Companies prefer pre-litigation mediation to force majeure

MUMBAI: A swelling list of corporates has begun pre-litigation mediation discussions with law firms for faster resolution and to save costs. Many are no longer keen on using force majeure or the Doctrine of Frustration clauses, seeking the cheaper option instead.

Companies in the manufacturing, services and real estate sectors, in particular, are looking at mediation to end disputes with suppliers, vendors, consumers and even lenders.

“There will be a flurry of notices invoking force majeure clauses and our corporate team is in the midst of giving opinions to clients on the way ahead so as to best safeguard their interests,” said Suruchi Suri, partner of Suri & Co. “With case scheduling being thrown off by the pandemic and real public safety issues, corporates would do well to seriously consider using the pre-litigation mediation provision.”

The Commercial Courts Act, 2015, allows corporates to settle disputes through this.

Total legal expenditure of listed companies on Indian bourses stood at Rs 38,660 crore (about $5.6 billion) during FY19.

According to Ankita Singh, founding partner of law firm AAS Regina Legal, the notice of force majeure serves merely as a foot in the door for the negotiation but eventually, parties are settling disputes.

“One of our clients was facing a recovery notice on the pre-agreed rent amount from its European vendor, which refused to acknowledge the current scenario as force majeure and insisted on fulfilment of obligations,” said Singh. They later sought to terminate the contract to minimise litigations and potential disputes.

“These are times to take more practical decisions and cut costs the way we tell our organisations. So, when my CFO suggested this option of solving disputes we agreed,” said the promoter of a leading national skincare brand.

Even when courts appear to be the only solution, the pending pipeline of cases is likely to delay resolutions – and escalate costs. “We are now more concerned about cutting costs wherever possible and legal costs can be a heavy burden ” said the CFO at a leading Mumbai-based conglomerate.

Public sector undertakings are an exception — as a rule, they challenge every adverse order, possibly because of concerns over vigilance inquiries despite heavy legal expenses.

According to Vijayendra Pratap Singh, a senior partner and head of litigation practice at law firm AZB & Partners, there is urgent need for a national pre-litigation mediation platform. “It may in appropriate cases release pressure, leading to resolution of issues without clogging the courts,” he said.