Arbitration /Litigation/Mediation – Hobson's Choice Or Commonsense?


3 July 2024 11:26 AM GMT

  • Arbitration /Litigation/Mediation – Hobsons Choice Or Commonsense?

    A recent Office Memorandum (OM) dated 03-06-2024 issued by the Department of Expenditure, Procurement Policy Division, Ministry of Finance, Government of India (GOI) has caused quite a stir in legal circles prompting the newly formed Arbitration Bar of India to shoot off a very strong letter to the Ministry of Finance. When I discussed the OM with a friend who is a former bureaucrat...

    A recent Office Memorandum (OM) dated 03-06-2024 issued by the Department of Expenditure, Procurement Policy Division, Ministry of Finance, Government of India (GOI) has caused quite a stir in legal circles prompting the newly formed Arbitration Bar of India to shoot off a very strong letter to the Ministry of Finance. When I discussed the OM with a friend who is a former bureaucrat with experience in the government and private sector, he said that this is a typical knee-jerk reaction of the GOI to the recent spate of arbitral awards that have gone against it and the pending matter on arbitration before the Constitution Bench.

    However, there are many positive features in the OM, the most important being the preference given to mediation. Paragraph 6 of the OM states:

    Adjudication by the courts is a remedy which always exists wherever there is no arbitration clause. However, another alternative to arbitration is mediation, which is a process whereby parties attempt to reach an amicable settlement of their dispute with the assistance of a third person (mediator) who does not have the authority to impose a settlement upon the parties to a dispute. There are successful models of mediation/ conciliation being practiced in certain Government entities, for example in the oil and gas sector. Section 48 of the Mediation Act, 2023 allows the Government or any Government entity or agency to frame schemes or guidelines for resolution of disputes through mediation or conciliation, and in such cases, a mediation or conciliation may be conducted in accordance with such schemes or guidelines.

    One of the biggest challenges in the justice-delivery system in India has been the total reliance on adjudicatory methods like litigation and arbitration. This is attributable to the colonial legacy of a deontological approach to dispute resolution, based on rights and duties, instead of a problem-solving approach. It is akin to the dueling system in medieval Europe where disputants used to fight each other, and the victor is declared the winner. This colonial legacy successfully obliterated, or at least suppressed, the traditional dialogue-based methods that had been prevalent in our hoary culture. Thanks to the colonial legacy, the distinction between justice-delivery and dispute resolution has been blurred leading to the situation we are presently witnessing viz. overloaded court dockets and delayed resolution of disputes – a fact that has been rightly highlighted in the above-referred Office Memorandum. This brings to mind an old Zen saying that, if the only tool we have is a hammer, every problem looks like a nail.

    The efforts now being made by the Government of India (GOI) in recognizing this problem and adopting a paradigm shift in dispute resolution are indeed commendable. However, the policies have to be tailored very carefully to facilitate this paradigm shift so that the objections, upheavals and chaos that usually arise from such revolutionary changes are kept to the minimum and collaborative processes like mediation are. With this in mind, this writer has placed a few suggestions, in addition to those that have already been mentioned in the office memorandum, in a letter dated 24-06-2024 sent to the Ministry of Finance:

    1. That Mediation Awareness programs be organized for all department heads and policy makers in the government so that they are aware of what the process is, what it entails, its advantages and benefits and the importance of adopting a collaborative problem-solving approach to dispute resolution.
    1. The Mediation Act contemplates institutional mediation by providing for the recognition and registration of Mediation Service Providers (MSPs). These MSPs would be professional organisations having panels of highly skilled mediators. The GOI should encourage a private-government collaboration in providing mediation services where these private institutions or MSPs can be empaneled with the GOI's various departments for offering sector-specific mediation services.
    1. There should be an uncompromising emphasis on having professionally trained mediators. There is usually a tendency to appoint untrained persons as mediators merely because they have domain/technical expertise or because they are retired judges. While domain expertise may be necessary, it is more important to have the process expertise. Mediation is a very nuanced and scientific process that requires excellent communication and negotiation skills and a high level of emotional intelligence. Domain expertise or adjudicatory experience would therefore be insufficient to engage in a qualitative process ensuring sustainable outcomes. Process expertise trumps domain expertise in this, as the services of domain experts can always be enlisted either as advisers or co-mediators. This becomes relevant in the context of para 7 (vii) of the subject Memorandum that only provides for a high-level committee comprised of a retired judge and a technical expert. This would be counterproductive to the aims and objectives sought to be achieved through the Office Memorandum.
    1. While the concerns expressed regarding the efficacy of arbitrations are well-placed and justified, arbitration is definitely a more efficacious and expeditious process than litigation. With 5 crore pending cases, litigation hardly offers itself as an efficient process of dispute resolution. Therefore, the GOI should seriously consider hybrid processes of mediation followed by arbitration, in other words Med-Arb processes. The advantages of such processes are many and a few of those have been highlighted in the letter:
      • Incorporating a Med-Arb clause in the contracts would enable the resolution of the contractual disputes first through mediation and, only if that fails, through arbitration.
      • Resorting to mediation in the first instance offers a chance for both parties to work collaboratively to explore solutions without adopting an antagonistic and adversarial approach. It also engenders an interest-based approach arising from the balcony perspective of the dispute and the issues involved, thus reducing the scope for misconceptions and misunderstandings that would have engendered the dispute itself. In other words, mediation narrows the scope of the controversy and gives the parties a better understanding of their respective interests and needs. Thus, the disputants are in a better position to settle rather than to fight.
      • In the Med-Arb model, the parties would first have to go for mediation before an independent mediator or mediators appointed by one of the recognised MSPs empaneled by the GOI. By adopting a problem-solving approach which involves moving beyond positions and looking at interests and needs, tailor-made and out-of-the-box solutions can be arrived at in a very flexible manner without being burdened by procedural and technical limitations. For instance, arbitration is purely contract-driven, and litigation is procedure-driven, leaving very little scope to explore out-of-the-box solutions that can solve the problem in a win-win manner. On the other hand, mediation provides this flexibility as the process itself is informal and flexible with a lesser emphasis on technicalities and greater emphasis on sustainable outcomes.
      • Even where the contracts do not provide for arbitration, the disputes should be mandatorily referred to mediation before taking recourse to any other legal proceedings. The Mediation Act, 2023 provides ample scope for that. Experience has shown that most disputes get settled quickly in mediation if the mediators are competent. If the dispute gets resolved in mediation, the mediator records the settlement which is then enforceable like a decree of the court under section 27 of the Mediation Act, 2023. It is further seen that, at times, a number of issues get settled in mediation and any unsettled issues are then resolved through adjudicatory processes like arbitration or litigation. This substantially narrows the scope of the adversarial proceedings thereby resulting in saving time and cost.
      • The protocol can include the guidelines for the use of ODR (Online Dispute Resolution) integrating technology into the dispute resolution models.
      • The GOI can enlist the help of expert mediators to evolve a Med-Arb protocol to ensure that the process of dispute resolution is effective and leads to sustainable outcomes leaving little scope for further legal proceedings, (which has actually become the bane of adjudicatory processes like litigation and arbitration as rightly pointed out in the Office Memorandum).
      • One of the terms of the protocol may be the constitution of departmental committees consisting of the departmental head, a retired judge and a qualified chartered accountant only to study and approve any settlement agreements that are reached in mediation and not do the mediation as such as contemplated in para 7 (vii) of the OM. The mediation should always be done by trained, independent mediators. This would ensure that the settlements arrived at are unbiased, transparent and honest. This would also protect the officials participating in the mediation process from any future audit objections or scrutiny.
      • Eschewing arbitration completely in favour of litigation, as is apparently being suggested in paras 7 (i) and (ii) of the Office Memorandum, may not be conducive to effective dispute resolution. Litigation is certainly not an alternative to arbitration. However, a Med-Arb protocol would certainly be the answer to those challenges that have been highlighted in the Office Memorandum.
      • The recommendation for institutional arbitration is absolutely right but need not be restricted only to disputes valued below Rs. 10 crores as suggested in para 7 (ii). On the contrary, institutional mediation and arbitration under a Med-Arb protocol would be a better alternative and would obviate the possibility of challenge or taking recourse to litigation. Framing and implementing an efficient Med-Arb protocol through the institutional route would certainly recommend India as a hub of effective alternate dispute resolution on the global map.

    Today, a majority of the cases pending before the courts involve the government. Implementing a Med-Arb protocol, with an emphasis on mandatory mediation, would not only reduce the pendency but also enhance India's reputation as a hub of dispute resolution and score higher on the ease-of-doing business indices, thus enabling FDI and realizing the dream of a 5-trillion economy.

    AJ Jawad is a practicing Lawyer and Mediator at Madras High Court. Views are personal

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