Looking East – The Enforceability of Mediation Clauses in Singapore and Lessons for India

A Quick D’Horizon on Mediation Clauses

Since time immemorial, conflicts have existed between individuals, groups and communities. A conflict is nothing but a serious disagreement or argument or a clash of opposing views, interests and opinions. In ancient times, holding an organised discourse between the parties, monitored by the chosen elders, was oftentimes the easiest way of settling disputes. From there travels the chain of events to the modern times post-industrialisation where the ADR mechanisms have taken the world by storm due to their Gandhian approach and emerged as an attractive tool for dispute resolution in place of traditional litigation. As a dispute resolution mechanism, practising mediation is an art. In his often-quoted work My Experiments with Truth, Mahatma Gandhi has remarked that the true function of a lawyer is to unite parties riven asunder.[1] Taking from that, mediation is a mechanism by which a neutral third party, known as the mediator, plays the role of a facilitator and assists the parties in arriving at a negotiated settlement for the dispute.[2] It is the scope of party autonomy that makes mediation appealing apart from its flexible procedure.

Business contracts in international commercial trade nowadays come with multi-tiered dispute resolution clauses. Sometimes, the dispute resolution clause is a standalone mediation clause, whereas at other times it takes a multi-tiered approach with the resolution clause making mediation the first method of dispute resolution, but permitting parallel arbitration proceedings, or followed by arbitration proceedings, if required. For reference, the International Chamber of Commerce (ICC) gives four types of model mediation clauses to choose from which might be incorporated into the agreement between the parties who choose to submit to the jurisdiction of Mediation Rules, 2014 made by the ICC.[3] These model clauses are adjustable to the needs of the parties and the parties must take necessary care to avoid ambiguity in drafting the clause.

Drafting Mediation CLauses & The Resulting Enforceability in Singaporean Context

Since 1995, ADR has taken Singapore by storm and so has mediation.[4] This has been reflected in the addition of mediation clauses to business agreements.[5] However, the enforcement of such clauses is riven with uncertainty due to certain problems that will be discussed in the paper ahead.

Problems Faced in the Enforcement of Mediation Clauses

(i) Uncertainty

If a contract is uncertain, the courts will not give effect to it and its status as a valid contract might be put in jeopardy.[6] Hence, a contract must be substantially valid and enforceable in law.[7] Since the same goes for the construction of clauses, the mediation clause, too, has to be certain and unambiguous in its nature, scope and purpose.

One way of overcoming the problem of uncertainty is to incorporate clauses which are certain about the time period, the nature, the structure and the intention of the parties with regard to mediation.[8] Accordingly, a mediation clause is enforceable as long as the conduct or process by which the parties can participate in the process is certain.[9] Further, a mediation clause cannot be rendered unenforceable on grounds of intrinsic uncertainty since the emphasis of public policy is to avoid litigation and go for mediation as the first step towards dispute resolution.[10] Besides, clear drafting of mediation clauses is essential for ensuring their enforceability.[11] However, no care and caution are often taken while drafting mediation clauses and they are copied and pasted as it is from a different agreement.[12]

(ii) Ousts the Jurisdiction of Court

Another problem faced while enforcing mediation clauses is that it seeks to oust the jurisdiction of the courts, and in some cases, the court may refuse to give up its jurisdiction to a private dispute resolution body/institution. However, this argument has become redundant with time since the courts have largely begun focusing on the enforcement of ADR clauses before allowing litigation to be resorted to, provided that the contract between the parties is unambiguous and certain.

Mediation does not hinder the right of the parties to achieve justice, but only changes the procedure by which the parties achieve it.[13] Access to speedy justice is an indispensable fundamental right.[14] Article 8 of the Universal Declaration of Human Rights calls for the right to effective remedy from courts when the rights of an individual, granted by the constitution or the law, are violated.[15]

(iii) The ‘Futile to Enforce’ Argument

The futility argument states that it is futile to send an unwilling party to mediation.[16] Consequently, the court will not direct the parties to do something that will be ineffectual or futile.[17] However, just because a party is unwilling, it does not make the clause ineffective.[18] A mediation clause reflects the intention of the parties and must be enforced irrespective of the consensual features of mediation.[19]

Lessons for India

In 2018, the United Nations Convention on International Settlement Agreements Resulting from Mediation (also known as the Singapore Convention on Mediation) was adopted.[20] The Convention introduces a uniform standard for the recognition and enforcement of mediation agreements. India is a signatory to the Convention.

The intention of the parties to the contract is the touchstone for drafting clauses of an agreement as it is an inquiry into the true nature and scope of the clause.[21] Hence, care must be taken while drafting mediation clauses, as otherwise, it may give rise to unwarranted uncertainty and ambiguity. In Singapore, the courts are generally hesitant to enforce a clause which is insufficient in clarity, lacks certainty and is merely an agreement to enter into a future agreement for dispute settlement by mediation.

Since mediation is picking up pace in India, it is only a matter of time before the courts in India are faced with the challenge of enforcing mediation clauses. One such instance of interpreting a mediation clause was addressed by the Delhi High Court in the case of Havels India Ltd. v. Electrium Sales Ltd.[22] where the agreement had two clauses, one directing the parties to go for mediation, and another for arbitration if mediation between the parties failed to settle the dispute within ten days. Here, the Delhi High Court upheld both the clauses and categorically observed that the mediation clause was a precondition to arbitration and had to be enforced, and the parties had submitted themselves to the dispute resolution mechanism by ratifying the agreement.

Therefore, taking note of the above observations, it is a suggestion to the drafters to invest time and energy in drafting clear, unambiguous and committed mediation clauses.

[1] B. S. Krishnamurthy v. B. S. Nagaraj, (2011) 15 SCC 464.

[2] Afcons Infrastructure v. Cherian Varkey Constructions, (2010) 8 SCC 24.

[3] Mediation Clauses, ICC, https://iccwbo.org/dispute-resolution-services/mediation/mediation-clauses/.

[4] Joel Lee, THE ENFORCEABILITY OF MEDIATION CLAUSES IN SINGAPORE, Singapore Journal of Legal Studies 229, 229 (1999).

[5] Id.

[6] Id. at 231.

[7] Maryam Salehijam, Mediation Clauses: Enforceability and Impact, 31 SAcLJ 598, 599 (2019).

[8] Id. at 602.

[9] Lee, supra note 4, 234.

[10] Cable & Wireless plc v. IBM United Kingdom Ltd., [2002] 2 All ER (Comm) 1041.

[11] Law Chau Loon v. Alphire Group Pte Ltd., [2019] SGHC 275.

[12] Salehijam, supra note 7, at 603.

[13] Id. at 605.

[14] See, Hussainara Khatoon v. State of Bihar, AIR 1979 SC 1369, where it was held that Article 21 of the Constitution of India, 1950 recognises the right to a speedy trial.

[15] G.A. Res. 217 (lll) A, Universal Declaration of Human Rights (Dec. 10, 1948).

[16] Salehijam, supra note 7, at 607.

[17] Lee, supra note 4, 239.

[18] See, International Research Corp plc v. Lufthansa Systems Asia Pacific Pte Ltd., [2014] 1 SLR 130.

[19] Didem Kayali, Enforceability of Multi-Tiered Dispute Resolution Clauses, 27 J. Int’l Arb. 551, 569 (2010).

[20] G. A. Res. 73/198, United Nations Convention on International Settlement Agreements Resulting from Mediation (Dec. 20, 2018).

G.A. Res. 217 (lll) A, Universal Declaration of Human Rights (Dec. 10, 1948).

[21] Silverlink Resorts Ltd. v. M/S First Capital Insurance Ltd., [2020] SGHC 251.

[22] Havels India Ltd. v. Electrium Sales Ltd., 2013 SCC OnLine Del 1474.