Hailed as a "game changer"1 , the United Nations Convention on International Settlement Agreements Resulting from Mediation ("Convention") is viewed to be a powerful tool championing the use of mediation as a viable option for parties who want to swiftly resolve international commercial disputes.

STATUS QUO AND LANDMARK SHIFT FOR MEDIATING CROSS-BORDER DISPUTES

Instead of embarking on long drawn out legal battles, the use of mediation to resolve commercial disputes is sometimes taken to reduce the risk of turning important relationships sour to the point of no return. However, parties to mediated settlement agreements have often cited difficulty when one of them does not comply with its obligation thereunder and the other must then enforce the settlement agreement through court proceedings or arbitration.

The enforcement process becomes more complicated if it relates to cross-border disputes where the court judgment or arbitral award needs to be enforced in another jurisdiction where the assets are located. Both processes may involve substantial time and costs, thereby delaying the ultimate remedy to the party seeking enforcement. With that backdrop, mediation frequently takes a back seat in the drive towards the resolution of disputes.

THE BIRTH OF THE CONVENTION

An initiative mooted by U.N. Commission on International Trade Law (UNCITRAL); the U.N. General Assembly adopted the Convention on 20 December 2018. The Convention, also known as the 'Singapore Convention on Mediation', provides a process for the enforcement of cross-border settlement agreements between parties resulting from mediation through an application directly to the courts of the State where the assets of a defaulting party are located.

The Convention was open for signature on 7 August 2019. The signing ceremony of the Convention recorded the highest number of first-day signatories to a United Nations trade convention, with 46 States including the United States, China, India, Republic of Korea, Singapore and Malaysia signing the Convention.2 As at 12 March 2020, the Convention has obtained the requisite minimum of three signatories, namely Singapore, Fiji and Qatar who have ratified the Convention and it shall enter into force on 12 September 2020.3

In this article, we highlight the salient provisions of the Convention and discuss the practical challenges that could negatively impact its success.

KEY PROVISIONS

Scope of Application – It's Just Business

Article 1 confines the scope of the Convention to written mediation agreements which resolve international and commercial disputes. The settlement agreement has to be international at the time of its conclusion in that:

  1. at least two parties to the agreement have their places of business in different States; or
  2. the State in which the parties to the agreement have their places of business is different from either (i) the State where a substantial part of the obligations under the settlement agreement is performed, or (ii) the State where the subject matter of the settlement agreement is most closely connected.

The Convention expressly excludes certain categories of settlement agreements, namely those that: (a) arise from transactions engaged by one of the parties for personal, family or household purposes; (b) relate to family, inheritance or employment law; (c) have been approved by a court or concluded in the course of proceedings before a court and are enforceable as a judgment in a court; or (d) are recorded and enforceable as an arbitral award.

The UNCITRAL Working Group generally felt that settlement agreements dealing with family and labour law matters, and other areas where public policy had limited party autonomy, should be excluded from the scope of the instrument.4 The underlying rationale behind such exclusions can be easily understood as the Convention focuses only on commercial activities.

However, in the face of unrelenting technological advancements, which gave birth to the borderless nature of cryptocurrencies and digital assets, together with rapid globalisation and international migration, the Convention and its safeguards against conflicting laws and issues of public policy vis-à-vis Article 5 could have been an effective mechanism to expand the usage of mediation in complex cross border family and inheritance law disputes. The exclusion is a missed opportunity in an age where it is increasingly common and easier for a person to own assets in multiple jurisdictions.

Definition of Mediation

Article 2(3) provides a wide definition of mediation as being a process where parties "attempt to reach amicable settlement of their dispute with the assistance of a third person or persons ("the mediator") lacking the authority to impose a solution upon the parties."

The Convention applies "irrespective of the expression used or the basis upon which the process is carried out." This wide definition emphasises substance as opposed to form when defining the mediation process. The Convention will apply to ad hoc or institutionalised mediations and there are no formal or mandatory requirements for the mediation to be carried out by an accredited mediator.

In Malaysia, section 3 of the Mediation Act 2012 ("the Act") defines mediation as "a voluntary process in which a mediator facilitates communication and negotiation between parties to assist the parties in reaching an agreement regarding a dispute." This definition is in line with the wide definition adopted by the Convention.

Formalities for Enforcement

Article 4(1) sets out certain formalities which must be fulfilled before relief can be granted in reliance on a settlement agreement. The party relying on a settlement agreement under the Convention is required to provide to the competent authority in the State where relief is sought:

  1. a settlement agreement signed by the parties; and
  2. evidence that the settlement agreement resulted from mediation.

On the latter requirement, the Convention provides a range of options to show that the settlement agreement resulted from mediation, such as the inclusion of the mediator's signature on the settlement agreement, a document signed by the mediator indicating that mediation was carried out, an attestation by the institution that administered the mediation or other evidence acceptable to the competent authority.

This requirement for evidence of the mediated settlement agreement bearing the mediator's signature may pose a dilemma to certain mediators. Many mediators are reluctant to sign a settlement agreement to uphold the image of neutrality and to avoid being attached with certain rights, obligations and liabilities arising from the settlement agreement if parties' relationships subsequently turn sour. Some mediators also decline to comment as to whether a mediation was carried out, and the identities of the parties involved, in the exercise of their obligation of confidentiality.

However, some argue that the authentication of a mediated settlement agreement to confirm whether the mediation proceedings took place is merely a procedural requirement and will not affect one's neutrality. It is noteworthy that academics and mediation advocates have proposed the implementation of a Mediation Settlement Certificate as a standardised form of authentication of mediated settlement agreements. If adopted and required generally, the standardised nature would mitigate the aforesaid concerns of mediators on authentication. Given that some mediators have voiced out their concerns in this regard, it would be interesting to see how various States would approach this issue when legislating their domestic laws to implement the Convention.

In the Malaysian context, section 13 of the Act provides that a mediated settlement agreement "shall be in writing and signed by the parties" and that "the mediator shall authenticate the settlement agreement". The mandatory requirement for a mediator to authenticate the settlement agreement is not in breach of any confidentiality or privilege under Malaysian law as mediation communication does not attract absolute confidentiality and privilege under sections 15(2)5 and 16(2)6 of the Act respectively.

Another issue to be considered is the relevant State's court procedures and rules, and what is required to make an application to the court for the enforcement of the mediated settlement agreements. For example, in an enforcement of an arbitral award in Malaysia, the enforcing party must exhibit the "duly authenticated original award or a duly certified copy thereof".7 It begs the question of whether parties are required to stamp a mediated settlement agreement so that it can be adduced in court proceedings where enforcement is sought.

In Malaysia, the Stamp Act 1949 ("Stamp Act") dictates that a stampable instrument that is unstamped or insufficiently stamped is inadmissible as evidence in a court of law and cannot be acted upon by a public officer8 , i.e. even if it has been authenticated by a mediator/mediation institution. Whilst there is no provision in the Stamp Act which expressly requires a mediated settlement agreement to be stamped, the nature of the agreement may be subject to stamp duty charges. In certain jurisdictions such as Malaysia, an instrument involving the payment of specified sums or other obligations is subject to ad valorem stamp duty, which could amount to a substantial sum as well as potential penalties for late payment. Parties may then need to consider whether it is too cost prohibitive to pursue mediated settlement by reason of the imposition of ad valorem stamp duty especially if enforcement of the settlement agreement is sought in various jurisdictions which are all subject to stamp duty charges.

Grounds for Refusing Relief

Article 5.1 provides that the competent authority in the State where relief is sought may refuse to enforce the settlement agreement in the limited circumstances listed below:

  1. where a party to the settlement agreement was under some incapacity;
  2. the settlement agreement is null and void, inoperative or incapable of being performed, is not binding or final according to its terms; or has been subsequently modified;
  3. the obligations under the settlement agreement have not been performed or are not clear and comprehensible;
  4. granting relief would be contrary to the terms of the settlement agreement;
  5. there was a serious breach by the mediator of standards applicable to the mediator or the mediation without which breach that party would not have entered into the settlement agreement;
  6. 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;
  7. granting relief would be contrary to the public policy of that State; or
  8. the subject matter of the dispute is not capable of settlement by mediation under the law of that State.

There was a shared understanding by the Working Group that there might be an overlap among the grounds provided and that competent authorities should take that aspect into account when interpreting the various grounds.9

What is particularly concerning is Article 5.1(e), which may be open to abuse. A party may challenge the enforcement under the Convention by stating that there was a "serious breach by the mediator of standards applicable to the mediator or the mediation" without which that party would not have entered into the settlement agreement. The "standards applicable" to a mediator are a matter for a State's domestic law and potentially open to discussion and dispute. The lack of uniform applicable standards for mediators and mediation could potentially provide a basis for challenge.

Similar concerns were raised by the Working Group in that the competent authority might have to inquire into a misconduct or process which did not necessarily take place in a particular jurisdiction. It was also mentioned that the standards were subjective and could be interpreted differently.10 However, in an effort to highlight the importance of ethics and conduct of the mediators, the Working Group was of the view that the use of "standards applicable" would allow the competent authority to determine the scope of the standards applicable, which could take different forms such as the law governing mediation and codes of conduct including those developed by professional associations.11

To reduce the risk of a frivolous challenge being mounted under Article 5.1(e) particularly against parties attempting to renege on their settlement obligations, institutions administering mediations such as the ICC, AAA/ICDR, HKIAC, SMC and AIAC must play a pivotal role to ensure standards applicable to the mediators empanelled in these institutions and the mediation process as a whole are maintained at the highest standards possible.

Opt-out or Opt-in

Article 8 addresses two issues vigorously debated by the delegates. First, whether the Convention should apply to governments or governmental entities, and second, whether the parties should be required to opt-in for the Convention to apply. The compromise achieved in the Convention was to make these issues the subjects of permissible reservations. Unlike other multilateral enforcement regimes, the Convention provides States with the option to make the following reservations.

The first reservation permits a party to the Convention to provide that the Convention will not apply to settlement agreements to which it or any government, governmental agency or any person acting on behalf of a governmental agency is a party, to the extent specified in the declaration. This is formulated because in certain circumstances, only a select few governmental agencies or high-ranking personnel are authorised to enter into settlement agreements and States want to avoid being bound by the conduct of unauthorised entities or persons when a request for relief under the Convention is made against them. That said, the rationale against a blanket exclusion of settlement agreements involving governmental entities was to not deprive entities of the opportunity to enforce such agreements against their commercial partners.12

The second reservation permits the party to the Convention who ratify it to elect to apply the Convention on an "opt-in" basis in that the Convention will only apply if the parties to the settlement agreement have specifically agreed that it shall apply. This potentially limits the overall extent of the Convention's applicability which may become sporadic and unpredictable. Such a consequence is contrary to the spirit of the Convention which is to establish a comprehensive regime where mediated settlement agreements are easily and widely enforceable.13 At present, only Iran has indicated an intention to exercise the reservations. However, it is expected that further States will do so when they ratify the Convention.

To mitigate the risk of a settlement agreement being unenforceable by reason that the relevant State has exercised the opt-in option, mediators should recommend to the parties that the mediation agreement or the mediated settlement agreement includes a statement confirming that the parties expressly opt-in to the Convention.

A NEW DAWN FOR CROSS-BORDER MEDIATION

The Convention provides an enforcement framework which allows businesses to better resolve their issues through mediation and ultimately fostering global trade and international commerce. In any event and similar to the New York Convention, the Convention requires implementation in the State's domestic legislation. In absence of uniform standards of practices, such laws may differ between jurisdictions and it is not yet known whether these differences turn out to be more challenging than beneficial to the success of the Convention. The importance of meaningful engagement by signatory states through their domestic legal framework, institutions, practitioners, and businesses cannot be overstated. As aptly said by MP Fatimah Lateef in Singapore's Parliament on the Singapore Convention on Mediation Bill, "Mediation will be driven very much by the local framework, culture and emphasis."14

In view of general and longstanding issues pertaining to geography, cash flow, delays and long drawn out legal procedures from start to finish including enforcement of a court judgment or arbitral award against commercial parties, mediation appears to be the most cost-effective and collaborative method of resolving cross-border disputes than its counterparts. The prominence of these considerations can also be seen by the concerted efforts by China, other nations, and international dispute resolution bodies in promoting mediation for disputes over China's Belt and Road Initiative ("BRI") infrastructure projects.15 Given the global scope of the BRI, international commercial disputes are inevitable and with mediation placed as a frontrunner to resolve these disputes, the Convention may then be a useful tool to boost BRI through preservation of business relations for BRI projects where mediated settlement agreements go awry.

Presently however, the world is facing the creeping aftermath of the global Covid-19 pandemic and the Convention will enter into force in a reality where businesses have been forced to rapidly adapt to worldwide restrictions and many commercial activities and supply chains are struggling to cope with disruptions. In these modern times, the pandemic is a novel situation which has brought forth fresh disputes with no precedent nor legislation (in most counties) to assist in dispute resolution. The outbreak and its consequential economic crisis have made prevalent the importance of resolving disputes in a timely and efficient manner. With the imprint of the pandemic and the anticipated enforcement framework provided by the Convention, the new norm is that mediation is becoming a good option for parties to consider seriously when pursuing a pragmatic and practical solution to keep their businesses running and international trade moving.

Footnotes

1 https://www.straitstimes.com/singapore/convention-a-game-changer-industry-players

2 United Nations Treaty Collection's Status of Treaties, Chapter XXII and 3 available from https://treaties.un.org/pages/ViewDetails.aspx?src=TREATY&mtdsg_no=XXII-4&chapter=22&clang=_en

3 Article 8(3) of the United Nations Convention on International Settlement Agreements Resulting from Mediation; and the United Nations Treaty Collection's Status of Treaties, Chapter XXII and 3 available from https://treaties.un.org/pages/ViewDetails.aspx?src=TREATY&mtdsg_no=XXII-4&chapter=22&clang=_en

4 Paragraph 42 of the Report of Working Group II (Arbitration and Conciliation) on the work of its sixty-third session (Vienna, 7-11 September 2015) available from https://undocs.org/A/CN.9/861

5 Section 15(2) of the Mediation Act 2012, "[...] mediation communication may be disclosed if – (a) the disclosure is made with the consent of the parties; (b) the disclosure is made with the consent of the person who gives the mediation communication; (c) the disclosure is required under this Act or for the purpose of any civil or criminal proceedings under any written law; (d) the disclosure is required under any other written law for the purposes of implementation or enforcement of a settlement agreement."

6 Section 16(2) of the Mediation Act 2012, "[...] mediation communication is not privileged it – (a) the privilege is expressly waived in writing by the parties, the mediator and the non-party; (b) it is a public document by virtue of the Evidence Act 1950 [Act 56]; (c) it is a threat to inflict bodily injury or commit a crime; (d) it is used or intended to be used to plan a crime, attempt to commit or commit a crime, or to conceal a crime or criminal activity or an ongoing crime or ongoing criminal activity; (e) it is sought or offered to prove or disprove a claim or complaint of professional misconduct or malpractice filed against a mediator; or (f) it is sought or offered to prove or disprove a claim or complaint of professional misconduct or malpractice filed against a party, non-party, or representative of a party based on their conduct during any mediation session."

7 Section 38(2) of the Arbitration Act 2005

8 Section 52 of the Stamp Act 1949

9 Paragraphs 64 and 65 of the Report of Working Group II (Dispute Settlement) on the work of its sixty-eight session (New York, 5-9 February 2018) available from https://undocs.org/A/CN.9/934

10 Paragraph 47 and 50 of the Report of Working Group II (Dispute Settlement) on the work of its sixty-sixth session (New York, 6-10 February 2017) available from https://undocs.org/A/CN.9/901

11 Paragraph 96 of the Report of Working Group II (Dispute Settlement) on the work of its sixty-seventh session (Vienna, 2-6 October 2017) available from https://undocs.org/A/CN.9/929

12 Paragraph 46 of the Report of Working Group II (Arbitration and Conciliation) on the work of its sixty-third session (Vienna, 7-11 September 2015) available from https://undocs.org/A/CN.9/861

13 Paragraph 131 of the Report of Working Group II (Dispute Settlement) on the work of its sixty-fifth session (Vienna, 12-23 September 2016) available from https://undocs.org/A/CN.9/896

14 Fatimah Lateef on Singapore Convention on Mediation Bill in Parliament on 3 February 2020 available from https://www.channelnewsasia.com/news/parliament/videos/february/fatimah-lateef-on-singapore-convention-on-mediation-bill-12386404#.Xko126HbqzA.whatsapp

15 (i) The "Opinion Concerning the Establishment of the Belt and Road International Commercial Dispute Resolution Mechanism and Institutions" issued by the General Office of the Communist Party Central Committee and the General Office of the State Council of the People's Republic of China on 27.6.2018 available from http://cicc.court.gov.cn/html/1/219/208/210/819.html;

(ii) The establishment of the "International Commercial Expert Committee of the Supreme People's Court" on 26.8.2018 (now renamed to "Coordination and Guidance Office for the China International Commercial Court") which aims to resolve Belt and Road Disputes through mediation and other diversified commercial dispute settlement methods available from http://cicc.court.gov.cn/html/1/219/208/209/981.html;

(iii) International Mediation Summit 2019 dated 17.10.2019 themed "Exploring the International Diversified Dispute Resolution Mechanism in the New Era" and jointly organised by the China Council for the Promotion of International Trade (CCPIT) and Chongqing Municipal Government, available from http://en.ccpit.org/info/info_40288117668b3d9b016e1ba9694e0478.html and http://cicc.court.gov.cn/html/1/219/208/209/1369.html

(iv) International Chamber of Commerce Guidance Notes on Resolving Belt and Road Disputes using Mediation and Arbitration available from https://iccwbo.org/publication/icc-guidance-mediation-belt-road-disputes/

Originally published 23 June, 2020

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.