Sun 09 Aug 2020

On 7 August, 46 countries signed the United Nations Convention on International Settlement Agreements Resulting from Mediation. These states have to ensure that international commercial settlement agreements are enforced. After a promising start, there are doubts as to its future implementation.

With the dust not long settled on the birth of the long-awaited Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters, there is a new-born kid on the block: the United Nations Convention on International Settlement Agreements Resulting from Mediation (“Singapore Convention on Mediation”). On 7th August 2019, the Convention was signed by 46 States at an official signing ceremony in Singapore. The Convention will enter into force six months after being ratified by at least three contracting States.

The Convention, its Raison D'être, and Scope of Application

Recourse to mediation is on the rise in different areas of commercial law, including in those areas where mediation was not traditionally employed as a dispute settlement mechanism, such as in rescue and insolvency. There are numerous frequently cited advantages of mediation, including time and cost efficiency, confidentiality and its non-confrontational character (as opposed to litigation and arbitration). That being said, there is one primary obstacle to its global success: In a survey conducted in 2016–2017, the absence of a cross-border mechanism for enforcement of mediated settlement agreements was cited by many stakeholder groups as the main shortcoming that should be addressed in commercial dispute resolution. Parties often voluntarily abide by the terms of the settlement agreement resulting from mediation, but there are times when they fail to do so. It is imperative to have an enforcement mechanism in place in these instances.

In the absence of a cross-border framework for enforcement of mediated settlement agreements, the non-breaching party can generally only enforce the settlement agreement as a contract. This implies that a court judgment or arbitral award, depending on the agreed dispute resolution process, should first be obtained for breach of the settlement agreement. Enforcement of the judgment or award can then be sought. If the assets of the breaching party are located in a jurisdiction other than the one in which the judicial or arbitral proceedings took place, foreign enforcement of the judgment or arbitral award should be requested. Notably, the European Union Directive 2008/52/EC of the European Parliament and of the Council on Certain Aspects of Mediation in Civil and Commercial Matters (“EU Mediation Directive”) offers a framework for cross-border mediation. However, the directive does not envisage direct enforceability. In Article 6.1 of the directive, it merely states that: “Member States shall ensure that it is possible for the parties, or for one of them with the explicit consent of the others, to request that the content of a written agreement resulting from mediation be made enforceable”. In most of the EU countries, the homologation of the settlement agreement by a public authority, commonly notaries or judges, is necessary. This may result in the settlement being embodied in an instrument (judgment, decision or authentic instrument), which, in turn, can be subject to the applicable existing EU Regulations on intra-EU recognition and enforcement.

Exposing parties to time-consuming and costly processes, these formalities can undermine the expected efficiency of alternative dispute resolution (ADR) methods. This drawback has motivated some users to choose multi-tiered dispute settlement mechanisms, such as med-arb, which combine the flexibility of mediation with the finality and expedited enforcement of arbitral awards under the 1958 New York Convention for the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”). However, these hybrid methods have been criticised for compromising the “core values of mediator neutrality, party self-determination, and confidentiality”.

The Singapore Convention on Mediation eases the enforcement of settlement agreements resulting from mediation and expedites the procedure of enforcement of the agreement out of the assets belonging to the non-complying party located in another contracting State. The Convention applies to cross-border commercial disputes resolved through mediation, where “at least two parties to the [written] settlement agreement have their places of business in different States” (Article 1.1(a)) or in which 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” (Article 1.1(b)). However, the Convention excludes from its scope settlement agreements related to consumer, family, inheritance and employment matters (Article 1.2) those enforceable as a judgment or as an arbitral award (Article 1.3).

Unlike the EU Mediation Directive, the Singapore Convention on Mediation emphasises only the stage of enforcement and dispenses with the initial control at the country where the settlement agreement is reached. In other words, the Convention allows the enforcing party to directly enforce the settlement agreement in the courts, or by any other competent authority, of the country where the assets are located. This elevates an otherwise purely private contractual act to a sui generis status, which is comparable to the status of arbitral awards (see, T. Schnabel, The Singapore Convention on Mediation: A Framework for the Cross-Border Recognition and Enforcement of Mediated Settlements, 19 Pepp. Disp. Resol. L.J. 1 (2019)).

The party relying on the mediated settlement agreement should furnish the competent authority of a Contracting State with the signed settlement agreement and with evidence that the agreement was the result of international mediation (Article 4.1). The competent authority of a contracting State must then enforce the settlement agreement in accordance with its rules of procedure and provisions of the Convention (Article 3), unless it has grounds to refuse enforcement under the Singapore Convention (Article 5). By doing so, the Singapore Convention has left it to the contracting States to determine the exact mode of invocation and enforcement in accordance with their own rules of procedure. Given the great divergence among States concerning the methods of enforcement, prescribing a single enforcement procedure in the Singapore Convention could have jeopardised its success. This is also the approach followed by the New York Convention: it refrains from establishing a comprehensive procedural regime for the recognition and enforcement of foreign awards by making no reference to procedural matters, except for the documents to be submitted (Article IV) and the issues of burden of proof (Article V). However, the institution of mediation, as opposed to arbitration in 1958, is clearly still unconventional in the domestic legal systems. Many countries have not yet recognised and regulated it as a method for dispute resolution. Accordingly, there is a reasonable doubt as to the suitability of a similar policy adopted in the New York Convention for the Singapore Mediation Convention.

Uncertainties in Enforcement

Many domestic legal systems are still unfamiliar with mediation. As a result, if the determination of a particular model of invocation and enforcement of a mediated settlement agreement were left to the contracting States, it would lead to a great deal of uncertainty with respect to an effective application of the Convention in all jurisdictions. The absence of a clear mechanism would cause certain practical difficulties in the jurisdictions in which the enforcement of mediated settlement agreements – and more broadly, the mediation as an alternative dispute settlement mechanism – are not specifically recognised in the domestic legal system.

Iran, for instance, is one of the first 46 signatories of the Convention where mediation has not been recognised as a mechanism for settlement of disputes in its legal system. Therefore, there is no legal procedure for the enforcement of the settlement agreements resulting from mediation in Iran. Parties are allowed to resolve their dispute amicably or through negotiation of any kind.

Nevertheless, the procedure through which the parties reach the settlement gives their agreement no special features, enabling them to enforce it directly, as is the case with an arbitration award or a litigation judgment in the Iranian legal system. Instead, the agreement is considered a normal contract, breach of which would result in common remedies set out in the Iranian Civil Code, including specific performance as the first-ranked remedy.

Given the novelty of mediation as a dispute settlement mechanism in certain jurisdictions, such as Iran, the competent authority (if it exists and can be identified at all) will face some difficulties in the proper enforcement of, or in giving effect to, a mediated settlement agreement as prescribed under the Convention. In such circumstances, the competent authority of the contracting State does not possess the required platform for enforcement of the agreement. It can be enforced neither as a litigation judgment nor as an arbitral award. In the absence of an appropriate domestic framework, the competent authority has no choice but to proceed with the case as a normal breach of contract and to apply the applicable remedies. This is indeed not in conformity with the obligation of member States regarding the direct enforcement of cross-border settlement agreements.

When it comes to the grounds for refusing enforcement, more specific uncertainties would emerge. Because of the lack of domestic legislation regulating mediation and enforcement of mediated settlement agreements, the competent authority of the relevant contracting State would be unable to ascertain if the mediator has seriously breached the “standards applicable to the mediator or the mediation” (Article 5.1(e)). Apart from criticism of the excessive generality of the criterion set out in this paragraph, a clear-cut definition of “the standards” applicable to mediator or mediation appears to be far-fetched in the absence of a domestic law setting out the mechanisms for commercial mediation and its rules and procedures. The same is true of Article 5.1(f), precisely with respect to the criteria for mediator’s impartiality and independence. The learned lacuna cannot be filled by simply referring to the relevant domestic rules governing arbitrators. This is because the inherent differences between arbitration and mediation make it problematic to utilise the existing standards pertaining to independence and impartiality of arbitrators in the context of mediation. For instance, arbitrators, in contradistinction to mediators, are permitted to make a binding decision, which neither party may deviate from. This requires a higher threshold of independence/impartiality for arbitrators than mediators, whose recommendations have no binding nature on the parties.

In addition to the foregoing, the ground mentioned in Article 5.2(b) of the Convention is hardly enforceable in the absence of a domestic legal context for mediation. The ground addresses the mediatability of the dispute settled by mediation and enables the competent authorities of the contracting States to dismiss the relief sought, sua sponte. Due to the absence of a solid domestic framework for mediation, this ground may barely be applicable – because the legal system of the jurisdiction in question has not yet defined the boundaries for referring a dispute to mediation. In such circumstances, the competent authority from which the relief is sought is literally unable to determine if the subject matter of the dispute is undeniably capable of being settled by mediation.

How to Deal with the Complications in Enforcement

For contracting States that do not have a legal framework for mediation, and enforcement of the settlement agreements resulting therefrom, it is recommended that the essential rules and procedures be enacted in order to tackle this issue. This can be implemented in two ways. Firstly, those States may adopt the UNCITRAL Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation (“Model Law”) as the legal basis for their domestic meditation. The Model Law has been developed by theUNCITRAL Working Group II (Arbitration and Conciliation/Dispute Resolution), simultaneously with the Convention, in order to specify the procedural requirements for mediation. The Act may serve as the domestic legal platform for the operation of mediation and enforcement of the mediated settlement agreements, which can also inspire the competent authority in the application of the Convention.

The second method is for the contracting States to provide a clear procedure for recognition and enforcement, along with ratification of the Convention. This can also be defined in the same ratifying instrument or as a by-law to that legislative instrument. However, this method results in an unreasonable fragmentation of law where the international commercial mediated settlements can be enforced, while the nationals of the same contracting State, or the entities whose places of business are in that State, are deprived of any mechanism for the enforcement of their domestic mediated settlement agreements.

The above sheds light on a noteworthy issue: the immaturity of the mediation mechanism in the domestic laws of certain contracting States hinders the consistent enforcement of the Convention. It is not enough for the contracting States that no domestic equivalent framework for regulating mediation and enforcing the mediated settlements is embodied in their legal system to merely sign and ratify the Convention – a supporting platform is also required for the implementation of the Convention, in due course. This can be created by adopting the Model Law or by taking advantage of its provisions to set up a legal basis for mediation. Furthermore, the lawyers should always be vigilant and ensure, prior to seeking enforcement of a mediated settlement agreement, that the legal system of the relevant contracting State has already designed and put into practice an appropriate mechanism for the enforcement of settlement agreements resulting from domestic mediation.

 

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