‘Tis the season to be merry – and also to mediate?

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With decorated trees, snow on the ground (and painted on the walls), coffee cups coloured red and green, and spiritual imagery regularly seen; it is a time for goodwill, festive cheer and reflection. But does this general sense of merriment and peace to all extend to a desire to resolve commercial disputes through non-contentious means? In this briefing we explain why the answer to that question in 2019 could well be yes in light of the adoption of the Convention on International Settlement Agreements Resulting from Mediation (the Singapore Convention).

Speed read:

  • Mediation is a dispute settlement process where parties seek an amicable solution with the aid of a mediator. 
  • At present it can be difficult to enforce a mediated settlement agreement as there is no international framework for recognition and enforcement of mediated settlements akin to the New York Convention which regulates international arbitration.
  • The Singapore Convention seeks to provide such a framework by simplifying enforcement of mediated settlement agreements and limiting the grounds on which their enforcement may be rejected.
  • Singapore played a key role in the drafting of the Convention and continues to establish itself as a leading hub for the resolution of international commercial disputes.

Background

Mediation is a process by which parties attempt to achieve an amicable settlement of a dispute with the assistance of a third party (the mediator) who has no authority to impose a solution on them. For the process to be successful, the parties must voluntarily enter into a settlement agreement on how their differences will be resolved.

In contrast, arbitration is a process in which a third party (the arbitrator) is empowered to render a reasoned award binding on the parties. The great advantage of arbitration over other forms of dispute resolution is that the arbitrator’s decision is enforceable practically anywhere in the world pursuant to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, to which 159 states have agreed to comply.

Since a mediated settlement is one which the parties have agreed to comply with voluntarily, in theory, an enforcement procedure should not be necessary. But just as goodwill and harmony can subside at this time of year soon after the wrapping has been put away, a company may live to regret a mediated settlement to which it has previously agreed. Alternatively, there may be a dispute as to the proper interpretation of the agreement or whether its terms have been satisfied. In these circumstances, enforcement might be necessary, which would require the bringing of a court action (or arbitration if that is provided for in the settlement agreement) for a breach of contract. This can be a lengthy and expensive process, particularly if the assets being enforced against lie in a country (or countries) different to that of the enforcing party.

But that could soon change following the promulgation by the United Nations Commission on International Trade Law (UNCITRAL) earlier this year of the Singapore Convention; so-named in recognition of the key role that country played in the negotiation and drafting of the treaty, including its having chaired the UNCITRAL Working Group sessions that led to the Convention. It will be open for signature in Singapore on 1 August 2019 and thereafter at the UN headquarters in New York. The Convention will then come into effect six months after at least three states have ratified it.

Key features of the Singapore Convention

The Singapore Convention seeks to achieve for mediated settlement agreements what the New York Convention has done for arbitration by providing a framework for the recognition and enforcement of mediated settlement agreements arising from international commercial disputes. 

In particular, enforcement procedures have been simplified. Instead of requiring an enforcing party first to obtain a court judgment or arbitration award for breach of a settlement agreement, as is currently the case, a court subject to the Singapore Convention is required to enforce a mediated settlement agreement in accordance with its rules of procedure unless one of the limited grounds for refusing enforcement has been established (these are discussed below). In addition, the Singapore Convention recognizes the res judicata effect of a settlement agreement – i.e. the courts of contracting parties to the Convention are required to allow a party to invoke a settlement agreement if another party seeks to pursue a claim in relation to a matter that has already been resolved under its terms.

The procedural requirements for enforcement under the Singapore Convention are also straightforward. The enforcing party is required to provide the competent authority with the signed settlement agreement as well as evidence that the agreement resulted from mediation (such as the mediator’s signature on the settlement agreement). The procedural requirements of the relevant court would also need to be considered.

The grounds upon which a competent authority operating under the Singapore Convention “may” refuse enforcement of a settlement agreement are limited to the following (many of which seek to mirror the bases upon which the recognition or enforcement of an arbitral award can be refused under the New York Convention):

  • A party to the settlement agreement was under some incapacity;
  • The settlement agreement is null and void, inoperative or incapable of being performed;
  • The settlement agreement is not binding or final according to its terms;
  • The obligations in the settlement agreement have been performed or are not clear or comprehensible;
  • There was a serious breach by the mediator of applicable standards of conduct (which remain undefined) without which the challenging party would not have entered into the settlement agreement;
  • The mediator failed to disclose circumstances that might raise justifiable doubts as to the mediator’s impartiality or independence and such failure to disclose had a material impact or undue influence on a party without which the challenging party would not have entered into the settlement agreement (thus, mediator bias in itself is not enough to challenge a settlement agreement); or
  • The requested relief is contrary to the public policy of the state party to the Singapore Convention.

UNCITRAL has also adopted a Model Law on Mediation to provide signatory states with a template for modifying their national law to give effect to the terms of the Singapore Convention.

Singapore as a hub for the resolution of international disputes

The Singapore Convention is a further manifestation of an extensive effort by the Singapore government to establish Singapore as a regional, if not global, hub for the resolution of international commercial disputes. Other initiatives include the following:

  • The establishment of the Singapore International Arbitration Centre (SIAC) in 1990, which by some measures is now the preferred arbitral institution in Asia and in the top five globally;
  • The creation of the innovative Singapore International Commercial Court (SICC) in 2015 to adjudicate cross-border commercial disputes between parties who prefer a court-based dispute resolution process but with some of the hallmarks of international arbitration (such as limited document disclosure), with a number of cases currently being determined by the SICC’s international judges and new rules of court expected to be released in 2019;
  • The setting up of the Singapore International Mediation Centre (SIMC) in 2015 to administer international mediations being conducted in Singapore;
  • The legalization of the use of third party funding in international arbitrations and mediation in early 2017 (Singapore is one of the first to do so in the region), with Dechert’s Singapore arbitration team currently serving as counsel in only the second third-party funded arbitration case commenced in Singapore;
  • The commencement this year of efforts to expand Maxwell Chambers and transform it into the world’s first "smart" hearing facility; and
  • Both the Permanent Court of Arbitration and the International Chamber of Commerce have established case management offices in Singapore in 2018 to administer the growing number of cases being heard in Singapore and the wider region.

While one might wonder whether some of these institutions will compete against each other for the same disputes, in reality they are complementary, with each reinforcing the important message that Singapore is an open, transparent, efficient and predictable place for resolving international disputes.

Conclusion: the proof will be in the pudding

The future certainly bodes well for Singapore as a place for the resolution of cross-border disputes. Whether that includes a significant increase in mediations will depend in part on the rate at which states sign up to the Singapore Convention. Just as significant, however, will be whether commercial parties consider mediation to be a viable means for resolving international commercial disputes. While the joy of providing a gift to someone at this time of year can be rewarding in itself, in a commercial context that generous spirit must be reciprocated by all parties to a dispute in order for a mediation to be effective.

We take this opportunity on behalf of Dechert’s Singapore office to wish everyone happy holidays and a joyous and rewarding 2019.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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