Insights into Editorial: Encouraging mediation to settle disputes

Insights into Editorial: Encouraging mediation to settle disputes

Context:

India to participate in deliberations at the United Nations Commission on International Trade Law (UNCITRAL) in New York. UNCITRAL deliberation deals with an important issue concerning resolution of commercial disputes.

Commercial disputes are resolved not only through courts and arbitration but also through mediation. The deliberations will consider how these settlement agreements in disputes in international commercial transactions will be implemented by courts in different countries.

United Nations Commission on International Trade Law (UNCITRAL):

Trade means faster growth, higher living standards, and new opportunities through commerce. In order to increase these opportunities worldwide, UNCITRAL is formulating modern, fair, and harmonized rules on commercial transactions.

UNCITRAL has been recognized as the core legal body of the United Nations system in the field of international trade law. A legal body with universal membership specializing in commercial law reform worldwide for over 50 years, UNCITRAL’s business is the modernization and harmonization of rules on international business.

An important draft for India and its businesses:

The government put out a draft on cross-border insolvency to further strengthen the Insolvency and Bankruptcy Code (IBC), seeking to help lenders access overseas assets of a stressed company.

The draft aims to enable India to seek cooperation from foreign countries to bring defaulters’ assets there under consideration for insolvency proceedings.

Several concerns make this draft important for India and its businesses. Mandatory pre-litigation mediation has been introduced in commercial disputes. The adoption of the convention will address a policy gap on outcomes from the mediation process involving cross-border disputes.

Mediation:

Mediation is a process of resolution of disputes by the parties to them. It involves discussion of the conflicts, moving out of the loop of allegations and counter-allegations, and assessing where interests lie in resolving the disputes. Options for settlement are explored and a settlement is worked out through joint evaluation.

The process is managed by a neutral person called the mediator, who may evaluate the disputes and weigh in on options for settlement (a variant called conciliation) but has no authority to impose a settlement.

Benefits of Definitive legal Framework:

With a definitive legal framework recognising and enforcing mediated settlement agreements, businesses will be encouraged to consider mediation in managing and resolving disputes that arise in their commercial transactions.

India has lost substantial earnings as a result of international disputes being taken for resolution outside the country. Strengthening the dispute resolution policies will encourage dispute resolution in India, where the commercial relationship once began.

As is evident, international transactions involve the application of different laws, by virtue of the persons from different countries being involved, or their undertaking a business in a third country.

The draft convention that is now under consideration relates to the enforcement of settlement agreements arising from disputes in international commercial contracts. The convention will link laws adopted by countries to recognise domestic mediation and extend them beyond their boundaries.

UNCITRAL has formulated principles on which countries should recognise and enforce mediation agreements arising from cross-border disputes. Once formalised, countries will have a consistent framework for enforcing mediation agreements made in other countries.

The draft convention defines mediation as a “process whereby parties attempt to reach an amicable settlement of their dispute with the assistance of a third person (the mediator). The mediator lacks the authority to impose a solution upon the parties to the dispute.”

Enforcement of settlement agreement:

When the settlement agreement comes up before the court for implementation or enforcement, the court will review it on the basis of certain conditions.

These include the capacity of the parties to enter into the agreement, the question whether the subject matter of the agreement is one that can be settled through mediation in terms of its domestic laws, and so on.

Once the agreement has been reviewed, the court must enforce the agreement on the terms agreed. Courts can decline enforcement only on these conditions. The importance of the draft convention is in the identification of these conditions after careful deliberation.

Mediated settlement agreements typically don’t need court assistance for enforcement since the terms of settlement have been chosen and determined by the parties. However, with this convention comes the certainty that settlement agreements through mediation will be acknowledged as a resolution of the dispute and will be respected and enforced. Further, if the court were to decline enforcement, this will be done on grounds that are known to international parties.

Improving the business environment fuel overall economic growth:

In order to boost economic growth, each state tries to improve business environment by overhauling various labour laws, single window clearance (e.g. E-BIZ portal, Labour law unification), Setup of arbitration and commercial courts, being part of multilateral treaties, strong Intellectual Property protection framework. And these measures boost growth as,

• Investment can be sourced from within the country and through foreign investors.
• Bring about stability in capital market.
• Helps in establishing creditworthiness
• Creates positive environment to start new business, research and development
• Creates opportunity for job growth
• Helps in improving export import regimee. balance of trade and thus balance of parameters.
• Increased productivity as the time and energy lost in bureaucratic formalities is reduced.

Conclusion:

Once draft comes into real-time, this will offer a level playing field to Indian companies with investment and creditors overseas and multinational companies with interest in India. “It will offer greater certainty and predictability to insolvencies involving multiple jurisdictions. This has been long overdue considering India aspires to be among the top economies in the world.

One hundred and seventy-four countries recognise mediation and conciliation as a method of resolving disputes, and as an alternative to going to courts. International business and dispute resolution institutions such as the International Chamber of Commerce, the Singapore International Mediation Centre and the World Intellectual Property Organisation all have established rules and assist businesses in resolving disputes through mediation.

Businesses, in turn, have turned to mediation as the first step in resolving differences that arise in their international disputes. The convention is opportune and will facilitate legal reform to ease dispute resolution.