Commercial Mediation and Singapore Mediation Convention

Introduction

This work will outline the situation on international commercial mediation settlement agreement enforcement. The work will describe mediation, its benefits and current situation, then it will touch on current mediation settlement agreement enforcement issues, further will look at how and why the Singapore Mediation Convention came to be and eventually will analyse what potential future impact the new convention could bring.

Mediation

Mediation is a ‘mechanism for the settlement of disputes between two or more persons by a neutral third party (the mediator), and this person's main task is to facilitate and assist parties to negotiate to reach a settlement’[1]. The mediation process requires both parties and the mediator to be proactive to reach the dispute settlement. The mediator is not judging, but is there only to support both parties to reach a settlement, the mediator is neutral, he is not expected to submit any proposals or enforce any terms on either of the parties.[2]

Mediation, in comparison with other means of dispute settlement, such as court or arbitration, is inexpensive and short. The process is fully controlled by both parties by agreeing on the process terms and the mediator, and the final settlement is made only if both parties mutually agree on the settlement terms by writing and signing a settlement agreement.

For these and other reasons, many disputing parties trust that mediation is the best mechanism for settling commercial disputes[3], more so, because it is the best way to save commercial relationships between disputing parties. The success of the mediation is obvious by the ever increasing use of it in practice[4]. The most probable main reasons for its success are the high settlement success rate of about 80%, and because parties see the process as a win-win, as at the end there are no losers.[5]

Mediation settlement agreement

Eventually, following a successful mediation, parties would note the agreed terms in an agreement, mediation settlement agreement, which essentially is a contract between both disputing parties and, as such, can be enforced in a court same as any other contract. If a party would not have the opportunity to enforce the settlement, then the parties would most probably not consider the mediation process as beneficial. Therefore, when drafting the settlement, it would be advisable for parties to also agree on the law and jurisdiction governing the settlement, in case one of the parties breach the settlement agreement.

In comparison with court orders or arbitration awards, the mediation settlement agreements are complied with at a much higher rate[6]. This is because both of the parties themselves reach the agreement, by considering the ability to comply with proposed terms, schedules and sums of money, consequently mutually regarding interests and equality of each other[7]. In arbitration, same as in litigation, the losing party will be unhappy and, therefore, could try to avoid execution of the resolution, which is why an effective enforcement mechanism is required. As in mediation, both parties sign the settlement as an agreement and they generally comply with the agreed, but in rare cases, following the settlement, one of the parties can be unwilling to comply. In these situations, an efficient enforcement procedure would be helpful.

Mediation brings many positive aspects besides the above mentioned, however, the following are some examples why one of the parties may hesitate to comply with the settlement: change of opinion, change of circumstances, influence of a third party, or tactical delay, where a party signs the settlement misusing the process to delay other proceedings. Although the mediation process is saving time and money for both parties, if the settlement is not being complied with, then it significantly wastes both: time and money. In such cases, one of the parties would then have to seek enforcement of the settlement agreement in a court as a breach of contract, which is what both parties wanted to avoid by turning to mediation. Additionally, the enforcement of the settlement agreement may be in a different country, which would be an even more lengthy and costly process.

Enforcement of mediation settlement agreement

Mediation settlement agreements currently cannot be enforced internationally in the same efficient and Internationally unified way as arbitration orders due to The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Convention. The New York Convention ‘is the most successful multilateral instrument in the field of international trade law. It is the centrepiece in the mosaic of treaties and arbitration laws that ensure acceptance of arbitral awards and arbitration agreements’[8]. Thanks to this Convention, disputing parties can rest assured that the settlement order will be complied with, as otherwise it will be enforced. Mediation, however, does not currently have such an Internationally unified mechanism.

In situations where litigation or arbitration proceedings have already been started and disputing parties reach a settlement via mediation, the mediation settlement can then be regarded as a consent order in the case of litigation or mutually agreed award in the case of arbitration.

In cross-border disputes, parties can apply for a Mediation Settlement Enforcement Order (MSEO), which then can be enforced in the same way as a court order or an arbitration award. To obtain MSEO both disputing parties must specifically consent to submission for the enforcement of the mediation settlement. If the consent order or MSEO is made in a court of a European country then the enforcement arrangement exists by the Regulation (EC) No 44/2001 on Jurisdiction and Judgments Regulation. If parties do not meet the conditions for obtaining a consent order or MSEO then the mediation settlement agreement ‘can be enforced by suing for breach of the terms of the settlement agreement, obtaining a judgement in the claim, and then enforcing the court order’[9].

In most jurisdictions, mediation as such is a voluntary process, but in few countries where it is obligatory, such as in Italy for disputes regarding disposable civil and commercial rights[10], an effective enforcement process is required to support the mandatory mediation. The following are a few country examples to explore how mediation settlements are being enforced:

·        Italy – to enforce a mediation settlement agreement, it must be presented to the court or, if it is certified by lawyers, it can be directly enforceable within Italian territory. Other settlement agreements, including international, are treated as contracts[11].

·        Korea – the Korean Commercial Arbitration Bureau in their arbitration rules also include provisions regarding conciliation and legal effects of the resulting settlement agreements. A settlement agreement reached regarding Intellectual Property is binding and grants the same effect as a conciliation order of a court[12].

·        Kingdom of Saudi Arabia – no specific law regulates mediation settlements, but the judicial system does not reject local or international settlement agreements, as the Holy Koran encourages their fulfilment. The laws, however, highlight the requirement for procedure legitimacy to ensure the settlement enforceability[13].

·        United Kingdom – for many years mediation practice has been well established, the same as the case law relating to the enforcement of domestic settlement agreements. For cross-border settlement agreements, based on European Directive on ‘certain aspects of mediation in civil and commercial matters’[14], Ministry of Justice introduced mediation directive[15].

In conclusion, here can be noted that the enforcement of mediation settlement agreements in every country is currently being dealt with differently, there is no unified approach and, therefore, to be able to enforce a mediation settlement, the party would have to do a thorough research on country legislation or better consult local lawyers, which would require time and further expenses.

UNCITRAL on mediation

Internationally, there is no unified standard for mediation settlement agreement enforcement and the European Directive on ‘certain aspects of mediation in civil and commercial matters’[16], same as the United Nations Commission on International Trade Law (UNCITRAL) Model Law on ‘International Commercial Mediation’[17], do not provide this either. Procedures and practice which may look effective in common law jurisdictions can be unusable in civil law jurisdictions and other way around.

UNCITRAL, most probably, is best known for its ‘Model Law on International Commercial Arbitration’[18] and its Arbitration Rules[19], but, since 1980, it also has a substantial role in mediation, following the publication of ‘Conciliation Rules’[20] and in 2002 the ‘Model Law on International Commercial Conciliation’[21].

In 2007, following the 40th session of UNICITRAL Congress, the document on ‘Modern Law for Global Commerce’[22] was published, where among other things, issues of agreement enforcement were also addressed. Following this, in 2014, the United States proposed UNCITRAL Working Group II to consider issues of enforcement of international commercial settlement agreements resulting from conciliation, which includes mediation, and thereby develop multilateral convention[23]. It was documented that ‘the lack of a harmonised enforcement mechanism was a disincentive for businesses to proceed with conciliation’[24]. Eventually, UNCITRAL Working Group II started work on a mechanism for mediation settlement agreement enforcement that would work similarly as the New York Convention for arbitration awards.

Singapore mediation convention

In 2018, following the 68th session of UNCITRAL Congress, the wording was formally approved of the new multilateral convention on the enforceability of international commercial mediation settlement agreements. It was agreed that the new convention will be known as the Singapore Mediation Convention (the Convention), because the signing ceremony is expected in Singapore, which will be on 1st August 2019, and the Convention will come into force once it is signed by at least three states.[25]

The Convention idea was to encourage parties to use mediation for settlement of international commercial disputes, because the Convention will provide international enforcement availability similarly as the New York Convention is currently providing for arbitration awards. The Convention describes circumstances in which the enforcement is available, as well as the required evidence and situations when the enforcement can be refused.

The second and, the most important goal of the Convention was to provide an efficient, unified and strong mechanism for situations when a party breaches an international commercial mediation settlement agreement to save time and money for the other party when enforcement of the settlement is required. Once the Convention comes into force, instead of suing for breach of contract, which in international disputes usually takes a lot of time and money, parties will instead be able to directly go to court in the country where the enforcement is sought.

Additionally, the Convention was supported due to the belief that mediation ‘results in signi?cant bene?ts, such as reducing the instances where a dispute leads to the termination of a commercial relationship, facilitating the administration of international transactions by commercial parties and producing savings in the administration of justice by [member] States’[26].

In the creation of the Convention, eighty-five countries and thirty-five non-government organisations were involved. Discussions took place over eight UNCITRAL Working Group II sessions, for which the elected chairperson developed agendas, guided involved parties, outlined and secured agreements and disagreements, and by introducing global expert and practitioner views, developed the Convention.[27]

The Convention provisions

The preamble of the Convention notes ‘that mediation is increasingly used in international and domestic commercial practice as an alternative to litigation’ and ‘that the use of mediation results in significant benefits’[28]. The Convention has a total of sixteen articles and the following is a quick summary on some of them:

·        1st Article. Scope of application. The Convention would apply to cross-border commercial disputes settled by using mediation, where at least two parties of the settlement have their businesses in different countries or where parties ‘have their places of business different from either the State in which a substantial part of the obligations under the settlement agreement is performed or the State in which the subject matter of the settlement agreement is most closely connected.’ Also, the first article specifically excludes settlements that are related to family, inheritance, consumer and employment matters, and those settlements that are enforceable as a judgment or an arbitration award.

·        2nd Article. Definitions. Defines terms that are used in the Convention, such as ‘in writing’, ‘place of business’, which includes electronic form, and ‘mediation’ as such.

·        3rd Article. General principles. Notes principles and obligations of member countries, as well as allows a member to invoke a defence ‘to prove that the matter has already been resolved’[29].

·        4th Article. Requirements for reliance on settlement agreements. This article lists requirements that must be provided for enforcement of the settlement. The list includes ‘settlement agreement signed by the parties’ and ‘evidence that the settlement agreement resulted from mediation’[30]. This article also addresses matters related to electronic communication, translation requirements and demands that the settlement is to be enforced ‘expeditiously’.

·        5th Article. Grounds for refusing to grant relief. This article covers grounds for refusal of the enforcement, such as the incapacity of a party, the settlement is null or void, incapable of being performed, is not final according to its terms or has been subsequently modified, the obligations have been already performed or there was a breach of mediator independence.

·        6th Article. Parallel applications or claims. Notes that the competent authority can adjourn its decision if an application or claim related to the enforceable settlement was made in court, arbitration or other competent authority.

·        7th Article. Other laws or treaties. Allows courtiers flexibility to ratify national legislation to expand the scope on the first article.

·        8th Article. Reservations. Allows countries reservations when signing the Convention, such as related to the country or its governmental agency and that the Convention applies only if parties to the settlement have agreed to the application of the Convention.

·        9th Article. Effect on settlement agreements. Clarifies that the settlements covered by the Convention include those that are made after the Convention will come in to force.

The further articles provide provisions on ratification of the Convention, such as acceptance and approval, entry into force, amendment proposals and denunciation.

The potential impact of the Convention

Once the Convention is signed by at least three countries, parties if needed, will be able to submit their international commerce mediation settlement agreements for enforcement in the member states, the same way as it is currently available for arbitration award enforcement due to New York Convention, which for many decades, although not without some exceptions, altogether has been working quite well.

Eventually, the potential impact of the Convention could be the following:

·        More laws on mediation. Countries that will sign the Convention will most likely have to pass internal legislation to incorporate the new mechanism in to national laws. This would lead to more countries having internal laws on the mediation, which could be more widespread, covering more aspects of the mediation than just enacting the Convention, such as confidentiality, proceedings and mediator appointment. UNCITRAL, as an example, has already amended its Model Law on International Commercial Conciliation[31], to include the Convention and address ‘mediation’ instead of ‘conciliation’.

·        More attention to the mediation process. Parties which will want to resist the enforcement will have to refer to the limited provisions of the Convention where the court can refuse the enforcement. Among others, these include lack of mediator impartiality or independence and breach of mediator standards in the process of the mediation. Same as now in arbitration, a party can argue that the arbitrator has mishandled the process, the same way in mediation it will be possible to argue the enforcement of settlement due to mediator impartiality or mishandled process. It is not likely for there to be many of these cases, but since every such case would throw a negative spotlight on the mediator, this would encourage best practice.

·        More mediations administered by institutions. For a party to be able to enforce a settlement agreement, provided by the Convention, it is required to prove that the settlement has been a result of mediation, which can be provided by the mediator or the administering institution. To be sure to be able to comply with this requirement, parties may prefer to use an institution for the mediation, as that would be the most certain way to certify any settlement. Thus, mediators could start preferring to offer their services using appointments of institutions to benefit from this. In the result, there could be more mediations administered by institutions.

·        More mediation. The Convention was created with the purpose to attract more international commercial disputants to the mediation process, as, among other things, it would save the commercial relationships and would take some burden off from the courts. Taking in to consideration the success of New York Convention for arbitration award enforcement and that the mediation Convention was created based on it, it is most likely the purpose of the Convention will be achieved and commercial disputants will consider mediation as an option more than before.

Conclusion

The use of mediation to resolve international commercial disputes is on a continuous rise, most probably, due to the process simplicity, freedom of the parties, high settlement rate and the more possible potential to continue commercial relationships between disputants following the resolution.

Currently, if one of the parties does not comply with the settlement, there is no unified way to enforce the agreement as the practice varies from country to country. Whereas, once the Convention would come in the force, parties would be able to rely on a unified mechanism of enforcement of mediation settlements, which would consequently grant better reliability to the mediation process for the settlement of international commercial disputes.

The Convention would also bring to minimum mediation cases, where, following the settlement, due to change of opinion or outside influence of a third party, or most importantly tactical delay, a party would avoid complying with the agreed. Once there would be a unified international enforcement instrument, parties would have to comply with the settlement. Therefore, the potential untrustworthiness towards the process of mediation for settling commercial disputes, would be theoretically eliminated, which eventually could cause increase the use of mediation.

With enforceable mediation settlement agreements, parties would settle only if intended to comply, therefore granting the process higher reliability and better possibility for commercial relationship continuation. Parties would not start such process for a dispute resolution, unless their intentions are to settle. The Convention would promote trust in the mediation process, as parties could rest assured that the settlement will be complied with.

The Convention, eventually, will also raise the standards of mediation within the resolution of international disputes. The New York Convention for many decades has been a pillar for arbitration award enforcement and consequently the standard improvement of the process. The same effect would be expected from the Convention in relation to the mediation process.

The New York Convention has been signed by 159 countries and that is the most important aspect, which grants it the biggest importance. The hope is that the popularity of the Convention will be about the same, but it will be seen following the day of the official signing on 1st August 2019.

As more countries will sign the Convention and adopt necessary mediation laws, more parties will be aware of potential gains of settling their international commercial disputes using the mediation process, instead of going through time consuming and expensive alternatives: litigation or arbitration. Therefore, possibly, the Convention will change the situation within international commercial dispute resolution and make the mediation the most likely option for commercial parties to settle their disputes.

[1] M McIlwrath and J Savage, International Arbitration and Mediation: A Practical Guide (The Netherlands: Kluwer Law International, 2010)

[2] AG Ciancio, ‘Mediation at the Intersection with Contract Law: The Settlement Agreement’ (2013) SSRN <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2272989> accessed 27 March 2019

[3] MAM Ismail, International Commercial Arbitration: A Comparative Study (Istanbul Chamber of Commerce, 2007)

[4] The Centre for Effective Dispute Resolution, ‘The Eight Mediation Audit’ (2018) CEDR <https://www.cedr.com/docslib/The_Eighth_Mediation_Audit_2018.pdf> accessed 26 March 2019

[5] E Sussman, 'The Final Step: Issues in Enforcing the Mediation Settlement Agreement' (2008) SUSSMANADR <https://sussmanadr.com/docs/Enforcement_Fordham_82008.pdf> accessed 26 March 2019

[6] Ciancio (n 2)

[7] University of California Los Angeles, ‘UCLA Law Review’ (2007) LAWUCLA <https://www.law.ucla.edu/student-life/law-reviews-and-journals/ucla-law-review/> accessed 27 March 2019

[8] International Council for Commercial Arbitration, ‘ICCA Guide to the Interpretation of the 1958 New York Convention’ (2011) ARBITRATION-ICCA <https://www.arbitration-icca.org/media/1/13890217974630/judges_guide_english_composite_final_jan2014.pdf> accessed 30 March 2019

[9] S Blake, J Browne, S Sime, A Practical Approach to Alternative Dispute Resolution (4th edn, OUP, 2018)

[10] The United Nations Commission on International Trade Law, ‘Working Group II 2000 to present: Arbitration and Conciliation / Dispute Settlement’ (2018) UNCITRAL <https://www.uncitral.org/uncitral/en/commission/working_groups/2Arbitration.html> accessed 26 March 2019

[11] ibid

[12] ibid

[13] ibid

[14] Directive 2008/52/EC of the European Parliament and of the Council on certain aspects of mediation in civil and commercial matters [2008]

[15] Rules and Practice Direction Part 78 – European Procedures [2019] MJ

[16] Directive (n 14)

[17] UNCITRAL Model Law on International Commercial Conciliation 2002

[18] UNCITRAL Model Law on International Commercial Arbitration 1985

[19] UNCITRAL Arbitration Rules 2010

[20] UNCITRAL Conciliation Rules 1980

[21] UNCITRAL (n 17)

[22] UNCITRAL (n 10)

[23] ibid

[24] ibid

[25] ibid

[26] International Mediation Institute, ‘The Singapore Convention: A First Look’ (2018) <https://www.imimediation.org/2018/10/24/the-singapore-convention-a-first-look-2/> accessed 27 March 2019

[27] Ibid

[28] UN Convention on International Settlement Agreements Resulting from Mediation 2019

[29] ibid

[30] ibid

[31] UNCITRAL Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation (2018)

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