A CASE FOR COMMERCIAL MEDIATION IN PAKISTAN:

SIGNIFICANCE, CHALLENGES AND SOLUTIONS

THESIS PROPOSAL

LLM International Trade Law

Fatima Safeer

209-FSL/LLMITL/S19

DEPARTMENT OF LAW

FACULTY OF SHARIAH AND LAW

INTERNATIONAL ISLAMIC UNIVERSITY ISLAMABAD

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 Contents

Thesis Statement ......................................................................................................................................... 1

Introduction ................................................................................................................................................. 1
Significance of study ................................................................................................................................... 3
Literature Review ....................................................................................................................................... 4
Statement of Research Problem............................................................................................................... 12
Hypothesis.................................................................................................................................................. 12
Research Methodology ............................................................................................................................. 13
Tentative Outline ...................................................................................................................................... 13
Bibliography .............................................................................................................................................. 15

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Thesis Statement

Commercial mediation is important for resolving of commercial matters in Pakistan but the

country is lacking an effective mechanism in relation to commercial mediation, which can be

improved by adopting laws from American and European commercial mediation system.

Introduction

Litigation is not always the best way to resolve the dispute between the parties especially when

confronting the commercial disputes. Due to backlog of cases in the courts and costly litigations,

alternative methods of dispute resolution have become popular. Mediation is one of the

alternative methods of dispute resolution which have been increasing worldwide for last 20

years. In the normal day to day business affairs, there arises the dispute between the parties to the

contract and parties disagree to their individual rights or obligations, no matter how carefully

contract is written. This can lead to delayed shipments, complaints about quality of merchandise,

claims of non-performance and similar misunderstandings1.

Mediation is the process in which a meeting is scheduled among the parties to dispute, their

representatives, and a mediator who discusses the settlement between the parties. The mediator

may offer suggestions to the parties and can also point out the issues that the parties to dispute

may have overlooked, but the resolution of dispute rests with disputants themselves. The meeting

can be scheduled very quickly and require less preparation and its cost effective and issue may

be resolved in hours. In the past 20 years the usage of mediation has increased. Mediation is

undoubtedly the leading alternative method of dispute resolution both domestically and

1
Cyril Chern, International Commercial Mediation: Dispute Resolution Guides (London: Informa Law from
Routledge, 2008), 177.

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internationally, excluding Arbitration. This growth has been led in part by legislation in

European Union as reflected in EU Directive 2008/52/EC2.

But in developing countries like Pakistan, the practice of Mediation is very rare. The mediation

does exist in Pakistan but fraction is very low. There are some organizations in Pakistan which

provide mediation services both locally and internationally. National Centre for Dispute

Resolution (NCDR) was established in February 2007 with the approval of Sindh High Court

and with financial assistance of International Finance Corporation (IFC). The Centre drafted the

mediation bill in 2014 and submitted to Federal Government. NCDR is headed by Chief Justice

of Pakistan, Justice (Retd) Saiduzzaman Siddiqui. In Punjab there is Lahore Chamber of

Commerce and Industry (LCCI) which provide mediation services in both local and international

levels. Pakistan Mediation Association is the biggest Organization which offers the mediation

services.

The Article 71 of Constitution of Pakistan talks about the formation and functions of Mediation

committee. The mediation clause is very popular in Pakistan too. Every contract contains

mediation clause but its practice is very low. People are not fully aware of this concept and its

benefits. That’s why in case of dispute, disputants enter in to litigations and waste their time,

money and energy.

The mediation process has now become the worldwide phenomenon and it is well adopted in

developed countries. However, it is rarely practiced in developing countries that’s why there is

considerable gap between developed and developing countries in relation the Mediation which

must be filled.

2
Ibid.

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Significance of study

In Pakistan, there is huge backlog of court cases. This is the reason that the litigation process is

very time taking and is less economical. That’s why in case of civil disputes, arising from

business contracts, between the parties, should be settled out of courts through mediation

process. In Pakistan, mediation is a new concept and is adopted by a fraction out of the whole

business community. People are not fully aware of this concept and they don’t understand the

benefits of this process. The purpose of this study is to show the importance of commercial

mediation process. There should be a mediation clause in every commercial contract, which

would say that, in case of dispute, parties will try to settle that dispute through mediation before

entering in to litigation process. That mediation clause will promote the commercial mediation

process and it’s a good way to make people aware of commercial mediation process.

Commercial mediation process is less time taking and is very economical process and it does not

ruin the long-term relationship of quarreling parties. The purpose of this study is to recommend

the legislation regarding the commercial mediation procedure and duties of mediator which

would protect the interests of businessmen. This study also recommends making sufficient

institutions which will regulate whole mediation procedure. This study shows how America and

European states are benefiting by adopting the commercial mediation practices, what were the

reasons which caused America and European states to adopt the commercial mediation process,

what were the challenges faced by those states in exercising the commercial mediation practices,

and what were the tools used by America and European states to overcome those challenges.

This study will also highlight the work done in America and European states regarding

commercial mediations especially the legislation done in this regard. This research seeks to make

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major contribution to enact laws regarding commercial mediation or to do amendments in

already existing laws, if necessary.

Literature Review

The concept of commercial mediation is well adopted by European states and America. These

states understand that how important and beneficial the commercial mediation process is.

Commercial transactions are increasing day by day and in case of dispute, Mediation is the most

economical process for dispute resolution. Mediation not only resolves the dispute but also

fosters continuing relationship between the quarreling parties due to its amicable style. This is

valuable especially when minor dispute arises in course of long-standing relationships. Litigation

process and even the arbitration proceedings, may aggravate the relationship between the parties

and leaves no room for further corporation between the parties. The mediation process does not

destroy the communication between the parties. European states and America, both utilize the

commercial mediation as dispute resolution, because this process resolve the issue without any

interference of court and also it does not ruin the relationship between the disputants. Developed

states know it well, that, business is the key factor which elevates the economy of the nation and

commercial mediation settles the disputes without even ruining the relationship between the

parties. This means that, disputants can maintain their long term relationship and can do business

together as long as they want to3.

The reason I have chosen European states and America, is that, European states have common

law background and America has the civil law background. In this way, we can see the

effectiveness of commercial mediation process in both systems. That comparison will show that

3
John Brand, Felicity Steadman, and Chris Todd, Commercial Mediation: A User's Guide (Cape Town: Juta and
Company Ltd, 2012), 466-467.

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commercial mediation is not only effective in common law system but also in civil law system as

well. After analyzing that, how much work is being done on commercial mediation in European

states and America, I will compare that with Pakistan. And after the comparison, we will be able

to identify the gaps, reason for those gaps and also we will be able to recommend solutions to fill

those gaps. For analyzing the development of commercial mediation in European states, some of

European states are chosen. For analyzing the development of commercial mediation in

European states and America, it is analyzed that how much legislation has been done in those

states? How many bodies have been made to regulate mediation procedure? How many

international treaties have been adopted by those states? What were the needs to have the process

of commercial mediation in those states? What are the benefits, these states are getting by

exercising the commercial mediation practices? What were the difficulties for adopting

commercial mediation? And how those difficulties were overdone by those states?

The European Union recognized the need of the mediation process as dispute resolution and also

considered its significance. The European Union then also recognized that there is necessity of

having legal regime for mediation process which regulates and also facilitates its access. In 2008

the European Union passed the DIRECTIVE 2008/52/EC from the European Parliament and

from the council. The exact date when it was passed was May 21, 2008.

The Directive primary covers the five areas of mediation:

 The Directive requires the training of Mediators and also regulates the functioning of

mediation process and regulates the acts of the participants.

 The Directive encourages the parties, who already have entered in litigation, to enter in to

mediation process at any stage of their case in court, if Judge thinks it to be fit.

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  The Directive also gives the settlement agreement, the status of court decree. Means that

the settlement agreement will be as enforceable as the court decree is.

 The Directive also focuses on the confidentiality of the process and also ensures that the

mediator work in good faith and in best interest of the parties4.

The Directive also requires the member state that to suspend the period of limitation till the

parties finish the mediation process, so that they may have legal right of litigation after the

mediation process.

The Lord Chancellor’s department announced in March 2001 that all Government departments

would seek the mediation or any other Alternative Dispute Resolution, if possible, before

entering in to litigation. This increased the demand of the mediation process. The mediation

became more popular among the businessmen who wanted to resolve their dispute through

mediation because it was speedy and also cost effective. As the demand of mediation was

increased, the demand of mediators also increased. Lawyers started to get mediation training to

facilitate the mediation process as mediator. Several service providers were also formed to

provide the service of mediation like, Alternative Dispute Resolution Group (ADRG) and the

Centre for Effective Dispute Resolution (CEDR).

According to the English Civil Procedure Rules, Rule 1.4 requires the court to have overriding

objective. Means that, court can encourage the parties to use ADR, and can elaborate the parties,

about the benefits of settling the matter through ADR. According to the Rule 26.4 of CPR, the

court has discretion to grant stay to legal proceedings and refer the matter to mediation or to any

other Alternative Dispute Resolution. It can be done by request of either party or by request of

4
Christian-Radu Chereji, "Mediation in the European Union: The Directive 2008/52/EC and its Effects on National
Legislations," Conflict Studies Quarterly 15 (2016): 4-5.

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both parties or by only the discretion of Judge, if he thinks it appropriate. Rule 44.5 of Civil

Procedure Rules, also supports mediation process and lays down the benefits of mediation

process for the parties and appreciates those who comes to litigation after exhausting the option

of mediation5.

In 1999, the Federal Government of Germany made the law which was enforceable on all states

of Germany. The law was named as “EGZPO” and was incorporated in their Code of Civil

Procedure. There were two aims in mind for making this law. One was that mediation will act

effectively as the Alternative dispute Resolution between the disputants and for the mediators.

Second was that it will reduce the load of cases in court and that mediation process will be

speedy and cost effective6. That law governs the Court-connected and mandatory mediation. The

matter would fall under mandatory mediation requirement if it is of any of these three categories:

 Financial disputes which are in front of Court of Magistrate having litigation value of

EURO 750

 Certain neighborhood disputes

 Defamation disputes

In France, the mediation process takes place where contracting parties incorporate the mediation

clause in the commercial contract or if they refer the dispute to any institution of mediation or if

they have not incorporated any mediation clause in contract but both parties are willing to

resolve the dispute through mediation. In judge induced mediation, the judge appoints the

mediator with the consent of the litigants and direct them to resolve the dispute through

5
Gary Slapper, and David Kelly, Q&A English Legal System 2011-2012 (Routledge, 2013), 195-197.
6
Parliament of Germany, EGZPO: incorporated in civil procedure rules, (2009).

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mediation. The judge induced mediation also has some limitation period; it has limitation of 3

months which may be extended.

In Poland, there was a long struggle done by the Mediation supporters. They encouraged the

legislators that Arbitration is not only alternative method to reduce the backlog of cases, besides,

Mediation process is more effective than Arbitration process. Poland eventually followed the

European Union’s initiative and adopted the laws of Commercial Mediation by amending its

code of civil procedure. According to these rules, mediation can be initiated by three ways: either

by both parties to the contract, or by one party and other party consenting to it, or by court order

and no party objecting to it. We can see that the law favors the voluntarily mediation. The role of

court is very limited. The court just orders the commencement of the mediation process. But,

mediation will only be started if both parties apply to it. If one party wants the mediation for its

dispute resolution and other party objects it, then the mediation process will not be started. In

civil procedure law of Poland, basic conditions for successful mediation are given and also there

are roles of impartial mediator in confidential mediation process7. Under Polish law, the

settlement agreement obtained from mediation can be sanctioned by the court. Even in voluntary

mediation, where no court proceedings are involved, once settlement agreement is made between

the parties, it can be presented to court of appropriate jurisdiction to sanction it by proper court

order. In this way, that settlement agreement attains the legal power of court precedent.

In America, Mediation is very effective time saving and very economical that business

community is drifting towards mediation process for dispute settlement. By settling cases and

getting them out of the court framework, intervention additionally decreases the weight on that

7
Carlos Esplugues, ed. Civil and Commercial Mediation in Europe. Vol. 2: Cross-border Mediation, (Intersentia,
2014), 87.

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framework and advances speed and proficiency in the handling of cases. Since most court

frameworks worldwide have cost and postpone issues like those in the United States, and on the

grounds that intercession is socially recognizable in such a variety of nations, the option question

determination development seems bound to accomplish gigantic global cash as the new thousand

years’ advances.

In 1990, Parliament of United States of America passed an Act named The Civil Justice Reform

Act. This act was passed by the federal Government considering the need of the platform which

resolves the disputes out of court. This was made to reduce the load of case and after that amount

of backlog of cases was reduced8. In America, the Congress enacted Administrative Dispute

Resolution Act 1996 to encourage the process which is faster and less costly dispute resolution

as compared to litigation9. After that, many U.S federal agencies expanded the use of A.D.R.

They adopted mediation in construction contracts disputes and also labor-management disputes

by hiring mediation specialists. This includes U.S postal Service, Air Force, the United States

Information Agency and the Department of Veteran Affairs.

Different states of U.S follow their own procedure of Mediation. But Uniform Mediation Act

was enacted by federal Government and its aim was the standardized law of all the States of

America. This act talks deeply about the mediators and its roles. What mediator should do and

how he should carry out the whole process. This act also talks about the conduct of the

participants. This act has certain provisions regarding privileges against the disclosures,

admissibility and discovery of mediation communications. In the USA mediation is ate both

level in Federal level and also in the state level to solve the disputes. Because of the Civil Justice

8
Parliament of America, Civil Justice Reforms Act, (1990).
9
Parliament of America, Administrative Dispute Resolution Act, (1996).

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Reforms Act from (PL101-650) at the federal level judicial courts designed this type of program

to resolve the disputes between parties. Basically mediation arises because of the two

perspectives in the US litigation. One is called the court ordered mediation or court-annexed

mediation in this type of mediation courts appoints mediator to help the litigants at the spot to

resolve the disputes. Means his main work will be to resolve the disputes that are on behalf of the

courts. The second is private mediation process. In this process it is upon the parties to decide or

appoint the mediator which will try to resolve the disputes between them. American Arbitration

Association (AAA) sets out the standards of the code of conduct of mediators. This model

provides that mediator can make both oral and written recommendations for settlement of

dispute between disputants. No formal record will be kept of mediation meetings.

Pakistan is not a signatory to any international treaty. The mediation law in Pakistan is also not

based on these treaties either. The primary source of law that relates to mediation is found in

amended version of Civil Procedure Code 1908 of Pakistan, with the relevant section being 89-A

and Rule 1-a of Order 10. There are also small provisions relating to mediation and conciliation

found in Small Claims And Minor Offences Court Ordinance, 2002, the Industrial Relations Act

2012, the Income Tax Ordinance, the Customs Act, and the Federal Excise Act. Mediation is not

obligatory in Pakistan. In Pakistan, there is voluntary mediation, which means that, the court may

refer the civil dispute for mediation as long as both parties agree to it. The court cannot impose

the mediation provisions on anyone. If one party agrees to enter in to mediation process and

other party refuses, even then, mediation proceedings cannot be initiated. It is necessary that all

parties to the contract agree to enter in to mediation proceedings. There is always a stipulated

time in which the mediation process should be completed and after that report must be reported

back to the court. Mediation process in Pakistan is kept very confidential. In court referred

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mediation cases, the court cannot call a mediator to produce any evidence regarding the

mediation process. If the mediation process fails, there is no need to give full details to court, the

mediator will just give a statement before the court that there was no result and that is sufficient

for the court. And if the settlement occurs between the parties, then mediator can give the full

details to the court because after the settlement there is no harm. The court will then pass the

judgment on that settlement agreement to legally enforce that settlement agreement10.

In Pakistan, the biggest national mediation body is Pakistan Mediation Association and consist of

over 100 mainly CEDR, Center for Effective Dispute Resolution, accredited members. The

second largest mediation body is the Lahore Chamber of Commerce and Industries Mediation

Center. It is situated in Punjab province. The center has around 65 mediators and all are CEDR

trained. The first and the oldest mediation center is the KCDR, Karachi Center of Dispute

Resolution. It is situated in Sindh province and has around 55 mediators and all are accredited11.

By comparing Pakistan with America and European states, it is clear that, Pakistan lacks

sufficient legislation regarding the commercial mediation. There is not sufficient legislation done

regulate the mediation process. Pakistan is not a signatory to any treaty regarding mediation

which is not a good thing because this discourages the business community of other countries to

make bi-lateral business contracts with Pakistan. In my thesis, I want to highlight the needs of

commercial mediation practices, in our legal system. And also that, parliament of Pakistan,

needs to enact more and more law regarding commercial mediation. My thesis will identify the

benefits that will be obtained by legislation of the laws regarding commercial mediation. My

10
Nadja Marie Alexander, Commercial Mediation in South Asia (Netherlands: Wolters Kluwer, 2015), 577-579.
11
Ibid.

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thesis will also identify the problems that Pakistan may face by adopting commercial mediation

process for dispute settlement and also the recommendation to overcome those problems.

Statement of Research Problem

1. What is significance of Commercial Mediation in general, and for Pakistan general?

2. What are the existing mechanisms/practices for Commercial Mediation in Pakistan?

3. What are the problems associated with Commercial Mediation process in Pakistan?

4. How Commercial Mediation mechanism can be strengthened in Pakistan?

Hypothesis

This study is limited to significance of commercial mediation, challenges of adopting

commercial mediation and the solutions to those challenges. This study also includes the lessons

from America and European states. And also the legal framework adopted by America and

European states. The main focus of the study is highlighting the needs of Pakistan to adopt the

commercial mediation process as dispute resolution. This study also encourages the mediation in

local contracts and their legal framework in local laws but the main focus of this study is

regarding commercial mediation in international contracts. This study will show that, Pakistan

has no sufficient legislation regarding commercial mediation and also Pakistan lacks commercial

mediation institutions which regulate the commercial mediation process. This study does not

include the Arbitration, conciliation or reconciliation.

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Research Methodology

Two types of methodologies are used. First, historical methodology is approached to describe

from where concept of commercial mediation was evolved and how it was developed with the

passage of time among most of developed states. Second, comparative methodology has been

used with the aim of understanding of operation of international laws and legal system for

critical analysis. Comparative legal research is important due to increasing influence of

international and supra-national legal material in an era of global independence. The reason to

compare Pakistan with America and European states is that, we can analyze the data regarding

commercial mediation from both civil law state and common law states. And after comparing

them with Pakistan, we can identify the gaps and will be in better position to recommend

solutions to fill those gaps.

Tentative Outline

This thesis is comprised of six chapters. In first chapter, topic is established, existing literature on

this topic is reviewed in detail and identified gaps which require further research, originality of

work is showed, and significance of thesis is described and demonstrated the limitation of

research and methodology used for this research.

In chapter two, concept of Commercial Mediation will be explained with its historical

background to understand that, how Commercial Mediation was adopted by European states and

America and what developments in legal framework regarding commercial mediation, have been

made by these states with the passage of time.

Chapter three will discuss the significance of commercial mediation in general and specifically

in Pakistan.

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Chapter four will elaborate the existing legal framework of Pakistan related to commercial

mediation and the problems which are associated with commercial mediation in Pakistan, and

also the solutions through which commercial mediation mechanism can be strengthened in

Pakistan.

Chapter five will explain in detail the legal framework of America and European states related to

commercial mediation and to see how it is developing day by day and its successful

implementation. Comparison would be made to highlight the problems of existing legal

framework in Pakistan.

Chapter six will set out proposals for law reforms in this area by taking lessons from America

and European states.

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Bibliography

Alexander, Nadja. Commercial Mediation in South Asia. Wolters Kluwer, 2015.

Brand, John, Felicity Steadman, and Chris Todd. Commercial Mediation: A User's Guide. Juta and
Company Ltd, 2012.

Chern, Cyril. International Commercial Mediation. Informa Law from Routledge, 2008.

Chereji, Christian-Radu. "Mediation in the European Union: The Directive 2008/52/EC and its Effects on
National Legislations." Conflict Studies Quarterly 15 (2016).

Directive 2008/52/EC, OJ L 136, 24.5.2008, 3-8.

Esplugues, Carlos, ed. Civil and Commercial Mediation in Europe. Vol. 2: Cross-border Mediation.
Intersentia, 2014.

Slapper, Gary, and David Kelly. Q&A English Legal System 2011-2012. Routledge, 2013.

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