Alternative dispute resolution (ADR) processes play a significant role in assisting parties to resolve their disputes. This is particularly important in the commercial sector as it enables parties to resolve their disputes without the need for traditional litigation which is often formal, expensive and time-consuming.
An established ADR mechanism, mediation, is often utilised by parties throughout the various stages of a dispute. However, in an increasingly global economy, mediated settlements in disputes between parties with an international dimension suffer one key disadvantage in the absence of a universally recognised enforcement mechanism – they are not internationally binding.
Generally speaking, in the event that one party fails to adhere to the terms of settlement, the non-breaching party’s sole remedy is to sue for breach of contract by issuing new legal proceedings. No doubt, this will significantly increase the costs of and time to reaching a final resolution on a dispute.
The United Nations Convention on International Settlement Agreements Resulting from Mediation (otherwise referred to as the ‘Singapore Mediation Convention’) has the potential to reshape the ADR landscape by enabling the enforcement of mediated settlements throughout the world. Modelled after the New York Convention on the recognition and enforcement of foreign arbitral awards, the Singapore Mediation Convention provides a new legal framework for the recognition of international settlement agreements.
Since 2014, the United Nations Commission on International Trade Law’s (UNCITRAL) Working Group II has been investigating and developing ways to enhance the enforceability of international settlement agreements.
After three years of intense deliberation among member states, international governmental and non-governmental entities, UNCITRAL approved the final draft of the Singapore Mediation Convention and its associated model law on 26 June 2018. It is scheduled to be signed on 1 August 2019, and will enter into force six months after it has been ratified by at least three UN member states.
This new framework for the direct enforcement of international settlement agreements is comprised of two separate instruments:
- the Singapore Mediation Convention; and
- the model legislative text which amends the existing UN Model Law on International Commercial Conciliation (2002).
The two instruments are designed to complement each other, and much like the New York Convention, countries ratifying the Singapore Mediation Convention will have to take steps to incorporate its terms into their domestic law.
The Singapore Mediation Convention applies to ‘international’ settlement agreements resulting from mediation which have been concluded in writing by the parties. A settlement agreement is considered to be ‘international’ if either:
- at least two parties to the settlement agreement have their places of business in different countries; or
- the country to which the settlement agreement is closely connected to, or to be performed, is different from the respective parties’ places of business.
Interestingly, the Singapore Mediation Convention excludes settlement agreements which:
- have been concluded or approved in the course of a court proceeding;
- are enforceable as a judgement; or
- are enforceable as an arbitral award.
It is evident that the rationale for excluding such settlement agreements is that there are other widely accepted international mechanisms to cover such circumstances and preclude parties from having two bites at the apple, for example, the Hague Choice of Court Convention (Hague Convention) and the New York Convention.
It is not immediately apparent why an overlap between such regimes would necessarily be problematic given that instruments such as the Singapore Mediation Convention and the Hague Convention operate as floors as opposed to ceilings. However, there is a risk for an international settlement agreement to fall between the cracks and not be captured by any international regime. For example, consider the following circumstances:
- a settlement agreement that is enforceable as an order of a court, but does not derive from an exclusive jurisdiction clause (such an agreement would not engage either the Singapore or the Hague Convention); and
- a settlement agreement that is enforceable as a judgment in the country of origin, but not in the country of the counter party.
Further, in consideration of the limited number of countries which have ratified the Hague Convention to date, it really calls into question whether it is appropriate or necessary to impose such limitations on the scope of the Singapore Mediation Convention.
Although the Singapore Mediation Convention is yet to come into force, given the possibility that a settlement agreement may fall between the cracks of the different treaties, it may be prudent to incorporate into the dispute resolution clauses of contracts provisions which provide for mediation and the enforcement of mediated settlements through the Singapore Mediation Convention regime as a matter of contingency.
A party seeking to enforce an international settlement agreement pursuant to the Singapore Mediation Convention must provide the competent authority with:
- a signed copy of the international settlement agreement; and
- evidence that the international settlement agreement resulted from mediation.
The Singapore Mediation Convention does not prescribe any restrictions as to what evidence may be submitted to prove that the international settlement agreement resulted from mediation. However, it is worth noting that the requirements of Article 4 of the Singapore Mediation Convention (and in particular, the requirement to provide a signed copy of the international settlement agreement) may present some practical difficulties to a party seeking enforcement.
Successful mediations are often the product of ‘unusual’ settlements, which require ongoing actions and dealings. They are often not as simple as X pays Y a sum of money by 30 June, with mutual releases.
For example, upon the conclusion of a successful mediation process, while the parties may have agreed to resolve the primary or core dispute, sometimes it is the case that a range of ancillary matters may only have an ‘agreement in principal’ or alternatively, may be resolved on the basis of an agreement to agree on how a particular future issue will be treated in the future. By way of illustration, consider a hypothetical scenario involving a construction dispute between Party A (Builder) and Party B (Principal) in which the Principal alleges that the construction works completed by the Builder are defective and do not comply with the relevant contractual standards and specifications, including the relevant Australian Standards, Building Code of Australia and statutory warranties. Following a successful mediation process, the mediator has managed to ‘resolve’ the dispute with the Builder agreeing to:
- pay the Principal a settlement sum of $2,500,000 in full and final settlement of the issues in dispute in arbitration between the parties on a no admission of liability basis;
- return to site and rectify particular defects (Rectification Works) to the satisfaction of the Principal; and
- meet and undertake a further negotiation if latent conditions (Latent Conditions) are encountered.
In this scenario, notwithstanding that the core issue has been resolved, the parties have reached an ‘agreement in principal’, on the Rectification Works and may have an agreement to agree on the Latent Conditions. These components may be difficult to enforce (for the reasons set out below).
In practice, it is not always possible to finalise a settlement agreement at or immediately or shortly after the conclusion of mediation, particularly if the dispute is extremely complex. Enforcing a non-standard or ‘unusual’ mediation outcome may be problematic.
Further, it is worth noting that although there are no restrictions as to what evidence may be submitted to prove that the settlement agreement resulted from mediation, the possible ways set out in Article 4(b) of the Singapore Mediation Convention contemplate that proof may be provided by the mediator attesting to fact that the mediation occurred, or signing the settlement agreement. Generally speaking, mediators conscientiously:
- refuse to sign settlement agreements; and
- incorporate into their mediation agreements that they cannot be compelled to give evidence about anything said or done during and for the purposes of the mediation, including evidence as to whether or not the parties have reached an agreement resolving the matters in dispute in the exercise of their obligation of confidentiality and general practice as mediators.
As a result, where enforcement of a mediation outcome may be via the Singapore Convention, it is important that any resolution should be as comprehensively and well documented as is possible.
Exceptions to enforcement
Like the New York Convention, the Singapore Mediation Convention sets out a limited number of grounds for the competent authority to refuse granting relief.
Interestingly, these refusals are permissive rather than mandatory, and a competent authority may choose to grant relief despite a particular exception applying. These grounds for refusing to grant relief are set out in Article 5 to the Singapore Mediation Convention and can be considered in two distinct categories of exceptions.
Firstly, the grounds set forth in Article 5(1) are specifically concerned with the mediation process itself and permits parties to challenge the enforcement of settlement agreements if it can be demonstrated that:
- a party to the settlement agreement was under some form of ‘incapacity’;
- the settlement agreement relied upon:
- is null and void, inoperative or incapable of being performed under the law to which the agreement is subjected; or failing any indication thereof, under the law deemed applicable by the competent authority of the Contracting State where the agreement is sought to be applied;
- is not binding or final, is conditional so that the obligations in the settlement agreement of the party against whom the settlement agreement is invoked have not yet arisen;
- has been subsequently modified; or
- is otherwise incapable of being enforced because it is not clear and comprehensible;
- the obligations in the settlement agreement have been performed;
- there was a ‘serious breach’ by the mediator of the standards applicable to the mediator or the mediation, without which breach that party would not have entered into the settlement agreement; or
- there was a failure by the mediator to disclose to the parties circumstances that raise justifiable doubts as to the mediator’s impartiality or independence, and such failure had a material impact or ‘undue influence’ on a party, without which failure that party would not have entered into the settlement agreement.
Once the Singapore Mediation Convention has been ratified and adopted into a country’s domestic law, the meaning of these concepts will likely be informed by the relevant case law applicable in that jurisdiction or be given their natural ordinary meaning. However, for a party resisting relief, these concepts will be fertile grounds for argument during the enforcement process which would be problematic for parties wanting a fast and efficient process.
This implication is exacerbated by the critical fact that a competent authority will only have before it a signed settlement document of the parties and some evidence that mediation had taken place. Distinct from the process for enforcing arbitral awards, there will be no reasoning/judgement attached to the settlement documentation. As such, it calls into question as to how a competent authority will make its determination in the absence of an opportunity to forensically analyse the circumstances surrounding the mediation process, the settlement agreement and the evidence adduced by the parties.
In respect of Article 5(f), there is a noteworthy distinction between the Singapore Mediation Convention and the New York Convention. Unlike the New York Convention, Article 5(f) of the Singapore Mediation Convention requires not only the mediator’s lack of impartiality or independence in the process, but also that this mediator’s lack of impartiality or independence had a material effect on the outcome. In contrast, under the New York Convention, a party does not need to demonstrate that the circumstances had a material effect on the award. It is sufficient under Article V(1)(b) of the New York Convention to establish that a party not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case.
In addition, Article 5(1)(b)(ii) of the Singapore Mediation Convention permits a competent authority to refuse relief if the mediated settlement agreement is ‘not binding, or is not final, according to its terms’. As mentioned above, parties may conclude mediations with an ‘agreement in principal’. Therefore, notwithstanding that a party in this situation is unlikely to have a signed mediated settlement agreement, a party seeking enforcement will also be faced with an additional hurdle of having to establish that the ‘agreement in principal’ was binding. In such circumstances, parties in Australia will find themselves contemplating the principles set out by the High Court of Australia in Masters v Cameron  HCA 72 and claiming that the ‘agreement in principal’ falls within one of the categories recognised by the Australian courts as being legally binding.
It is also worth noting that the words ‘according to its terms’ implies a restriction on the competent authority that it may only look at what is explicitly stated within the four corners of the mediated settlement agreement, and is precluded from considering extrinsic evidence to determine whether the mediated settlement agreement is final or binding. This wording encompasses the concept of the ‘parol evidence rule’ that is widely recognised in Australia which would ordinarily prelude a party from adducing extrinsic evidence, subject to limited exceptions.
Similarly to Article V(2) of the New York Convention, Article 5(1)(b)(i) permits a competent authority to deny granting relief if the mediated settlement agreement is ‘null and void, inoperative or incapable of being performed’. This language is broad enough to encompass various contract law concepts, including fraud, misrepresentation, duress and undue influence. Again, this represents potential for a party to resist the enforcement of any mediated settlement agreement.
Secondly, there are two additional grounds for refusing to grant relief is set out in Article 5(2). These grounds are concerned with public policy considerations and may be raised sua ponte by a competent authority.
The New York Convention is regarded as one of the most successful single instruments adopted by UNCITRAL and has been one of the key drivers behind the success of international arbitration.
Now, 60 years on, a new contender has arrived. Despite its limitations, the Singapore Mediation Convention has great potential to expand the resolution of international disputes. Whether or not it will live up to this expectation will depend on whether a critical mass of countries choose to ratify the Singapore Mediation Convention, creating momentum for its use and recognition.
While only time will tell, Australia is very likely to be a key supporter given it is not only a member of the UNCITRAL Working Group responsible for the intense deliberations, but was also elected as its Rapporteur.