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VIEW: Online mediation for commercial disputes has huge potential for practitioners

VIEW: Online mediation for commercial disputes has huge potential for practitioners

VIEW: Online mediation for commercial disputes has huge potential for practitioners
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By Aman Hingorani  Aug 5, 2020 6:40:02 AM IST (Updated)

Mediation, a process through which a third neutral party (the mediator) facilitates a negotiated settlement by the disputing parties themselves, has been touted as a game-changer in India. And this was even before Covid-19 effectively led to the closure of Courts which continue to offer very limited virtual alternatives. Over the years, mediation centres have mushroomed in different parts of the country, often annexed to Courts and other institutions.

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However, it would now be daunting for mediators and the parties to mediate while sitting socially distanced in a room and wearing masks and face shields, and perhaps separated with glass partitions.
And that is assuming that the frayed nerves of the mediator and/or the parties, fearful of catching the virus, have been tempered by efficient screening and testing of all present to ensure that they do not have the virus. Given the circumstances, it is only natural that the progression would be towards online or virtual mediation, invariably conducted by video or tele-conference.
Online mediation has obvious advantages, other than protecting oneself from the virus. The participants have the option of scheduling a conference at odd hours if convenient to all. It is relatively easier to ensure the attendance of persons because the need for commuting and travel is obviated. The participants can attend the conference in comfort from just anywhere.
Parties in a given mediation, who might be reluctant to face each other in person due to extreme hostility or trauma, feel safer in a virtual setting, more so, when there exists the facility for switching off the video. The virtual medium can thus act as a buffer to ensure that the mediation environment does not get vitiated by mutually antagonistic reactions. Technology-driven mediation can deliver results with greater agility and reduced costs.
That said, online mediation has its own sets of challenges. The participants should understand how to use the technology and be at ease using it. The video platform must be functional and confidential. It must have the option of having private meeting rooms in order to enable the mediator to have a private session with a party. The platform should be able to provide good video and audio quality, regardless of there being multiple participants and lengthy sessions.
The platform must be secure in terms of protection of data. Then, there should be a tech expert at hand to handle unexpected glitches or technical issues, and who could also provide a pre-mediation briefing to the participants on how to use the platform, how to mute and unmute oneself or to switch on or off the video. A software user-friendly guide in jargon-free language could be helpful too. After all, the parties should be confident not only about the mediation process but the technology being used.
The participants, on their part, must have devices that support such a platform, complete with video and audio facilities and a good, secure internet connection; should ensure a suitable backdrop, appropriate surroundings and good lighting, particularly those joining the mediation from home; and should commit to not interrupt the session by, for instance, taking external phone calls, and to maintain confidentiality by not sharing the meeting ID, recording the sessions or taking photos or images.
The online mediation process is structured in similar terms as the one in the physical setting. However, the mediator would need to possess not only special communication, negotiation, facilitative and social skills to facilitate the settlement, but also sound technological skills. The mediator should, at various stages of the mediation, mute the parties to eliminate background noise and unmute only the party who is to speak.
The mediator should forewarn the parties that should they wish to have a confidential conversation with their respective counsel or representatives, they should do so through an independent medium – whether phone, email, whatsapp, text - since the chat log of the mediation platform would be visible at least to the host. The meditator should be careful of entering a virtual private room unannounced.
Once in the private room with a party, the mediator should view the list of everyone who is in the room in order to confirm that only that party and its counsel or representatives are in the room. While in a private session, the mediator should keep updating the other parties as to the time it may take, as otherwise they may become impatient and lose interest in the process. It is also advisable to agree in advance on breaks for tea, lunch and/or dinner, as the case may be.
Online mediation might be stressful for participants who are not able to focus on a screen for several hours at a stretch or remain unfamiliar with the technology. Eye contact, so crucial for mediation, both when speaking and when listening, is now through the camera. It can be quite unnerving for the participants to speak and listen to a camera.
Online mediation may also not really work in certain situations where personal interaction by the mediator is required, say, to convert negative emotions into positive ones by using restorative justice practices or where non-verbal and body language cues from parties are crucial for the mediator to guide his or her approach.
That said, online mediation can, and does, complement physical mediation, and there is no reason for not promoting a hybrid model of both physical and online mediation depending on the nature of a case or category of cases. Generally speaking, disputes relating to trade and commerce, IPR, banking and other matters of a similar nature are more amenable to online mediation.
The Ordinance of 3rd May 2018 amending the Commercial Courts Act of 2015 is a testimony to the importance given in India to mediation as the primary mean to resolve commercial disputes – the amendment mandates that a suit, which does not contemplate urgent interim relief, shall not be instituted unless the plaintiff exhausts the remedy of pre-institutional mediation. The emergence of artificial intelligence, blockchains and smart contracts has led the commercial world to digitally intersect with the law and has consequently led to the creation of new kinds of disputes. Most of these disputes are better resolved through mediation than by litigation or arbitration. Let us consider this in a bit more detail.
Most businesses around the world have long been using artificial intelligence to resolve simple e-commerce disputes, particularly where the monetary amounts involved are small and the liability to make monetary payment remains uncontested. In the event of a consumer complaining, for instance, of defective goods, the company’s website could use algorithms, instead of human intervention, to generate a cheap and fast online decision.
Blockchain or distributed ledger technology (DLT) is a digital ledger database shared by a community of participating users. Should an user seek to execute a transaction or inscribe information, a request would be coded into the system as a digital block, which would be chained by all the users to their existing digital blocks.
The result would be a decentralized chain of digital blocks that represents identical ledger database for all users. This ensures that each transaction is tracked and recorded, even though the user may be anonymous. The digital blocks make it possible for each user to verify the content, date and chronology of the data coded. Further, whenever an input is fed, the blockchain generates an output which is in the form of unique code. Such hash function prevents alteration of the data and protects it from tampering.
Smart contracts are commonly defined as a set of promises in a digital form that enable the parties to engage in self-executing transactions along the terms that have been already coded. A textbook example of an early smart contract was that of a drinks vending machine, where a self-performing action is put in motion as soon as money is slotted into the machine to purchase a drink. The transaction is irreversible and cannot be stopped midway – the money is retained in the machine and the purchased drink is released. The terms of this smart contract are embedded in the software and hardware of the machine itself.
Smart contracts now commonly use the block chain technology. To illustrate, a smart contract relating to a flood insurance policy could require the insurance company to automatically pay out the claim upon receiving a feed from the meteorological office that the stipulated threshold of rainfall has been recorded. The terms of such smart contract, embedded in the blockchain, would get triggered irrevocably upon the specified conditions being met. Smart contracts are, therefore, swift, irreversible, self-enforcing, unambiguous, reliable and secure, and can reduce operational costs substantially.
Now, several kinds of disputes can, and do, arise over smart contracts. Without being exhaustive, coding errors may result in unexpected performance issues. The goods may be defective. Inaccurate data feeds may cause unjust enrichment.
A party may want to terminate the contract on ground of misrepresentation, mistake, fraud, coercion or duress but is unable to do so since the contract is irrevocable once triggered into motion. There could be hacking by exploiting bugs. Again, how does one determine when a force majeure clause should have been triggered.
The adversarial legal remedies of litigation or arbitration may be inappropriate to address such disputes arising from smart contracts. Many countries do not even recognize a smart contract, not least because such a contract is typically executed pseudonymously leading to uncertainty as to who are the contracting parties.
Indeed, most common law jurisdictions lay down requirements in respect of legal capacity of a person (whether human or a legal entity) to enter into a contract. The party complaining of breach of a smart contract may not know who to sue.
Since smart contracts operate on DLT via computers which may be located around the world, there could be uncertainty as to the competent jurisdiction of Courts, the seat of arbitration and applicable governing law in case of a breach. This might, in fact, lead to collateral disputes around these issues. Further, there could be evidentiary difficulties in determining who was liable for the loss caused by defective coding or corrupted messages or bugs in the operating system.
Then there could be issues of disclosure in the public domain, say, during the recording of evidence, of proprietary software and/or hardware. This could have serious commercial ramifications for the party required to make such disclosure.
And, since smart contracts are irreversible and are indelibly recorded on the blockchain, certain reliefs are simply incapable of enforcement – such as the relief of termination of a transaction that might be granted in a given case by the Court.
As far as India is concerned, Section 10 of the Indian Contract Act, 1872 (IC Act) provides inter-alia that all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object.
Section 10A of the Information Technology Act, 2000 (IT Act) states that “(w)here in a contract formation, the communication of proposals, the acceptance of proposals, the revocation of proposals and acceptances, as the case may be, are expressed in electronic form or by means of an electronic record, such contract shall not be deemed to be unenforceable solely on the ground that such electronic form or means was used for that purpose”.
The IT Act contains detailed provisions for electronic governance including legal recognition and security of electronic records as also electronic and digital signatures. The IT Act limits the generation of the Electronic Signature Certificate and the Digital Signature Certificate to the government designated Certifying Authority. Further, Section 85A to Section 85C of the Indian Evidence Act, 1872 (IE Act) contain certain presumptions as to electronic records, electronic signatures and Electronic Signature Certificates.
While Section 65B explains when an electronic record would be admissible in evidence, Section 88A provides that the “Court may presume that an electronic message, forwarded by the originator through an electronic mail server to the addressee to whom the message purports to be addressed corresponds with the message as fed into his computer for transmission; but the Court shall not make any presumption as to the person by whom such message was sent”.
A smart contract satisfying the requirements of Section 10 of the IC Act would, therefore, be a legally valid one in India. The difficulty arises with regard to its admissibility in evidence should a dispute arise.
The reason for this is that for the smart contract to be admissible in evidence, the electronic or digital signature must be certified by the Certifying Authority under the IT Act. However, the current technology requires the blockchain to generate the identifier hash-key that is to be used to validate and authenticate the smart contract.
Such digital signature generated by the blockchain is not the one recognized by the IT Act or the IE Act so as to make the smart contract admissible in evidence. And then, there is simply no clarity as to whether or not crypto-currency, a form of virtual currency, would be viewed as lawful consideration under Section 10 of the Contract Act. The chances of the Courts in India enforcing the terms of a smart contract, therefore, remain bleak.
I believe that the approach in mediation of addressing in confidence the underlying interests of the disputing parties, in contradistinction to adjudicating their legal rights, would be better suited to resolve disputes that arise from the breach of smart contracts using blockchain technology. Indeed, this could also render irrelevant some of the possible disputes indicated above in relation to smart contracts.
Further, by providing for automated mediation and enforcement of settlement agreement in the smart contract, one could pre-empt differences between the parties in the future on the existence or validity of the agreement to go for mediation or enforcement of the settlement agreement.
There is nothing to prevent parties from incorporating into the smart contract itself (a) their consent to go for mediation, (b) the mechanism for nominating a mediator or opting for institutional mediation, (c) the giving of pre-determined access to the mediator to the smart contract in order to enable him or her to code/insert the settlement agreement (should there be one) into the blockchain, which would automatically lead to the transfer of assets or monies of one party to another on the blockchain in terms of such settlement agreement.
Should such assets be insufficient within the blockchain system, the party enforcing the settlement agreement could always take resort to the assets of the other party outside the blockchain system – provided, of course, the domestic law of the place where those non-blockchain assets are situated does not view the smart contract as being illegal or unenforceable.
Modern technology, therefore, does more than merely enable the smooth transition of a mediation in a physical setting to an online mediation. For a mediator who can adapt to digitization, online mediation presents new opportunities. But for one to make the most of these opportunities, the mediator should have been through appropriate mediation training.
We, in India, are unfortunately at a very nascent stage of transitioning from physical mediation to online mediation, while struggling to secure even good internet connections.
Having taught mediation as adjunct faculty since 1998 in various law schools and other institutions, and having acted as a mediator for the same period, I believe that, infrastructure aside, the mediation training offered across India itself is quite outdated - both in terms of curricula and pedagogy. The detailed reasons for saying so would merit another article, though some reasons can be found on page 13 of this piece.
To sum up, there is a huge potential for mediators to build a robust practice in online mediation, especially with respect to commercial disputes. However, the capacity and skills of the mediators need to be enhanced by affording them proper mediation training at several levels, including familiarity with the above mentioned modern technology-based mechanisms. Institutions imparting mediation training in India do need to reinvent themselves and adopt best practices in online mediation, and must do that soon, lest it becomes a case of lost opportunities.
(Dr. Aman Hingorani is an Advocate-on-Record & Mediator, Supreme Court of India, and Arbitrator)
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