foreign consumer-goods MNCs, both with extensive Indian operations. Both MNCs had come out with their own versions of a popular product and the dispute centred around infringement of patent rights. At the time, the first reaction of both legal teams was to seek an injunction from the courts against the other side to prevent them from making use of the intellectual property. However, everyone’s hands were tied by the existence of a mandatory mediation clause in an international master agreement signed between the two companies.
The mediation took place in the US and despite everything else was an interesting process:
- Each day of the process started at 9 am sharp and the day did not end before midnight.
- The mediator, initially held an all-party meeting and explained before the meeting started that (i) both the parties had to confirm that the representatives present had the mandate to enter into and sign a settlement, if reached, and that (ii) neither party would leave the venue, regardless of timing, till the conclusion of the mediation.
- After obtaining the confirmation, the mediator allowed each party to state their case. The mediator did not interrupt at this point nor did he allow the opposing party to do so. The mediator also took copious notes on the points made by both the parties.
- Next, the mediator repeated his understanding of the points made by both the parties and sought confirmation that his summary was correct.
- Later, each party was asked to go to a separate allotted room and allowed time to think through what had happened in the all-party meeting. The reason for allowing such time was that it was the first time, each party had a detailed version of the other side’s point-of-view along with the evidence for that view.
- The mediator then met each party one-by-one in their respective meeting rooms to hear their points-of-view again. During this session, he would constantly remind the party of the other party’s version of events or counter certain specific point. After the session the mediator left the meeting room for the party to again reflect on the issues.
- The iterative process of meeting each party in their rooms continued. In each successive meeting, the mediator would build on the discussion of the previous meeting and also offer some new scenarios. This iterative process helped each party develop a collaborative proposal by engaging with the other party through the mediator who was better equipped to handle high emotions and stay objective.
- The proposal was then fine-tuned through these iterative meetings.
- Lastly, the mediator convened another all-party meeting to read out the proposal reached with the concurrence of the parties and to seek confirmation of both the parties that they accepted the proposal.
The process as presented above sounds clean but it was anything but. Our party arrived at the mediation with many pre-conceived ideas and biases. There was righteous anger that what was ‘our intellectual property’ was being infringed upon by the other side and yet we were being forced to sit with them in a diplomatic manner. We had also decided quite petulantly at the outset that we would simply sit through this enforced mediation as a formality and upon our return to India, we would seek an injunction as originally planned.
The reflection meetings which I mentioned in points 5 to 8 of the process, were also not comfortable. The topics of discussion within our team were not initially the validity of the points put across by the other side but rather continued to focus on the moral hazard of compromising in a situation where we felt we were in the right and the other side was in the wrong. There was a sense that ‘if we give them an inch they will take a mile,’ and that a compromise could be seen as a precedent by other competitors in India that we were weak and there for the taking. There was also the fear that if the other party did not abide by the resolution plan then we would be left high-and-dry. Of course, elements of personal concern also crept in namely that taking a momentous decision such as agreeing to a resolution with the opposing party would be taken negatively by colleagues back home with the unspoken fear that our careers could be impacted by the wrong decision.
Over successive iterative meetings, the proportion of time spent on fears decreased. Not because the fears lessened but because the process itself appealed to the hard-working professional at the core of each participant. The focus shifted from fear to work. Needless to say, towards the end of the meetings a resolution plan took place that had been compiled collaboratively with the other party. And yet, that final plunge to confirm the resolution plan was a massive mental and emotional roadblock.
There is no grand epilogue to this anecdote, simply that the issue in question just never cropped up again. Both companies went on with their businesses without any further hiccup and without litigation. The only costs incurred by the companies was a few tiring days in the US.
Different situations have different solutions but commercial mediation has immense potential for corporates especially in contractual disputes.
Based on my experience, I have the following observations for what is necessary for a successful mediation:
- Business-first should be the motto. As mafiosos in movies are fond of saying, “it’s not personal, it’s just business.” Culture in an organization flows downstream. Therefore, if the top management is objective and sets ego aside, many of the fears that I noted earlier such as those of career concerns or of appearing weak in the market could be considerably diminished. This maxim also implies seeing what has happened in the past as a sunk cost wherever applicable and to not throw good money after bad.
- Parties need to be prepared to act reasonably. Mediation is of no use unless both parties are willing to come together and negotiate in good faith. If one party takes the initiative to act reasonably, the other party will almost certainly respond in kind.
- The mediator’s personality and qualifications are key. Mediation is ultimately a business process. As I noted in point 6 of the mediation process, the mediator isn’t just a mute umpire but rather gets involved in asking pointed questions about each party’s assumptions and facts. Thus, the mediator necessarily needs to be someone who has a tremendous appreciation for business. Moreover, the mediator must be someone who is respected by both parties so that he can manage both sides and therefore the mediator’s integrity is crucial to the process.
- Trust needs to be reposed in the representatives. If there is too much of a top-down command structure, even senior managers may be leery about taking big decisions. Once the representatives are chosen by a company, there should be an understanding that second-guessing the representatives would be counter-productive.
- A mediation should settle the issue. A mediation settlement that unravels as soon as the parties are back home would be a pointless exercise. Therefore, any challenges to the mediation settlement must be strongly resisted. Strict timelines and strict grounds for challenges are a must.
We spoke earlier about the American experience revealing more about mediation’s potential. Despite various TV show and movies depicting American lawyers as hard-nosed combatants the reality is that in 2012 only about 2% of civil cases actually went to trial (as per an article2 published by Duke University). Most cases, both civil and criminal are actually settled out-of-court. There has in fact been a rapid descent in cases making it to trial over the last century. Yale Law School Professor John Langbein is quoted in the article as saying that litigants “no longer go to trial because they no longer need to”. Pre-trial discovery processes and court management procedures are so expansive that within the pre-trial phase itself both parties have considerable certainty about the scope of their case versus their opponent’s. It no longer pays to take a punt in court.
The American experience says something startling about dispute resolution in general, it is essentially a problem of information asymmetry. When parties wish to litigate in front of a judge, they are doing so largely on the basis of their own case and without knowing what the other side has planned. As each party comes to know more about the other’s case, mediation becomes the logical solution. Therefore, there is nothing ‘alternate’ about mediation. While, businesses can wait for legislation to help bridge the gap of information asymmetry, it would be more beneficial to simply bite the bullet, call their friendly neighbourhood mediator and just get on with it!
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