The Singapore Mediation Convention offers hope to businesses looking for an alternative to time-consuming litigation in overburdened courts. Amar Sundram reports
A recent article headlined “Trust Deficit” in a leading Indian financial newspaper pointed out that modern economies are complex webs of interdependence that are held up by regulations, contract law and much else, but most importantly, by an intangible glue – trust. The article went on to quote a recent increase in scams carried out at companies and by businessmen in India.
Trust is an important criterion in the overall development of any country’s economy and once it is dented it spoils the economic environment and slows down growth. From a legal point of view, once the trust is broken, especially in a commercial contract, the differences and disputes are required to be resolved in a timely and cost-effective manner.
Recently, Tata Trust published its India Justice Report 2019, which mentions that the average case pendency in subordinate courts is five years. The judiciary remains a low priority in budget allocation with, nationally, India spending only 0.08%, while all states combined (excluding the central government) spending 0.54% of their total expenditure on the judiciary in 2015-16. Each of the 18 large and mid-sized states had high court judge vacancies of above 25%, i.e., one in every four sanctioned high court judge positions has not been filled. At a macro level, in 27 states and Union Territories, there is just one subordinate court judge for more than 50,000 people. It becomes clear, therefore, that court litigation for resolving differences and disputes in a commercial contract is not the most prudent solution.
In this scenario, the signing of the United Nations Convention on International Settlement Agreements Resulting from Mediation on 7 August 2019 in Singapore is a positive first step. This Singapore Mediation Convention has so far been signed by 51 countries including India, the US, China and South Korea, while the UK, the EU and Australia have yet to sign. This Singapore Convention, as it is known, is intended to facilitate the enforcement of settlement agreements that have been entered into with the assistance of mediation. The resolution was adopted by the UN General Assembly on 20 December 2018, and it is worth noting the important opening statements in the preamble to the convention, where parties to the convention:
- Recognized the value for international trade of mediation as a method for settling commercial disputes;
- Noted that mediation is increasingly used in international and domestic commercial practice as an alternative to litigation;
- Considered that the use of mediation results in significant benefits such as reducing instances where a dispute leads to the termination of a commercial relationship, facilitating the administration of international transactions by commercial parties, and producing savings in the administration of justice by states; and
- Were convinced that the establishment of a framework for international settlement agreements resulting from mediation that is acceptable to states with different legal, social and economic systems would contribute to the development of harmonious international economic relations.
This convention applies to an agreement resulting from mediation and concluded in writing by parties to resolve a commercial dispute (a settlement agreement) which, at the time of its conclusion, is international in that:
- At least two parties to the settlement agreement have their places of business in different states; or
- The state in which the parties to the settlement agreement have their places of business is different from either:
- The state in which a substantial part of the obligations under the settlement agreement is performed; or
- The state with which the subject matter of the settlement agreement is most closely connected.
The requirements for reliance on settlement agreements are straightforward and simple:
- The settlement agreement is signed by the parties; and
- Evidence that the settlement agreement resulted from mediation, such as the signature of the mediator on the settlement agreement, a document signed by the mediator indicating that the mediation was carried out, or an attestation by the institution that administered the mediation, or any other evidence acceptable to the competent authority.
The most complex problem witnessed in cross-border international disputes involving two or more countries has been the execution process. The parties may agree to court proceedings in one jurisdiction, but the court’s judgment must be enforced in another jurisdiction where the assets of the parties are located.
An arbitral award is required to be enforced through the court where the assets of the parties are situated, and such execution is subject to the local laws of the land. Both the court proceedings and arbitration proceedings are time consuming and expensive, involving multiple sittings, coordinating with arbitrators from different jurisdictions, parties travelling to the venue of the arbitration, and consensus on an agreed date, which is complex as it involves multiple parties.
While arbitral institutions like the Singapore International Arbitration Centre, the London Court of International Arbitration, the International Chamber of Commerce, etc., have good infrastructure and documented procedures, timely conclusion of the arbitral proceedings in a cost-effective manner is still questionable.
The Singapore Convention provides for the direct enforcement of a cross-border settlement agreement between parties resulting from mediation by applying directly to the courts of the state where the assets are located. The intent of the convention is praiseworthy in the sense that focus has been on mediation rather than on expensive and time-consuming court proceedings or arbitration proceedings, as an instrument of dispute resolution in cross-border disputes.
The steps ahead for India will be to frame a law specifically dealing with this UN convention and create provisions for enforcement of the settlement agreement by the courts in India, and ratify the convention. Assuming that India ratifies the convention, mediation will be an important instrument of commercial dispute resolution between two countries dealing with cross-border disputes. The settlement agreement signed in accordance to this mediation can then be taken to the respective states for direct enforcement.
A huge number of cases are pending before Indian courts that need to be disposed of quickly. The judiciary needs judges and infrastructure to deal with such high volumes of litigation. In a recent direction by the Patna High Court, it criticized the Bihar state government for leaving an already burdened judiciary saddled with more than 200,000 liquor prohibition-related cases under the 2016 Bihar prohibition law, including nearly 40,000 bail petitions pending with the high court alone. It directed the state government to file a reply with details of the infrastructure and mechanism it plans to provide to deal with a growing mountain of prohibition-related cases.
With long pendency of court cases, it is necessary that the judicial system is not further burdened with commercial disputes. The current Chief Justice of India (who was sworn in on 18 November 2019) in an interview with The Economic Times laid great emphasis on mediation as a means of commercial dispute resolution. Justice SA Bobde said: “All [commercial] matters could be made to first go through pre-litigation mediation. So, if there is a commercial problem or dispute between two businesses, they could first undergo pre-litigation mediation. If it cannot be solved, then they can approach the courts.”
He also felt that the parliament should consider enacting legislation to give mediation a status of decree. “Parliament will have to legislate. There is already a provision in the Lok Adalat Act, where a settlement before a Lok Adalat is enforceable, like a decree of the court. This agreement between the two parties arrived at the stage of pre-mediation litigation could have a force of a decree.”
His tenure as Chief Justice of India runs until 23 April 2021, and it will be interesting to see how the Supreme Court deals with this important topic, which has both national and international implications, in making India a hub of economic development and achieving Prime Minister Narendra Modi’s vision of making India a US$5 trillion economy and a global economic powerhouse by 2024-25.
Amar Sundram is the India head – legal, governance and regulatory affairs, at Royal Bank of Scotland, based in Gurugram. The views are personal and do not reflect those of the organization.
Existing mediation process
Part III of India’s Arbitration and Conciliation Act, 1996 (including amendments), provides for conciliation and states that this part shall apply to conciliation of disputes arising out of legal relationship, whether contractual or not, and to all related proceedings. The conciliation proceedings under the act are purely voluntary and optional between the parties.
The party initiating conciliation shall send to the other party a written invitation to conciliate, briefly identifying the subject of the dispute and the conciliation proceedings shall commence when the other party accepts in writing the invitation. Section 67 of the act provides for the role of the conciliator.
Section 73 provides for a settlement agreement and here also the consensus between the parties on the terms of the settlement is overriding. When it appears to the conciliator that there exist elements of a settlement that may be acceptable to the parties, they shall formulate the terms of a possible settlement and submit them to the parties for their observations, and after receiving these the conciliator may reformulate the terms of a possible settlement in the light of such observations.
Regarding the status of the settlement agreement, section 74 provides that the settlement agreement shall have the same status and effect as if it is an arbitral award under the act.
Regarding the qualification, independence and qualities of a conciliator, the act does not provide much guidance except that the focus should be on the independence and impartiality. Unlike the fifth, seventh and eighth schedule to the act, which exhaustibly lay down the qualification, experience, independence and impartiality of an arbitrator vis-à-vis the parties to the dispute, there is a need to draw a similar exercise when it comes to the appointment of a mediator or conciliator to give credibility to the settlement agreement.
Most high courts in India have their separate state-specific mediation rules, and parties are often referred to mediation by the high courts and their subordinate courts. The mediation process is, however, kept confidential and the mediators usually submit a short report saying, “mediation failed” if the parties are unable to settle their disputes through mediation. Once the mediation fails, the court proceedings start once again.
Under the Indian Companies Act, 2013, attempts have been made to bring in an element of mediation/conciliation as a form of dispute resolution; however this remedy is available for parties in a dispute before government administrators (such as regional director, registrar of companies, etc.) or the tribunals formed under the Companies Act 2013, i.e., National Company Law Tribunal or the National Company Law Appellate Tribunal, where parties may request for the dispute to be referred to mediation or conciliation.
The government has started the process for constitution of a panel, and invited individuals with specified experience to apply for their empanelment, and published the Companies (Mediation and Conciliation) Rules, 2016, on 9 September 2016 in such regard. Once constituted, the panel is expected to assist in expeditious disposal of a number of shareholder and creditor disputes. However, it is worth noting that the approach of conciliation or mediation here is not to resolve the inter-se dispute between two parties to a commercial contract.