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Settling international disputes - new global rules help parties enforce agreed terms

  • Legal Development 18 December 2020 18 December 2020
  • Global

  • Commercial Disputes

With all the difficulties caused by the pandemic, many parties are choosing to settle their disputes rather than take them all the way to a trial or final hearing. But how can they be sure that settlement terms will be honoured, once they have been agreed? Fortunately, the Singapore Mediation Convention has recently come into force, establishing a global set of rules that parties can rely on if enforcement is an issue. It only covers settlement achieved through mediation, and for the moment applies only to four countries (Fiji, Qatar, Saudi Arabia and Singapore), but as more countries join it will prove a useful tool for resolving a wide range of international disputes. It should also encourage the use of formal mediation procedures in countries where they are not currently the norm.

Most commercial disputes end in settlement.  If that wasn't the case, courts would have an impossible workload and arbitral institutions would be overburdened too.  Parties would also waste substantial sums fighting disputes to the bitter end.  However, settlement is not without its own challenges, one of those being to ensure that the agreed terms can be enforced easily if a party tries to back out. 

This is partly a question of making sure that a settlement agreement is properly drawn up. Too often parties rely on mere heads of agreement that may be too uncertain to be enforceable, or lack important detail.  However, it is also a question of taking steps to ensure that the agreed terms can be enforced without the need for a party to commence fresh legal proceedings.  Since a settlement agreement is a contract like any other, suing for breach of the agreement is always an option, of course, and in a jurisdiction where summary judgment is available, the new legal proceedings need not take very long.  However, it is always better to avoid fresh proceedings if that is possible.

The usual way of achieving this is to enshrine the settlement terms in a court order or an arbitral award.  (This is explicitly provided for in Article 33 of the ICC arbitration rules 2017, for example.)   Then the order or award can be enforced internationally under the relevant cross-border instruments - perhaps the Hague Convention on the Choice of Court Agreements 2005 in the case of a court order, or the New York Convention 1958 in the case of an arbitral award.  However, a further possibility has recently opened up with the launch of the Singapore Mediation Convention (SMC), which was concluded in August last year and came into force on 12 September 2020.  In principle, this allows all settlement agreements that are reached as a result of mediation to be enforceable across borders without recourse to the Hague and New York Conventions, although this will only be possible in certain circumstances and provided certain procedures are followed first.  

Procedural requirements

For a settlement agreement to be enforceable under the SMC, it must be signed by the parties (Art 4(1)(a)).  In addition, it must be possible to demonstrate that agreement was reached as a result of mediation, and was not simply the product of negotiation between the parties.    For this reason, the mediator must sign the settlement agreement or a separate document indicating that the mediation was carried out, or equivalent evidence has to be produced. This could take the form of an attestation by the relevant mediation institution, for example, although other forms of evidence are also allowed (Art 4(1)(b)).  

This all seems straightforward, until one remembers that mediation is not always organised by an institution, and mediators are often unwilling to sign mediation agreements.  They are facilitators, essentially, and do not want to be caught in the legal crossfire if a settlement unwinds. 

There is also a more fundamental question.  When does settlement really arise from a mediation, and does it just happen afterwards, without a causal link between the two?  Mediators often say that cases settle a few days or even weeks after a mediation finishes, rather than on the day itself.  Indeed a good mediator will follow up a mediation with conference calls or shuttle diplomacy if he or she feels that settlement is 'in the air'.  Alternatively, the parties may ruminate on points made during the mediation and decide to settle their dispute some weeks later, without further help from the mediator.  Are settlements reached in these circumstances the 'result' of mediation, and properly certifiable as such, or are they essentially independent of the procedure?  Normally this is just a debating point, but a definite answer is needed if a party is to rely on the SMC when enforcing settlement terms.

Pitfalls

In addition to procedural steps that need to be taken, there are certain pitfalls that parties should avoid.

Most importantly, Art 5(1)(e) & (f) require the mediator to meet certain professional standards and disclose any "circumstances that raise justifiable doubts as to the mediator's impartiality or independence."  However, it is not clear what the relevant standards are  -  presumably those applicable where the mediation takes place  -  or what "justifiable doubts" means in practice.   This uncertainty gives a disgruntled party plenty of opportunity to challenge a settlement agreement it does not like, although it may well have difficulty demonstrating the necessary link between the alleged malpractice and the parties concluding their agreement.  Lawyers relying on the SMC will need to think carefully about which professional standards apply in any given case, and do their best to ensure that the mediator complies with them. 

A second pitfall is failing to say in a settlement agreement that you intend to rely on the SMC, if it is your intention to do so.  This is not always a requirement, but it is necessary where a contracting state has taken advantage of Art 8(1)(b).  This is a form of hybrid opt in/out provision allowing a state to require parties to say expressly that they wish the SMC to apply to their settlement agreement if they are going to rely on it in enforcement proceedings.  Of course, one can always check the SMC status table to see whether the relevant state has imposed this requirement, but is only possible if one knows in advance where enforcement will take place.  In practice, that may be unclear, in which case the SMC should be expressly opted into as a precautionary measure.   

That said, parties are not permitted to keep all their options open.  The SMC is intended to supplement the existing Conventions that allow the enforcement of court orders/judgments and arbitral awards.   Whether out of tidy-mindedness or a desire to minimise confusion in the courts, the authors of the SMC have decided that the scope of the Conventions should not overlap.  Therefore parties are forced to decide at the outset whether they should enshrine their settlement terms in an order or award, or whether they will rely on the SMC instead.  They cannot do both (Art 1(3)).

The benefits of the Singapore Mediation Convention

Given these procedural requirements and pitfalls, and the alternative bases of enforcement that are already available, one might wonder how useful the SMC actually is, and whether it meets any genuine need. 

The short answer is that although arbitral awards are generally easy to enforce across borders, under the New York Convention 1958, court judgments are often much less portable.  True, the Hague Convention on Choice of Courts Agreements 2005 establishes a global enforcement regime for court orders and judgments, but it currently binds only the EU, Singapore and a few minor jurisdictions.  (The UK will join as an independent contracting state when the Brexit process is over.)  Sometimes parties can rely on regional instruments such as the Brussels Regulation Recast[1], or on bilateral arrangements or national enforcement rules.  US judgments are generally enforced in England on common law principles, for example, without the need for special arrangements between the two countries.  However, bilateral arrangements and national rules are often awkward to navigate or limited in scope.  In these circumstances, the SMC may provide a more convenient and reliable basis for cross-border enforcement of settlement terms.

Beyond these technical points there is also a broader issue: the need to promote mediation internationally as a viable way of resolving commercial disputes.  The fact that mediation is well-established in Europe and the USA, and in certain jurisdictions elsewhere, does not mean that it is universally accepted, at any rate as a free-standing procedure in the middle of court or arbitral proceedings.  In the Far East it is often practised in hybrid form (as part of 'Arb-med-arb') or at a very early stage, before legal proceedings begin.  The hope of the authors of the SMC is that by promoting mediation as an "alternative and effective method of resolving trade disputes", it will facilitate international trade and contribute to "strengthening access to justice and the rule of law."[2]  For this reason alone, the SMC is clearly a force for good.

End

Additional authors:

Giles Hutt

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