International commercial disputes after The Singapore Convention

The Singapore Convention – Implications for mediating international commercial disputes

On 7 August 2019, 46 countries signed the United Nations Convention on International Settlement Agreements Resulting from Mediation (‘Convention’) (known as the Singapore Convention on Mediation). The substantial number of signatory states, including two major actors in international trade, the US and China, underscores the recognition of mediation as a method for resolving international commercial and trade disputes.

Parties to a dispute may prefer to seek mediation to resolve their matter in order to avoid what can be lengthy and costly arbitration and litigation proceedings. In addition, whereas arbitration and litigation, because of their more adversarial nature, can destroy commercial relationships, mediation with its more consensus-based emphasis and approach, can help preserve relationships that in some cases have taken a long time to nurture and develop. This is because mediation, as a means of resolving disputes, operates as a settlement negotiation with the mediator acting as a neutral go-between. If successful, it concludes with a settlement agreement with ‘buy in’ from both sides.

Applicability of the Singapore Convention

The Convention is aimed at facilitating international trade and commerce by creating a framework for settlement agreements that have resulted from mediation of commercial disputes where:

1. At least two of the parties are from different States, and
2. The State where the parties have their place of business is different from:
   1. The State where a substantial part of the obligations is to be performed, or
   2. The State with the closest connection with the subject-matter of the settlement agreement

The Convention does not apply to settlement agreements made in connection with:

1. Consumer contracts
2. Family, employment or inheritance law
3. Court proceedings, or otherwise made with court approval, and so enforceable as a court judgment
4. Arbitration proceedings, and enforceable as an arbitral award

The Convention shall only apply to settlement agreements concluded after it enters into force, which will be after three States have ratified it. Given the support the Convention has garnered so far, in terms of its original signatories, there is cautious optimism that the Convention will have come into force in the following year.

Effect of the Singapore Convention

On the Convention’s taking effect, each member State will enforce settlement agreements resulting from mediated commercial disputes, according to their respective court procedures.

Further, a party can rely on such a settlement agreement before the court of a member state if a dispute arises in connection with the subject-matter of the settlement as proof that such matter had already been resolved.

Exclusions

The Convention provides for certain circumstances where a party will not be able rely on its settlement agreement. These include where:

1. One party to the settlement agreement lacked capacity to enter the agreement
2. Under the law applicable to the settlement agreement, it is deemed null and void, inoperative or as being incapable of being performed
3. On its terms, the settlement agreement is not final or binding
4. The mediator was in serious breach of applicable standards
5. The mediator failed to disclose circumstances that give rise to doubts about the mediator’s independence or impartiality
6. The relevant court determines that reliance on the settlement agreement is contrary to the public policy of that State
7. The relevant court deems the subject-matter of the dispute between the parties was incapable of resolution under that State’s law

Mediating disputes with States and SOEs

In touting the utility of the Singapore Convention, the Singapore government has highlighted its potential use in relation to key infrastructure developments in Asia such the China-led Belt and Road initiative (BRI). Mediation obviously could play a useful role in such infrastructure disputes as these projects tend to be long-term, requiring continuity in commercial relationships between employer, contractor and sub-contractor, which mediation seeks to facilitate.

However, such contracts likely will involve States or State-owned enterprises (SOEs) as parties and it is unclear the appetite those actors would have for mediation that could result in settlement agreements that become the subject of court involvement under the Singapore Convention, not least because issues of sovereign immunity from enforcement are likely to be at play. Accordingly, it is worth noting that the Convention allows a State to exclude its application to settlement agreements to which it, or any of its government agencies, is party.

Comments and implications

1. As noted above, the Convention is yet to come into effect. Even after coming into effect, it will likely take some time for the effect of its provisions to be made clear depending on how they are interpreted by the courts that are applying them. For instance, parties seeking to challenge reliance on a settlement agreement under the Convention would need clarity as to what amount to a ‘serious breach’ of the applicable standards by a mediator.
2. Having said that it is likely that one effect of the Convention will be to make authorities take better notice of mediation as a dispute resolution mechanism. In its structure, the Convention resembles the New York Convention which relates to arbitration whereas arbitration agreements and arbitral awards are now relatively well recognised and enforced, the same is not the case for settlement agreements resulting from mediation. The relatively large numbers of States in attendance at the signing ceremony of the Singapore Convention suggests there is a political commitment to elevate mediation alongside arbitration as a mechanism for resolving international commercial disputes.
3. For clients, this development may well enhance their use of mediation to resolve disputes. Mediation already provides value in terms of allowing clients to better preserve key commercial relationships while utilising a cheaper and less antagonistic dispute resolution mechanism. With the Convention helping to spread the acceptance of mediation for resolving disputes, it is likely that clients will be able to make use of mediation to resolve disputes with counterparts from a wider range of countries.
4. For clients with commercial relationships in Asia, the readiness of key Asian economies to participate in the Singapore Convention means any mediations they enter into with Asian counterparts will likely be supported by courts in the region, particularly those courts that are already recognised as being supportive of arbitration, Singapore’s courts being an example of the latter.
5. It is worth pointing out that parties which have concluded a settlement agreement are generally likely to abide by it given the time and money they have invested in achieving that settlement. Such clients, where they are dealing with long-standing counterparts are unlikely to have to resort to relying on the Convention to uphold their settlement agreement. However, the Convention could help even those clients feel more secure about the settlement agreement they have mediated with counterparts from countries where mediation is less well known as a dispute resolution mechanism. For other clients who have hitherto had very limited exposure to mediation, the advent of the Convention will likely help enhance the certainty and reliability of the settlement agreements they obtain through mediation.

For further information or assistance in relation to Arbitration or Mediation, please contact Amarjit Singh, Senior Solicitor (dual qualified in the UK and Singapore) at as@marsans.co.uk or call us on 020 7499 0620.