On 7 August 2019, 46 countries signed the United Nations Convention on International Settlement Agreements Resulting from Mediation, also known as the Singapore Convention on Mediation. As Sana Mahmud explains, it is hoped that the Convention will raise the profile of mediation globally as an additional dispute resolution choice to litigation and arbitration for settling cross-border disputes.
Countries including the US, China, India, South Korea, Saudi Arabia and Qatar are now signatories. The United Kingdom and other EU countries, however, are yet to sign because the EU has not determined internally whether it should join as a bloc, or whether it is a matter for individual countries.
The application of the Convention, once ratified by the signatories, should be of interest to international contractors, particularly those looking to carry out works on infrastructure contracts under China’s Belt and Road Initiative (“BRI”).
Key features of the Convention
The Convention provides parties who have agreed a mediated settlement with a uniform and efficient mechanism to enforce the terms of that agreement in other jurisdictions, in the way that the New York Convention does for international arbitral awards. Without this mechanism, a party wanting to enforce the terms of a mediated settlement must bring an action for breach of contract and then seek to have the subsequent judgment enforced, potentially in a different jurisdiction.
Where a country has signed and ratified the Convention, a mediated settlement agreement can be enforced in that state, provided the settlement falls within the scope of the Convention. It can also be invoked as a defence to a claim that concerns a matter already decided by the agreement. Arbitration awards, court judgments and settlement agreements under which one party acts as a consumer, or where the subject matter concerns family, inheritance or employment law, are specifically excluded from the Convention’s scope.
The Convention applies to international settlement agreements resulting from mediation that have been concluded in writing and which resolve a commercial dispute. A settlement agreement will be classed as “international” under the Convention if the parties are based in different states or the dispute relates to works performed in a different country from where the parties are based.
A party seeking to enforce a settlement agreement under the Convention will have to show that it resulted from mediation. The Convention sets out a number of ways parties can do this, including having the mediator sign the agreement, providing a document signed by the mediator indicating a mediation was carried out, or an attestation by the institution that administered the mediation. In the absence of this, parties can provide any other evidence acceptable to the court or other competent authority enforcing the agreement.
If a party can show that the settlement agreement falls within the scope set out above, a relevant court or other competent authority in a signatory country has limited grounds for refusing enforcement.
Mediation and BRI disputes
Mediation is arguably becoming a preferred method of dispute resolution in Asia, driven primarily by China and the BRI. The vast scale of China’s infrastructure programme, which extends from the southern pacific to Europe, Africa and South America, means that disputes are likely to be cross-border and must be settled as efficiently as possible. A combination of mediation and arbitration provides an approach that in the first instance is less adversarial, reflecting a preference in China for consensus-based methods of resolving disputes that preserve the commercial relationship as far as possible.
Prior to the signing of the Convention, in January 2019, the Singapore International Mediation Centre and the China Council for the Promotion of International Trade entered into a memorandum of understanding which established an international panel of mediators to resolve disputes arising out of BRI projects. The ultimate aim of these two bodies is to develop a set of rules for case management and the enforcement of mediation settlement agreements arising out of BRI disputes. Other dispute resolution service providers have also recognised this trend and encouraged the use of mediation in BRI disputes with reference to their own rules and services. For example, the ICC recently published guidance which suggests adopting a tiered approach of mediation followed by arbitration in BRI contracts.1 The Singapore International Arbitration Centre and the Hong Kong International Arbitration Centre have also set up initiatives specifically focused on resolving BRI disputes.
Given the geographical reach of the BRI, which the World Bank estimates at over 70 countries,2 the use of mediation to settle complex commercial cross-border disputes is likely to increase significantly. International construction contracts on BRI projects will likely contain dispute resolution clauses that in the first instance call for mediation, followed by arbitration. A contractor will be able to enforce any resulting mediated settlement agreement in the same way it could an arbitral award, provided of course that the country in which it wants to enforce the award has signed and ratified the Convention.
Mediation in an English context
Mediation is widely used in construction disputes in England and the law surrounding it is relatively well established. Whilst a court cannot compel parties to resolve their disputes through mediation,3 the process is actively encouraged by the Civil Procedure Rules, Technology and Construction Court Guide and Pre-Action Protocol for Construction and Engineering Disputes. The overriding objective also states that the courts must deal with cases justly and at proportionate cost. Parties that refuse to participate in mediation or other forms of ADR unreasonably risk serious cost sanctions that can be imposed by the court.
Where a contract includes a dispute resolution clause containing an escalation and mediation procedure that acts as a condition precedent to litigation, the English courts may stay the proceedings pending referral of the dispute to mediation. This was confirmed in the recent case of Ohpen Operations UK Ltd v Invesco Fund Managers Ltd,4 where the court used its discretion to order a stay to proceedings until the parties had followed the steps set out in their contract’s ADR clause. Regarding the use of the court’s discretion, Mrs Justice O’Farrell stated in her judgment that:
“There is a clear and strong policy in favour of enforcing alternative dispute resolution provisions and in encouraging parties to attempt to resolve disputes prior to litigation. Where a contract contains valid machinery for resolving potential disputes between the parties, it will usually be necessary for the parties to follow that machinery, and the court will not permit an action to be brought in breach of such agreement.
The Court must consider the interests of justice in enforcing the agreed machinery under the Agreement. However, it must also take into account the overriding objective in the Civil Procedure Rules when considering the appropriate order to make.”5
In a European context, currently the UK has the benefit of the Mediation Directive6 which allows the enforcement of cross-border mediated settlement agreements through the national courts of other Member States. If the UK leaves the EU, it may lose access to this regime.
As mentioned above, the UK has not signed the Convention yet because it is still part of the EU; however, this does not mean that mediated settlement agreements signed in the UK will escape its scope. The Convention is not reciprocal, so it is possible to have a scenario where a settlement agreement signed in the UK can be enforced in another jurisdiction, if that state is a signatory and the project or a party’s assets are based there.
Criticisms of the Convention regime
Is it necessary?
One of the main criticisms of the Convention is that it is unnecessary because parties to a mediation arrive at a negotiated commercial settlement by mutual consensus. The process itself is voluntary, and the terms of any settlement agreement are agreed between the parties. Where parties have chosen to go through this process and have come to an agreement, it is unlikely that one party would not hold up its side of the bargain. The argument many commentators have made is that in practice, there is rarely a need for enforcement.
Reservations under Article 8
Additionally, the Convention contains reservation provisions that signatories can choose to apply, which would have the effect of significantly diluting the effectiveness of any cross-border enforcement regime.
The first reservation allows a signatory state to declare that the Convention will not apply to settlement agreements that it is party to, or that its government agencies are a party to. In the context of the BRI, and international infrastructure contracts generally, such a declaration may be problematic. In many large infrastructure contract disputes at least one party is often a government or public entity. In BRI cases involving Chinese state-owned contractors there may be a government entity on both sides. In a situation where one party must enforce the terms of a settlement agreement in a state that is also party to the settlement agreement, such a declaration by that state would prevent enforcement under the Convention. The use of this reservation by states party to international infrastructure contracts poses significant risks to the potential enforceability of any mediated settlement.
The second reservation allows a state to declare that it will only apply the Convention if all parties to the settlement agreement have agreed that it should apply. Again, this is potentially another obstacle to enforcement in jurisdictions that mandate an opt-in requirement. In order to avoid a situation where a party is unable to enforce an agreement, all parties must agree that the Convention will apply in advance of a dispute or the mediation process.
Declarations can be made at any time, so it remains to be seen if any of the current signatories apply the reservations in Article 8.
Other practical considerations
Another potential issue is the uncertainty that may arise if there is no administering institution and a mediator refuses to sign the settlement agreement or other document certifying that the mediation took place.
A recent English case provides an example of what can happen if a mediator is called to give evidence in litigation proceedings. In The Serpentine Trust Limited v HMRC,7 a mediator provided a witness statement in a tax dispute and was cross-examined on a note that he produced at the end of the day of the mediation. In this case, questions about the note were raised and the judge found the mediator’s evidence to be unreliable. Many mediators want to avoid the risk of being forced to give witness evidence in court in this way and, consequently, often refuse to sign agreements or documents. Another reason frequently cited is confidentiality.
In the absence of an administering institution or a signed document from the mediator, the party seeking to enforce the agreement must provide evidence acceptable to the relevant court or authority. These requirements could vary depending on the applicable law or procedure of the country in which enforcement is sought. It is therefore important to know prior to a mediation process whether a mediator appointed by the parties is willing to sign a settlement agreement or other document confirming that a mediation took place.
The issues identified above are potentially challenging. Whilst there are currently 46 signatories to the Convention, it remains to be seen how many will go on to ratify it. Those that do may also make declarations under Article 8 that could hinder enforcement of mediated settlement agreements to which governments or government agencies are party.
That said, one of the primary objectives of the Convention is to give parties confidence in the mediation process. This is particularly so in relation to parties from jurisdictions where mediation is not currently a widely accepted method of resolving disputes and where relevant national laws are less developed. There are obvious benefits of having parties adopt mediation as their preferred dispute resolution mechanism in cross-border disputes. A successful mediation can be more time and cost efficient than arbitration or court proceedings, and its non-adversarial approach is more likely to preserve the parties’ commercial relationship.
It is hoped that the Singapore Convention will do for mediation what the New York Convention has done for international arbitration. The adoption of mediation as the preferred method of dispute resolution in BRI contracts means that its use will undoubtedly proliferate globally as China’s vast infrastructure programme takes hold. If the countries that have so far signed the Convention go on to ratify it, international contractors should think seriously about including dispute resolution clauses in their contracts which include mandatory mediation provisions.