20 August, 2019
The United Nations Convention on International Settlement Agreements Resulting from Mediation (Singapore Convention) was adopted by the United Nations on June 26, 2018 and opened for signature on August 7, 2019, with 46 countries affixing their signatures to what is intended be a game changer in the alternate dispute resolution space.
The use of mediation has grown, particularly because it is cheaper than international arbitration (which is now being criticised for the very evils it was created to avoid, i.e. costs and complexity), and also because it is more likely to preserve commercial relationships. These benefits are recognised in the Preamble to the Convention, reflecting the hope that the enforceability of international commercial settlement agreements would facilitate efficient administration of justice by States, and also contribute to the development of harmonious international economic relations.
The Singapore Convention facilitates the recognition and enforcement of settlement agreements that meet the conditions mandated therein , in a manner similar to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). As a result, a settlement agreement will be enforced directly by a court instead of it being treated only as a contract, with a civil suit having to be filed for its enforcement.
What Constitutes an Enforceable Settlement Agreement Under the Convention?
The conditions that are required to be met for enforcing a settlement agreement under the Convention are:
- The settlement agreement must be in writing (i.e. that it is recorded in some form)[i]
- It must arise out of a ‘mediation’, defined under the Convention as ‘a process, irrespective of the expression used, or the basis upon which the process is carried out, whereby parties attempt to reach an amicable settlement of their disputes with the assistance of a third person(s) lacking the authority to impose a solution on the parties.’[ii]
- The dispute must be a ‘commercial’ dispute. Although the word ‘commercial’ is itself not defined (consciously), it is meant to be read in a broad manner, similar to the New York Convention[iii]. One may note the Supreme Court’s decision in M. Investment & Trading Co. v. Boeing Co., which broadly defined the word ‘commercial’ as “having regard to the manifold activities which are an integral part of international trade today” [iv].
- Further, the settlement cannot relate to, (a) transactions engaged in by one of the parties (a consumer) for personal, family or household purposes; or (b) family, inheritance or employment law.[v]
- The settlement agreement must be ‘international’, in that:
– At least two parties to the settlement agreement have their places of business in different States, or
– the state in which the parties have their places of business is different to the state in which the substantial part of the obligations under the settlement agreement is performed or the State with which the subject matter of the settlement agreement is most closely connected[vi]. - The Convention does not apply to those settlement agreements that are, (a) approved by a court or concluded in court proceedings (on the basis that these would likely be recorded as orders / judgments of a court, and enforceable as such), or (b) recorded and therefore enforceable as arbitral awards[vii]
Necessity for Enforcement of Mediated Settlement Agreements
One would expect that by virtue of the fact that mediated settlement agreements are entered into on a voluntary basis and by mutual agreement of the parties, they are likely to be honoured. If so, there may be no real need to provide assistance for enforcement by way of a convention. While this may be partially true, the value of the Convention lies in providing certainty to parties that settlement agreements effected through mediation will ultimately be enforceable in an efficient manner and that they will not be relegated back to a full-blown arbitration or litigation, should the other party default.
Enforcement of Settlement Agreements in India
We do not deal here with settlements arrived at under the auspices of a court in legal proceedings, as those would normally take the shape of a ‘consent decree’, enforceable directly by a court, and similarly, a ‘consent award’, enforceable under Part I (or Part II for a foreign award under the New York Convention). Such settlement agreements are also, for the same reason, excluded by the Singapore Convention.
Part III of the Indian Arbitration & Conciliation Act, 1996 (the A&C Act), deals with ‘conciliation’ of disputes arising out of a legal relationship between parties, whether contractual or not[viii]. A settlement agreement arrived at through conciliation, has the same status and effect as if it were an arbitral award on agreed terms on the substance of the dispute rendered by an arbitral tribunal. On that basis, it is recognised and enforceable as if it were a decree of the court[ix].
Part III does not contain any reservation (as does Part I) that it applies only to conciliations that take place (are ‘seated’) in India. (This is also similar to the Singapore Convention which deliberately stayed away from the concept of a ‘seat’ of mediation). As such, a settlement agreement reached through conciliation, though executed offshore, should be enforceable in India on the same basis, subject to meeting the other conditions in Part III.
The value of India’s ratification of the Convention would therefore assist Indian parties in enforcing settlement agreements against parties outside India.
Settlement Agreements through Mediation v/s. Conciliation
One notes the use of the word ‘conciliation’ in the A&C Act, and in the paragraphs above. The Convention does not insist upon the use of the word ‘mediation’ in describing ways in which a settlement may be reached (and in several jurisdictions there is no real difference between conciliation and mediation). In India, however, mediation and conciliation are treated as two different forms of alternate dispute resolution. For example (apart from the fact that Part III deals with only ‘conciliation’):
- The A&C Act, in Section 30, empowers an arbitrator to “encourage settlement of the dispute and, with the agreement of the parties, the arbitral tribunal may use mediation, conciliation or other procedures at any time during the arbitral proceedings to encourage settlement”.
- Section 89(1) of the Code of Civil Procedure, 1908, provides for court-referred mediation and conciliation, stating that:
“Where it appears to the Court that there exist elements of a settlement which may be acceptable to the parties, the Court shall formulate the terms of settlement and give them to the parties for their observations and after receiving the observations of the parties, the Court may reformulate the terms of a possible settlement and refer the same for –
(a) arbitration;
(b) conciliation;
(c) judicial settlement including settlement through Lok Adalat; or
(d) mediation.”
- The Civil Procedure Alternative Dispute Resolution and Mediation Rules, 2006 (ADR Rules), framed by the Bombay High Court, provide for both ‘settlement by conciliation’ and ‘settlement by mediation’[x]. The ADR Rules state that a conciliator may make “proposals for a settlement of the dispute and by formulatingor reformulating the terms of a possible settlement; and has a greater role than a mediator.”, thus differentiating between the roles of the facilitator and also the procedure. (Similarly, a conciliator under the A&C Act, is empowered under Section 67(4) to “make proposals for a settlement of the dispute”).
Conclusion
Accordingly, while settlement agreements arrived at through ‘conciliation’ may be enforced in India under the mechanism prescribed under Part III of the A&C Act, those agreements concluded through mediation or any other consultative process, could only be enforced as contracts, by filing separate legal proceedings in that regard.
The Singapore Convention thus addresses what was otherwise arguably a legal vacuum for parties executing settlement agreements as a result of private mediation or other facilitative process, by providing for their enforcement directly by the courts of the signatory States.
For further information, please contact:
Shaneen Parikh, Partner, Cyril Amarchand Mangaldas
shaneen.parikh@cyrilshroff.com
REFERENCES
[i] Article 1(1) of the Singapore Convention defines a “settlement agreement” as ‘an agreement resulting from mediation and concluded in writing by parties to resolve a commercial dispute.’
[ii] Article 1(3) of the Singapore Convention
[iii] Timothy Schnabel, The Singapore Convention on Mediation- A Framework for the Cross Border Recognition and Enforcement of Mediated Settlements’ (September 18, 2018), pg. 18, Footnote 119, Available at https://www.ilsa.org/ILW/2018/CLE/Panel%20%2351%20-%20SSRNschnabel.pdf
[iv] R.M. Investment & Trading Co. v. Boeing Co 1994 (4) SCC 541
[v] Article 1 (2) of the Singapore Convention
[vi] Article 1(1) of the Singapore Convention
[vii] Article 1(3) of the Singapore Convention
[viii] Section 61(1) of the A&C Act
[ix] Section 74 read with Sections 30 and 36 of the A&C Act
[x] The ADR Rules define ‘settlement by conciliation’ as “the process by which a conciliator who is appointed by parties or by the Court, as the case may be, conciliates the disputes between the parties to the suit by the application of the provisions of (the Act)”; and the ‘settlement by mediation’ as “the process by which a mediator appointed by parties or by the Court, as the case may be, mediates the dispute between the parties to the suit …”.
