Mr. Vihang Virkar,
Partner , PDS Legal
“Conflict is inevitable but combat is the option”
Thank you everyone for giving me the occasion to come and speak to you today and share some of the experiences of mediation. Now I understand it’s not a good position to be when you are in the last person standing in between you guys and lunch. So I am going to make this as quick and crisp as possible. So I have been a corporate lawyer for say, 17-18 years and I have had the opportunity to deal with several commercial dispute, joint ventures, private equity etc. what I have learnt of course is that conflict is inevitable. As the business grows, conflict is inevitable. But combat is an option. So if you have the right mind set to try and avoid combat option you will have enough option to feed that. In the sense, if you have the right attitude to ensure that, the right attitude to try and ensure that litigation, arbitration and the cost and time related that doesn’t pull down your business. We have all seen through the end of the course that mediation is an excellent tool. So, very characteristics of mediation that we have all heard over the course of today, I just want to summarize all of that:
We know mediation is a neutral process, it is a voluntary process, and anyone can join in and stop mediation at any point of time. It’s a party centre negotiation, so it’s not like two lawyers are waiting for you in the court. You not the bystander sitting in the room who doesn’t know what is happening. It is an informal process, there are no guidelines as to how you have to submit document or how you have to have to present argument. It is an assisted negotiation process which is between two parties which is assisted by a trained mediator and most importantly, it is confidential. So all the documents you submit, all the result that come out, all that’s submitted and the discussions you’ve had are all confidential and there is no obligation as to be disclosed anywhere. Mr. Kulkarni has been very kind to take us though legal recognition of mediation of India, so I am not going to spend any more time on this. So after all the conversations we have had since morning, if you still need a reason then, I am going to give you 10 reasons why mediation makes more sense than litigation:
The parties have control, it is more participative, it is speedy and efficient way of resolving disputes, it is simple and efficient, it is confidential, there is communication between the parties, the results are long terms so it’s not like interim injunction for 10 years, it’s not construed by four walls of what happens in the field of law-it can be created, there is a finality and in some cases of course it is a court driven mediation. You can also get a refund of court fees. So this was a brief introduction.
I think I am going to spend around 10-12 minutes of some of the mediations that I have been involved in. so over the years I have been involved in several mediations. What I am going to do is, take you through 3 of them. The first one was a court directed mediation of business family dispute, the second was an ad hoc mediation between two parties that were one foreign and one Indian related to trading of goods and third one was an institutional mediation under the auspices of ICC between two joint venture parties.
So the first one, we had situation where there were two business families. One was manufacturing of chemicals and other one used to supply raw materials for the chemicals. And they have been working together for many years. They were friends. Their kids got married. That’s when the problem started. So the wife claimed, alimony as part of the divorce proceeding. The husband said I don’t have any money so I am not going for alimony. So then the wife challenged the will. So the father had left a will in which all his property, his entire business was left to the father’s wife, the mother and the other son. The son, who was involved in the divorce proceedings had no property left under the will. So the wife obviously was upset and their family challenged the will. So there was testamentary suit challenging the suit, there was criminal proceedings, there were criminal proceedings filed by the husband’s family on the other family for harassment and needless to say all their business transaction for past 15 years which was cultivated, completely came to a standstill. They couldn’t go further and the parties decided that they need to do something about this. The court recognised this and the HC decided under the testamentary petition decided that maybe mediation under section 89 was an appropriate solution to do in this case. What they did was, a senior counsel designated by the HC was nominated to be the mediator. The senior counsel was unfortunately, wasn’t trained in mediation. So he called the parties to meet together, he called the lawyers, both of them presented their case as in they were arguments over two or three sessions. He then on his own and because of this legal impulse to form a judgement that comes before him, he formed his opinion on each issue basis of the law and decided that this is the way the party should be settled. There was no consulted process with the parties. This senior lawyer, formed his own judgement how it should be settled and gave his views. Needless to say, it failed. The parties were now more angry with each other. They believed that now negotiation has no case. The matter went back to court. It’s been ten years and they are still litigating. All the properties, which were part of the business family, there is an injunction on it. So they can’t grow their business, they can’t sell their properties, wide cannot re marry which is going on for the last 10 years. This is one case where I have seen that mediation has failed. For the reasons that I have just eliminated.
Moving on, there was another client of ours. There was a Korean company. This was a large Korean company which was into buying and selling of grain and fertilizers. They had received an order from a European company to supply a shitload of grains. They didn’t have the capacity to supply themselves, so they came to a group in Gujarat who also traded in grains and said please help me supply this. So, 4 entities from that group were contracted to supply the quantity of the grains. They group in Gujarat failed to perform. After they failed to person, the Korean company had to buy the grains at a very high price from some dealer in shipment, there was liquidated damages. So they decided that all the loses I have incurred I am going to get it from the group in Gujarat. They have a Grain And Feed Trade Association (GAFTA) . the GAFTA has the auspices which is recognised by the International Chamber of Commerce (ICC). They filed for arbitration and GAFTA held that the entire amount of loss has to be paid by the four entities to the Korean company, obviously they didn’t pay. The matter went into appeal, the Gujrat entity lost. There was an award which had to be enforced in india and as you know matter of enforcement in India is a huge task altogether. So after you get into arbitration, enforcement can take upto few years. As part of this enforcement, the Gujrat entity filed an appeal, they went upto Supreme Court. For 3-4 years the matter was languishing. We then advisors to the Korean company were approached by the group and said they probably want to evaluate settlement. We proposed it to our clients and they said it’s probably best way to go about it because otherwise more and more years are going to be lost in the court. They went ahead and decided that they will have an ad hoc mediation which is non- binding. They approached and engaged a partner in Ahmedabad of a big accounting firm. He was well respected, he was not a lawyer but he had a good astute commercial sense, understand commercial arguments and see who’s going to win and lose. But over a period of two months he had a separate meeting with the client and separate meeting with the party in a very disarming and appropriate manner without getting them face to face because they didn’t like each other anymore. He was able to convince them that only way to get through with this is that if the Korean party get through a smaller number, places a subsequent order on the Gujarat entity which was unheard of after they had already started fighting and also provide them a little time to make them do the payment. The Korean company understood that this is probably the only way to get this done. They went ahead, accepted that. So the only time the Gujarat and Korean company met face to face was to sign the settlement agreement. Once that was done, the payment were paid, the parties had also started trading with each other as they were before. So business and relationship had actually gotten worse but now they have come back to each other, where they have faith in each other – where there is a problem they will be able to sit across and resolve it.
The third one , there was a joint venture company who we worked for several years. 50% owned by Indian family and 50% held by a French company. This was in the auto ancillary sector. So they used to supply parts. So for 25 years the parties existed and had cordial relationship with each other. After around 22 years there was a dispute whether certain pay-outs should be considered as business expenses or not. Ordinarily things would sort out but they didn’t. They spoke to each other but it didn’t work, the promoters had arguments over the phone, there were layers involved, there were notices sent. In about 2 years there was acrimonious notices etc., they decided that there is a need for settlement. So the French company filed before the National Company Tribunal what is called oppression and mismanagement. The Indian company filed for a civil suit in the HC, saying that the directors of the company are not fulfilling their fiduciary duty and therefore a penal consequence should be imposed on them. There was also an arbitration filed before the ICC in Paris for a breach of the Joint Venture Agreement. So while the Indian party accepted the arbitration way, they also called upon them to send a notice, calling mediation under the auspices of the ICC. Thankfully the French company was okay with it, they didn’t want to talk to each other so the lawyers of the parties got together and we appointed Mr Bill Marsh who is also on the panel of Bombay Chambers of Commerce. He’s queen counsel in the UK, so excellent lawyer for 35 years but doesn’t practice law anymore. Only practices mediation and is trained to do only this. So Mr Bill Marsh understood the problem from the lawyer so that it is not covered with emotion and sentiments, after understanding the facts, he then read the documents and he was completely thorough with the facts. And then after being clear about everything for about 3—4 months he was able to come to conclusion , that it was not possible to make them come back to continue the joint venture. So even fi they continue with the Joint Venture, there is every possibility that they will find a way to get back into dispute. Therefore he realised that it is irrepealably damaged and the only way to resolve it is a split.he convinced the French company that it won’t be possible for them to handle this venture from France and he convinced the Indian gentleman that you should make an appropriate fair offer, though it maybe difficult to come up with the funds to buy the company; he gave the French co. to let them have more time to pay. Once all of that was settled the parties entered into a share purchase agreement. As of last year, all agreements have been made. The Indian company has bought out the French company. Their relationship is cordial, when they come out to India they go out for dinners. In fact, last summer the son of the promoter of the French company, interned with the Indian company. They still collaborate on certain projects. So while they are not enjoying on certain venture they have found a way to have a workable solution and ensure that the disputes don’t come up in the actual company that they have built together being destroyed. And they have come out, got over their ego and form a sensible way to move forward.
So I think the main learning that I want to share with you that I have learnt over the course of several mediations past years:
First is , you need to have a right mind set. When you are in a dispute with someone, there is a factor that which can make a difference that your relationship being damaged and your relationship being deepened. The only thing that matters is your attitude. You cannot shake hands with a clenched fist. So, so along you have the right attitude you can forepast most of the conflicts. It’s important to choose and spend time choosing the right mediator. He has to be trained, he has to have a mind that is impartial, he should not be in a hurry to make judgements and both parties should trust him and he should not impose this opinion on the parties to try and come to a solution. And third is that in mediation there is nor requirement to win. The requirement is to find a solution, so whether each one gets a good deal or not is in my view, a state of mind.
Mediation may not always get you what you want, but in most cases it will get you what you need. So I think that’s where I am going to stop and if there are any questions, I would love to take them now.