Mandatory Mediation for Resolution of Commercial Disputes
Recent judgments of the superior Courts of Pakistan have consistently emphasised the use of alternative dispute resolution (ADR) mechanisms in resolving disputes, especially commercial disputes (e.g., 2024 SCMR 640, 2023 SCMR 1856, 2023 SCMR 1103, 2024 CLD 1 and 2024 CLD 990). In a recent case (i.e., CA 256/2024), the Supreme Court of Pakistan has held: “The courts should not only encourage mediating more and litigating less but also exhibit a pro-mediation bias which connotes a pre-disposition within the legal system for resolution of disputes through mediation rather than through litigation or other forms of dispute resolution”. These judgments reflect the ‘pro-mediation bias’ of the superior Courts for dispute resolution. Equally, these judgments highlight the importance and usefulness of ADR mechanisms in resolving commercial disputes.
In 2017, Pakistan enacted a special legislation, the ADR Act which provides a procedural framework for the resolution of disputes through ADR, both before and after initiating legal proceedings. As a basic condition, the Act of 2017 requires the consent of parties to refer a dispute to ADR. A statutory choice is thus provided to the parties to use an ADR mechanism for the resolution of their disputes even if they did not have a prior agreement for it. A Court may not direct ADR and it will not be binding on a party, if the party does not consent to it.
Should there be mandatory mediation or ADR?
A question arises whether the pro-mediation bias may be extended to make ADR a pre-condition for bringing all or select types of commercial disputes to a Court. In practical terms, this would mean that the law requires the parties to a commercial dispute to first use mediation or any other ADR mechanism before approaching the Courts. If the parties do not fulfil this pre-condition, the Courts would refer the dispute to ADR on a mandatory basis except where pure questions of law are involved. The statutory pre-condition of mediation or ADR would not be dependent upon the consent or prior agreement of the parties for ADR.
The judicial system of Pakistan operates under immense pressure due to an overwhelming caseload. The High Courts and subordinate Courts grapple with an ever-growing docket of cases, often taking years to reach final decision. In commercial disputes, where swift dispute resolution is critical to maintaining business viability and profitability, lengthy proceedings are just counterprodutive. Prolonged litigation drains corporate resources, discourages entrepreneurial activity and erodes investor confidence. Delays in resolving commercial disputes can have cascading effects, including stalled projects, loss of business and employment opportunities, and increased financial costs and liabilities. These outcomes not only harm the business but the economy and people as a whole.
Moreover, commercial disputes often involve complex financial, technical and operational issues that require specialised knowledge. Consider the business activities of oil and gas industry, power sector, technology, telecommunication and trade. Capacity to handle intricate commercial matters in these sectors is limited. In particular, capacity constraints at the trial level can lead to decisions that may not reflect the commercial realities and interests of the parties, resulting into multiplicity of litigation including appeals, reviews and revisions. Additionally, procedural complexities, waiting periods and frequent adjournments fail to meet the time-sensitive needs of businesses.
The legal pre-condition of mediation or another ADR mechanism to resolve commercial disputes can create a system tailored to the nuances of business and trade, enhancing both the expediency and quality of dispute resolution. It would provide businesses with the opportunity of dispute resolution within a short time, fostering a business-friendly environment and stimulating growth and investment. This pre-condition is likely to resolve commercial disputes in an expedited manner, freeing up judicial resources for other pressing matters. Additionally, it would reduce caseloads leading to enhanced efficiency in addressing criminal and civil cases, benefiting society at large.
Recommended by LinkedIn
Comparative Developments
Globally, the trend towards using ADR tools, including arbitration and mediation, is gaining momentum. Several countries have embraced mandatory and incentivized ADR mechanisms to reduce court congestion and improve the business climate. In the United Kingdom, the Civil Procedure Rules (CPR) emphasize the integration and promotion of ADR, including mediation, within the civil justice system. Recent amendments in the CPR enable courts to order parties to participate in ADR or stay proceedings pending ADR when it is appropriate and proportionate. UK courts can now order participation in ADR processes like mediation. The focus is on settlement that is fair, quick and cost-effective. The courts may even impose cost sanctions, if a party unreasonably refuses to engage in ADR or fails to comply with ADR-related court orders. In the leading case of Churchill vs. Merthyr Tydfil Borough Council (2023), the UK Court of Appeal ruled that courts have the authority to stay proceedings and mandate ADR. The Court of Appeal clarified that mandatory ADR, if implemented proportionately and without impairing the "essence" of a party’s right to a judicial hearing, does not violate Article 6 of the European Convention on Human Rights. The Court of Appeal refrained from ordering a stay for ADR and encouraged the parties to explore mediation voluntarily.
In Australia, several courts have statutory power to refer cases to mediation and other forms of ADR. In some instances with the consent of the parties and in others without their consent. Some laws require mediation to be undertaken or offered before a claim is filed. For example, the Civil Procedure Act, 2010 (Victoria) and the Civil Dispute Resolution Act 2011 (Commowealth) incorporate mandatory mediation provisions. These laws allow courts to direct parties to mediation during pre-trial proceedings. Similarly, the Uniform Civil Procedure Rules (New South Wales) grant courts discretion to order mediation for cases before them. Such systems are designed to promote efficiency and preserve judicial resources while fostering a culture of dispute resolution outside the adversarial courtroom setting.
India enacted its Commercial Courts Act, 2015 which mandates the parties to a commercial dispute to attempt mediation unless the plaintiff seeks urgent interim relief. This pre-condition applies to disputes of contracts, construction projects, insurance and intellectual property. Mediations are conducted by established ADR centres, using accredited practitioners. The process must conclude within three months, with an option of two-month extension, if the parties mutually agree. If mediation results in a settlement, it becomes binding and enforceable as a court decree. In case of failure, the plaintiff can proceed with litigation.
Thresholds for Mandatory Arbitration
To ensure the efficient implementation of mandatory mediation, clear thresholds and categories of commercial disputes should be specified to meet the proposed statutory pre-condition of mediation or another ADR. Consider, for instance, the following qualifying criteria:
Conclusion
Mandatory mediation or ADR neither means exclusion of Court remedies nor amounts to pre-defined outcomes. Incorporating a “mediation first” approach into Pakistan’s legal framework could provide the most-needed efficiency in resolving commercial disputes. By mandating mediation as an initial step, parties will have the opportunity to resolve commercial disputes amicably while reserving arbitration for technical issues, and even litigation where ADR fails. This layered approach can ensure optimal use of resources while promoting a culture of compromise and cooperation. Importantly, the pre-condition of ADR in commercial disputes will reduce the burden on Courts, ensuring timely decisions for businesses and enabling specialized resolution. Mandatory mediation is likely to foster a business-friendly environment, boost investor confidence and benefit the collective economic interests of the people.
Attorney | Author | Corporate Consultant
1wBrilliant analysis Muneeb. I may add that any mandatory or binding stipulation under statute to adopt and follow ADR is part of solution. The impact of such initiative will remain limited unless the stakeholders (disputing parties, legal experts, judicature) are inclined and willing to fully endorse resolution of diputes through mediation and arbitration. Awareness is key. If ADR is considered as a parallel recourse to redressal of grievances alongside the general court system, then owing to past standard practices, conventional approaches and convenience of lawyers, it will face stiff challenge if not resistance to its acceptance as an alternate efficacious remedy. Training lawyers and judges in Mediation and Arbitration processes alongwith mandatory statutory mandate may in the long run yield the desired benefits. Untill now, ADR has failed to gather traction and it is understandable. Law colleges and bar associations must devise learning courses in ADR for law students and lawyers. Superior judiciary must step out of declaring precedents only and join hands with lawyers and subordinate judiciary to offer a workable strategy towards making mediation and Arbitration as a go-to legal recourse.