As the Chinese saying goes, the prescription must fit the ailment (dui zheng xia yao).
With the pandemic wreaking havoc on contractual relations, what should be our "treatment plan" for disputes?
Senior Counsel V.K. Rajah and Professor Goh Yihan recently suggested in a commentary in these pages that the unprecedented impact on business will likely raise a "tsunami of disputes".
With disputes potentially arising in nearly every agreement affected by dips in demand, broken supply chains and loss of liquidity, legal systems may be overwhelmed if nothing is done.
The learned writers mooted court-focused solutions, including empowering the judiciary to manage commercial Covid-19-related disputes more flexibly. This will give the business community more certainty and predictability and encourage mediation. These are notable suggestions.
However, I would like to venture that we use mediation as a first-line treatment.
Businesses that mediate first are likely to recover better from the fallout. This is vital for our economy to regain its footing. Mediation will also shield the legal system from an imminent legal epidemic.
Rise of mediation
Mediation is an amicable way to resolve conflicts, with roots in Asia and elsewhere. It differs from negotiation as a neutral party - a trained mediator - helps disputants to understand their underlying interests and explore options in a conciliatory manner. The sessions are private to encourage candid discussion.
Mediation is also unlike litigation or arbitration, as the mediator does not impose an outcome. Parties make free choices to conclude a mutually beneficial settlement agreement. This is unlike adversarial settings, where the judge or tribunal makes rulings on the parties after listening to opposing arguments.
Mediation is preferable even if one has a strong case. Some businesses have force majeure clauses in their contracts that may excuse them from their obligations now... However, this can be challenged with no certainty of outcome. Meanwhile, costs and time are incurred in pursuing legal proceedings. Even if one wins the case, the losing side may not be able to pay as he is likely to be dealing with other claims.
While litigation is seen by many as the only way to resolve disputes, this changed with the Alternative Dispute Resolution movement in the United States in the 1970s and elsewhere, prompted by factors including court delays, legal costs and parties' desire to "own" the decision-making.
In Singapore, the groundwork was laid in the 1990s. The judiciary first introduced court-annexed mediation in the mid-1990s.
Then came the 1997 report of a government-appointed committee that led to the establishment of the Singapore Mediation Centre (SMC), a not-for-profit organisation that offers wide-ranging mediation services; and Community Mediation Centres, an outfit under the Ministry of Law that focuses on social and community conflicts in Singapore.
Today, mediation has gained full recognition as an important way to resolve almost all types of disputes.
The Singapore International Mediation Centre (SIMC) has seen growing demand since its launch in 2014 as a not-for-profit company to resolve international commercial disputes.
SIMC arose from the recommendations of a working group, which I co-chaired, to develop Singapore as a centre for international commercial mediation.
The Singapore International Mediation Institute and Singapore International Dispute Resolution Academy were also formed to act as a mediation standards and accreditation body, and to provide research and thought leadership in dispute resolution, respectively.
The high-water mark is the Singapore Convention of Mediation, which takes effect on Sept 12. The convention is a United Nations treaty that provides "teeth" to ensure that cross-border businesses can hold each other to their settlement terms. Enforceability promotes confidence in mediation and leads to greater adoption.
Better for business
For business afflictions arising from the pandemic, it is even more important to attempt mediation first.
Consider the unprecedented circumstances that may trigger a rash of defaults. Many businesses would have delivered on their promises but for the virus, which caught everyone on the back foot. The best laid plans have been laid to waste.
In such circumstances, we should be slow to take legal action. Empathy and forbearance will preserve business relations - important when normal business resumes.
After all, the shoe could always be on the other foot.
Mediation is preferable even if one has a strong case. Some businesses have force majeure clauses in their contracts that may excuse them from their obligations now. Force majeure (French for superior force) relates to events that are beyond parties' control such as war or natural disasters and other "acts of God".
However, this can be challenged with no certainty of outcome. Meanwhile, costs and time are incurred in pursuing legal proceedings. Even if one wins the case, the losing side may not be able to pay as he is likely to be dealing with other claims.
In contrast, mediation is quick and inexpensive. Even for complex commercial cases, mediations routinely take one or two days to complete and at a fraction of the cost of litigation or arbitration. Yet it may be more effective.
A good settlement agreement is one where parties are able to comply with its terms. Mediation's efficacy lies in its ability to allow parties to jettison the binary "win-lose" approach and adopt a cooperative - or even collaborative - attitude. This opens the door to flexible and creative solutions beyond monetary payments.
The settlement rates at both SIMC and SMC exceed 70 per cent. Even if there is no full settlement, parties will be clearer about the issues. There may also be partial settlements. These save time and costs.
SIMC (which I am chairman of) has just launched a Covid-19 protocol. These rules provide parties with a swift avenue to mediate disputes with the centre, online and at special rates. SIMC is in discussion with other international mediation services providers to collaborate on the protocol.
In a dispute that I previously mediated at SIMC, a lifestyle tech firm sued a reseller for the unauthorised sale of its products online. The estimated losses ran into the millions - a sum that the reseller could ill afford. During a one-day session, I helped both sides work through their issues and underlying interests.
The breakthrough came with the reseller's agreement to collaborate with the company to investigate the other perpetrators and pay a settlement sum through instalments. In return, the company dropped the lawsuit. With respect, this outcome would not have been possible in the courts.
Given the demands of this period, mediation will help parties to freely adjust their rights against each other. For example, a possible outcome could be to vary contractual obligations until the outlook improves in exchange for future business.
Notably, the Covid-19 (Temporary Measures) Act suspends certain legal actions to provide "breathing space". However, eligible businesses should realise that this is just a temporary respite. As the contractual obligations remain, they should settle their disputes now instead of kicking the can down the road.
All this is not to suggest that other ways of resolving disputes are unsuitable. Much depends on the matter at hand. For example, the courts are necessary to clarify legal rules.
Covid-19 is not just any disease. It is a disease with unprecedented consequences on the whole of humanity: on our personal lives, our businesses, our economies. It will spawn many disputes.
How will we respond? We could assert our rights and fight one another. Or we could try to be more understanding and look for mutually beneficial outcomes.
Now is not the time to fight, but to forge consensus. With mediation, we can settle conflicts quickly, inexpensively and with our relationships intact. This will help us to emerge as a united society, one that is kinder and that has brought out the best in one another.
Let's make mediation our first port of call.
- George Lim is a senior counsel and chairman of the Singapore International Mediation Centre. These are his personal views.