Pre-litigation mediation: Legal angle

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Litigation is a lawsuit that is still pending or going through the court proceedings. Pre-litigation is a process for resolving the cases before the lawsuit being officially filed and court proceeding begin.  The pre-litigation process also includes mediation, which saves time and money for both the parties. Some courts have mediation department while some courts the judges may refer the parties to speak and try to settle their dispute with mediator.

Alternative Dispute Resolution includes alternative methods for helping people to resolve their legal issues before going through court proceeding. There are several Alternative Dispute Resolutions as Arbitration, Mediation, negotiation and Conciliation. There are independent third person, called a “neutral” who tries to resolve the conflict in ADR. The mediation has higher success rate, speedy and cost effective. The most practical expectation that any corporate entity would expect before entering into any contractual agreement is the legal certainty. This allows the parties to under the various rights, liabilities, terms and conditions stipulated in the contract.

Force majeure can be understood as an unforeseen and irresistible event and is applicable for any commercial contract whether international or domestic contracts, imposes the legal binding obligations on the parties and non-performing party of the contract who will be liable for damages. The commercial contract is under force majeure to refer to an irresistible compulsion or coercion that has rendered, by both parties to a contract physically unable to perform their obligation under that contract.  

COVID-19 assumed as a “force majeure” under commercial contracts because it made the performance of the obligation impossible and they cannot perform the contractual obligation under any terms.

What is mediation?

Mediation is one of the most popular form of alternative dispute resolution. Mediation is the process of dispute resolution between parties, which focuses on effective communication and negotiation skills. The third person, who help the parties to communicate and negotiate effectively, is called the mediator. Mediation is being used in almost every conceivable type of dispute, as focused in resolving the problem quickly and effectively. Every mechanism of ADR have their principle, mediation have its fundamental role, to resolve the dispute between the parties with their mutual consensus. It tries to reach the mutual satisfactory agreement without going to the court. Mediation do not involve any partiality, have the confidentiality between the parties, and most important, the presence of agreement between the parties.

To fully understand the meaning of mediation, it is imperative to distinguish it from conciliation. Though often used as synonymous and interchangeable terms, the definition and interpretation of Mediation and Conciliation in India has highlighted the differences in the two practices. In contrast to a conciliator who adopts a pro-active role, a mediator adopts the role of a facilitator by encouraging parties to define the problems, find solutions for themselves while endorsing and supporting the parties’ efforts in doing so.

Framework of mediation in India

The framework of mediation in India can be divided into two broad categories – statutory mediation and mediation by court order. Following are the statutory provisions that provide for mediation are:

  • Arbitration and Conciliation Act, 1996
  • Commercial Courts Act, 2015 read with Commercial Courts (Pre-Institution Mediation and Settlement) Rules, 2018
  • Companies Act, 2013 read with the Companies (Mediation and Conciliation) Rules, 2016
  • Consumer Protection Act, 2019
  • Hindu Marriage Act, 1955
  • Industrial Disputes Act, 1947
  • Micro, Small and Medium Enterprises (MSME) Development Act, 2006
  • Real Estate (Regulation and Development) Act, 2016
  • Special Marriages Act, 1954

In addition to the above-mentioned statutes, under Section 89(1)(d) of the Civil Procedure Code, 1908, judges can also refer cases to mediation. Furthermore, High Courts have the power to formulate rules for mediation proceedings under the rulemaking power provided under Part-X read with Section 89(2)(d) of the Code.

It’s advantage over litigation

There are several ways to resolve the legal dispute with another party. It’s just the option the parties choose to settle their legal issues. The choice of mediation over litigation is that it minimizes the stress and lesser expensive. Rather than fighting for years and burning the money on dates, it better to move with mediation, with mutual understanding and satisfaction, case can be resolved.

The advantages of mediation over litigation are:

  • Confidential: In case of litigation, everything is public with records and evidences. All filled document can be, accessed easily at any time. In case of mediation, the cases are confidential, there is no transit and records, any evidence introduced during mediation cannot be, revealed or accessed later.
  • Affordable: In traditional lawsuit, it is time consuming along with money. The hiring of lawyers is much expensive and dates on dates for periods, make it even more expensive. In mediation, its a quicker way to resolve the case, the mediators are cheaper than the lawyer. They take shorter period to resolve and finalize the issue.
  • Quicker: In case of lawsuit, it takes months and years to resolve the dispute. Its time consuming and money too. In mediation, it takes a day or weeks or hardly a month, in case of complex case issue. Th process values time and money of the parties to the case.
  • Greater flexibility and control: In case of litigation, the case goes for court proceeding only the judge or the jury have the control over the outcome. The parties have lesser power to justify themselves. The judgement, have to be accepted by the parties. In mediation, parties are, asked to communicate and solve in case of any misunderstanding. Mediation is all about communicating and negotiating effectively. The outcome cannot be final in mediation, parties can even deny from acceptance.
  • Preserves relationship: One of the most overlooked benefit of mediation is it preserves relationship. In several years of ongoing lawsuits can destroy the relationships. Mediation is more like collaborative process rather than adversarial process. In mediation, no one wins or loss. There is mutual satisfactory agreement is made.
  • Less formal: The court proceedings are much burdened with rules and procedures, whereas, in mediation the informality, allows the parties to interact and engage easily. The mediator directly focuses on case and provide with all required attention to the parties.

Doctrine of Force Majeure W.R.T. COVID-19

The world is currently experiencing an influenza pandemic and fighting against to curb the spread of COVID-19. The effect of COVID-19, raised to an extent of lockdown. It affected not only the social economic life but also commercial sectors. The lockdown and the restriction imposed have brought business to stake. In such an unexpected scenario, when major sector are getting clogged, it become necessary to relook all existing contractual agreements, so that certain remedies can be obtained, to avoid the breaches and damages that might be suffered.

Force Majeure event refers to occurrence of an unforeseeable circumstances, which is outside the reasonable control of the party and which prevent the party to perform its obligation under the contract. The force majeure is an expressed term and cannot be relied over implied into a contract.

The elements of force majeure are:

  1. The event must be outside the reasonable control of the affected party
  2. The party’s ability to perform their obligation under the contract have been hindered.
  3. The affected party has taken all the reasonable measures to avoid such event and consequences.

The Ministry of Finance and Corporate Affairs addressed this doubt and clarified that the disturbance in the supply chain due to COVID-19, now will be considered as a natural calamity and the Force Majeure clause can be invoked. Force majeure event is an excuse available for the provisions under commercial contracts, for non-performance of the obligation. In case of absence of such provision as force majeure, which raise the issue of impossibility and illegality in the performance of contract is, then ruled by the doctrine of frustration under section 56 of the Indian Contract Act, 1872. Under the plea of force majeure or frustration of contract, the affected party get exempted from performance of its obligation present under the expressed contract, without being liable for any kind of breach or damages.

Commercial contract defines force majeure event as an event, which is unpredictable and beyond reasonable control of parties to the contract. As per contract conditions, favorable force majeure, which clearly specify about any event which affects the delays in supply and shortage of products. In some contract, it expressly excludes events that have such an effect.

There are certain terms under contract that broadens the definition of force majeure. The term like ‘governmental action’ or ‘act of god’ which capture COVID-19. As per contract terms that look out for are ‘epidemic’, ‘pandemic’ or other health related events, which also provide certain relief from obligation under contract.

Critical analysis

In a civilized society, there are two set of law governs-

  1. Substantial laws- it determines the rights and obligations of citizen, and
  2. Procedural laws- it provides for the framework for enforcement.

There are sufficient legislations framed for safeguarding the rights of the individual under any subject. The problem lies with the delay in judgement, it takes months and years to provide judgement over cases. Court proceedings consume time and money. The judgement provided have a binding affect over the parties, which cannot be overruled. It also destroys the relationship due to ongoing lawsuits. There are other reasons too, because of which commercial and other issues were not tried to be resolved through alternation dispute resolution process as negotiation, mediation, conciliation and arbitration.

Alternative Dispute Resolution mechanism, was framed with the purpose of reducing the burden of the court. The mediation is a model of alternative dispute resolution. Mediation is the dispute resolution process, which provide speedy judgement, affordable, flexible, less formal and most important, it preserves relationships. Mediation is chosen also for resolution of dispute under commercial sector. There has been a growing interest in the field of employer-employee relations in recent year, driven largely by Advisory Conciliation and Arbitrary Services sponsorship, in the process of alternative dispute resolution, and specifically the use of mediation, in seeking to resolve disputes in the workplace.

The Courts in India have provided a narrow interpretation of force majeure in respect of commercial understanding between the parties under the contractual obligation. It depends on the condition of the contract, if contract includes the pandemic, epidemic, natural calamities, act of god, governmental action as lockdown or any restriction imposed, then that all will be within the meaning of force majeure. Basically, this COVID-19, falls under the ambit of force majeure.

In Md. Serajuddin v. State of Orissa, the court held that the words “any other happening” must be given Ejusdem generis construction so as to cover only such fold which emphasizes upon the happening and eventualities which are of the nature and type.

The rule of ejusdem generis is that where the particular words pertaining to a class, category or gene are followed by general words. In short, the general word is followed by the specific word. In case of COVID-19, it falls within the ambit of force majeure provision, which differs from case to case.

In Satyabrata Ghose v. Mugneeram Bangur and co. and Ors, the Supreme Court held that the principle of frustration of contract will not be applicable on the Indian Contract Act. The performance of contract has not become impossible. There was no time limitation was imposed in the contract for the completion of the roads and drains. The delay caused in the performance due to the requisition would not be so great and of such a character as to totally upset the basis of the bargain and commercial object that the parties had in view. The order of requisition did not affect the fundamental basis upon which the agreement rested.

In Dhanrajamal Gobindram v. Shamji Kalidas and Co., the Supreme Court held that there is difference between Force Majeure and Act of God, the economic problem as insufficient fund will not be included under force majeure.

Force majeure event are the unpredictable and unforeseen event, outside the reasonable control of the party. This is an excuse to avoid the contractual obligation under the agreement of the parties. In regard of COVID-19, it is one of the unpredictable circumstances, so the application of force majeure must be there because, there is no possible condition to perform the contractual obligation by the parties.

Conclusion

Mediation is the process to resolve the conflicts between two parties through mutual satisfactory agreement. The mediator focuses mainly on effective communication and negotiation skills. Mediation is chosen over litigation as it has more advantages as compared to litigation. Mediation as compared to the traditional legal proceedings, it is affordable, speedy trial, confidentiality, flexible, less formal and preserves the relationship between the parties. Due to the more advantages of mediation, parties try to resolve the dispute outside the court rather than going through the complex legal proceedings inside the court.

Therefore, as Joseph Grynbaum, a distinguished mediator, said “An ounce of mediation is equal to a pound of arbitration and a ton of litigation”, it cannot be denied that mediation as a means of dispute resolution offers several appealing advantages over adversarial litigation including cost and time-efficiency. Therefore, despite the legislative shortcomings, mediation has become increasingly relevant in these unprecedented times of commercial turmoil as corporates navigate through contractual disputes while attempting to avoid a financial crisis.

Authors: Priyanshi Rastogi from Symbiosis Law School, NOIDA and Aishwarya Singh from SRM School of Law, SRM Institute of Science and Technology.

Editor: Priyanshu Grover from Symbiosis Law School, NOIDA, Uttar Pradesh.

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