With the upcoming signing ceremony of the United Nations Convention on International Settlement Agreements Resulting from Mediation – known as the “Singapore Convention” – this article will set out a number of key takeaways from the new multilateral agreement, as well as the important provisions to keep in mind at both the contract drafting and post-dispute stages.
- A new tool is being added to the international dispute resolution regime and must be considered at the contract drafting stage when deciding whether to use multi-tiered or bespoke dispute resolution clauses best suited to your individual needs and business case.
- Post-dispute, parties might now give more serious consideration to agreeing to use mediation before proceeding to arbitration or litigation, as the case may be.
- Increased certainty on the enforceability of mediated settlement agreements by way of the Singapore Convention will likely bring with it a reduction in transaction costs in certain historically troublesome jurisdictions.
- Parties must be conscious of the prospective applicability of the Singapore Convention when entering mediated settlements and should consult with counsel on the potential need for asset tracing or other measures to ensure that any settlement agreement will be enforceable under the circumstances for each case.
The enforceability of international arbitral awards in more than 157 jurisdictions across the globe under the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) has long been one of the most attractive characteristics of arbitration – especially across the energy and construction industries. However, the lack of similar enforceability for settlement agreements reached through mediation has left the practice as a less commonly utilized tool, despite its recognized benefits, e.g., maintaining long-term business relationships and providing parties an outlet for ventilating emotional or legally inadmissible points in commercial disputes.
Instead, mediated settlements in most jurisdictions may leave the parties in the same situation they were in before the mediation, i.e., needing to enforce the settlement agreement as a contract in local courts. While many settlement agreements may be (and historically have been) converted into “consent decrees” by some local courts or “consent awards” by arbitral tribunals, those conversions leave parties beholden to court or arbitral processes, as they may only occur in an existing dispute and the parties have gone to either litigation or arbitration. Additionally, consent decrees may still leave the party with an issue due to the more limited breadth of the 2005 Hague Convention on Choice of Court Agreements, depending where your opposing party has assets.
Enter the Singapore Convention
The international community has been pondering the best way to address this issue for years, but it remained unaddressed until 2014, when the US proposed that UNCITRAL’s Working Group II (Arbitration and Conciliation) pick up the torch. The proposal led to three years of debate, involving 85 member states and 35 international governmental and non-governmental organizations. Ultimately, the UN General Assembly adopted the draft convention in late 2018.
The Singapore Convention will apply to settlement agreements arising out of international commercial disputes that have been concluded during the course of mediation and are recorded in writing. While the drafters chose the term “mediation,” they made it clear that it includes any third party-assisted process where the third party lacks the authority to impose a decision on the parties, including conciliation and other modes of facilitated settlement agreed upon by the parties. However, settlement agreements arrived at during the course of consumer disputes or disputes involving family, inheritance or employment law will remain unenforceable under the Singapore Convention, and the drafters specifically exempted settlements that fall under the existing enforcement schemes (e.g., consent awards and court enforcement regimes).
The Provisions of the Singapore Convention
Below, we set out a few of the most important aspects of the Singapore Convention that should be considered when entering a dispute resolution clause or taking advice on an existing dispute.
- The settlement agreement must be (i) in writing; (ii) signed by the parties, executed in person or by electronic means; and (iii) be supported by evidence that the agreement was the result of a mediation.
- The settlement agreements must be “international” in nature, i.e., between parties with their respective places of business in different states or a substantial part of the obligations are performed in another state or the subject matter is most closely connected to another state.
- The convention can be used as both a sword and a shield, allowing a party to rely on it directly in an enforcing court or as a defense to prove that a claim raised by the opposing party has already been resolved by way of a settlement agreement.
- Leveraging its proven track record in arbitration, the Singapore Convention uses the enumerated grounds for refusal of enforcement or defense from the New York Convention as a starting point, tweaking and adding to them to fit the context of mediation to create the following grounds for refusing relief:
- A party was under some incapacity or the agreement was null and void, inoperative or incapable of being performed under the applicable law
- Agreement is not binding, not final or has subsequently been modified
- Obligations set out in the agreement are not clear, have been performed or granting relief would be contrary to its terms
- Mediator seriously breached the standards applicable to the mediator or the mediation, without which the parties would not have entered the agreement
- Mediator failed to disclose circumstances giving rise to justifiable doubts as to their impartiality or independence, which had a material impact or undue influence, without which the parties would not have entered the agreement
- Competent authority finds that either (i) granting relief would be contrary to that jurisdiction’s public policy or (ii) the subject matter of the dispute is not capable of being resolved by way of settlement through mediation
- Two potential reservations are available to states: the applicability of the convention to settlement agreements where the state or one of its government agencies are party, and a requirement for the parties to have expressly agreed to the application of the convention.
What Is Next?
Following the signing ceremony, the true test will be whether the Singapore Convention becomes as ubiquitous and widely ratified as the New York Convention. While this will take time, it can be expected the same pressures encouraging states to adopt the New York Convention in the arbitration context – e.g., attracting foreign direct investment – will help to bring broad support for the Singapore Convention as well. Only time will tell, but the wide support and consensus received in the debate and drafting sessions is an encouraging sign that the Singapore Convention will have a substantial impact on the international dispute resolution community.