3 March, 2020
The Singapore Convention has received widespread attention since it was signed with much fanfare on 7 August 2019. Not only did its tally of 46 first-day signatories break the record for any United Nations trade convention, it included the world’s two largest economies, China and the US.
Given the enthusiastic initial response, it is feasible that the Convention could come into force as early as 2020. Once it does, it will apply to mediations conducted anywhere in the world, not just within jurisdictions that have ratified it. It will therefore be advisable for all mediating parties, regardless of whether their home state ever ratifies the Convention, to factor into their mediation procedures the potential to rely on the new regime should enforcement become necessary.
We highlight below a number of practical issues that mediating parties should be turning their minds to now to put themselves in the best position to take advantage of the Convention in the future should the need arise.
More formally known as the United Nations Convention on International Settlement Agreements Resulting from Mediation, the new Convention essentially establishes a regime under which contracting states will be obliged (except in limited circumstances) to recognise international settlement agreements that result from commercial mediations, either to enforce the agreement or allow it to be invoked as a defence to a claim.
A settlement agreement will be “international" if either: (i) at least two parties have their place of business in different countries; or (ii) the country where the settlement agreement is to be performed, or the country with which the agreement is most closely connected, is different to the parties’ place of business.
The Convention will enter into force six months after ratification by at least three signatory states.
In practice, failure to honour settlements reached through mediation is in fact relatively uncommon, at least compared to court judgments and arbitral awards. However,
where that does occur and cross-border enforcement is necessary, it can be time-consuming and costly. Given that there will soon be an enforcement regime in place, parties would be well advised to give thought to how they can best position themselves to take advantage of it should the need arise.
Some of the issues raised below do not lend themselves to clear answers at this stage, and may need to be judicially clarified, but should be borne in mind when arranging and
conducting mediations and, most importantly, documenting any resulting settlement.
Don’t assume it won’t apply to your mediation
The UK and other EU states have not yet signed the Convention. The UK government has recently consulted on whether it should do so and the EU is apparently deliberating whether it may sign as a regional entity or whether member states need to join individually.
Some readers based in the UK and elsewhere in Europe may have therefore postponed engaging with the Convention on an assumption that it will not have any relevance
for them unless and until their own jurisdiction signs and ratifies it. But that is not the case.
A key point that is not widely appreciated is the fact that the Convention does not operate on the basis of reciprocity between member states. Unlike most other multilateral
enforcement regimes such as the New York Convention, the Hague Choice of Court Convention 2005 and the Brussels regime, it is not limited to enforcement between member states. Unlike court judgments and arbitral awards, settlement agreements under the new regime do not have any “nationality”.
As long as a settlement is international and results from mediation, then (unless it falls within an excluded category) it will qualify for enforcement in any Convention state, regardless of where the mediation took place or the settlement agreement was signed.
Accordingly, even if the UK never signs and ratifies the Convention, international settlement agreements resulting from UK mediations will be able to be enforced under
the Convention (or relied on as a defence) in any state that has ratified it.
This could prove very significant for cross-border dispute resolution – bearing in mind that the Singapore Convention signatories include four of the top six foreign nationalities who used the English commercial courts in 2018 (the US, Kazakhstan, India and Ukraine). In particular, given that the US still shows no signs of ratifying the 2005 Hague Convention on Choice of Court Agreements (despite having signed it in 2009), if it ratifies the Singapore Convention this will mean that a party who successfully mediates with a US opponent is likely to be better placed to enforce in the US than it would be with an English or other EU court judgment.
The same of course applies to the majority of the other 46 signatories, who are also not Hague Convention states (including China, which has also signed but not yet ratified Hague).
"As long as a settlement is international and results from mediation, then .. it will qualify for enforcement in any Convention state, regardless of where the mediation took
place or the settlement agreement was signed."
Should you expressly opt in to the new regime?
The default position under the Singapore Convention is that, where it applies, it will do so automatically, without the need for the parties to “opt in” to it. However, it does
include (in Article 8(1)(a)) a reservation provision, which allows member states to declare that they will apply the Convention only to the extent that the parties to the relevant settlement agreement have agreed that the Convention will apply. (For more on this reservation, see this earlier blog post).
There are no provisions specifying how or when the parties must have indicated such agreement to the Convention applying, and this would be determined by the court where enforcement is sought. However, it seems likely that the best form of such agreement would be an express statement to that effect within the settlement agreement itself.
Of the initial signatories, one (Iran) has so far indicated an intention to exercise the reservation. However, any of the other states may do so when they ratify it, or indeed at any time after ratification.
Mediating parties will therefore want to avoid the (albeit small) risk of finding themselves in a position where a state in which they ultimately need to enforce a settlement has exercised this reservation and they are unable to prove the necessary opt in to the Convention.
Given that enforcement location will not always be clear at the time a settlement is reached, there would seem to be merit in routinely seeking to include in all mediated
settlement agreements a statement confirming that the parties agree to the application of the Convention. Even if that
agreement is not ultimately required, there would appear to be no downside in including it.
If one of the parties was from a jurisdiction that had exercised the opt-in reservation, this may represent a compromise on its part, but it is difficult to see how an objection to such a provision could be justified in the context of parties documenting a negotiated settlement.
Further, at least for an initial period while parties are still unfamiliar with the Convention, it may be worthwhile flagging to a counterparty during the preparations for the
mediation the intention to include such an agreement in any settlement, so that this issue does not hold up the drafting of the settlement agreement at the end of a long mediation day.
How will you secure the mediator’s confirmation?
Article 4 of the Convention sets out the basic evidence to be provided to the enforcing court.
Unsurprisingly, this includes a copy (translated if necessary) of the settlement agreement.
However, it also includes a requirement for evidence that the settlement agreement “resulted from mediation”.
The examples given of what could constitute such evidence are “the mediator’s signature on the settlement agreement” or “a document signed by the mediator indicating that the mediation was carried out”. If the mediation was organised through an ADR institution, the evidence may take the form of an attestation by that institution. Otherwise, “any other evidence acceptable to the [enforcing court]” may be relied on.
While it appears that such confirmation could technically be obtained from the mediator at a subsequent date, only once it became apparent that there was a need to enforce under the Convention, it is clearly preferable that it be obtained at the time the settlement agreement is signed.
This evidentiary requirement is understandable given the scope of the Convention. However, the need for the mediator to make some form of attestation, to be put before a court as proof of the facts stated, is potentially problematic. In most jurisdictions where mediation is well entrenched, the fundamental principle of mediation confidentiality is underpinned by a well-accepted principle that the parties may not call a mediator to give evidence in relation to a mediation. This is usually recorded in the mediation agreement and, in some jurisdictions (including England and Wales), is also enshrined in statute or court rules.
Concerns have been expressed within the mediation community that this new evidentiary requirement could threaten that established position, if for example the
counterparty or even the enforcing court itself sought to call the mediator to confirm or
expand on their written confirmation.
A mediator making an attestation of the type described in the Convention is of course not the same as providing a witness statement for use in court proceedings or otherwise agreeing to give evidence. Given the limited nature of the confirmation required, it seems unlikely to threaten the established position as to mediator confidentiality. However, as it does represent a change to current mediation practice, and that there is scope for uncertainty as to precisely what wording will satisfy the Convention’s requirement, it could
be expected that some mediators may have concerns in this regard.
It would seem strongly advisable that this issue be raised with the mediator during the mediation preparation period, so that any concerns can be addressed and the format of
the mediator’s confirmation, should the dispute settle, be agreed in advance. It may be something that should be included in the mediation agreement – perhaps as a qualification to the standard provisions confirming that the mediator will not be required to give evidence. Again, this issue has the potential to be an undesirable distraction if
raised for the first time when the settlement agreement is being signed.
In addition, apart from the concerns about mediator confidentiality, the requirement to prove that a settlement resulted from mediation also highlights a more substantive
issue regarding the scope of the Convention. It is very common for disputes that are not resolved on the day of a mediation to settle in the days or even weeks afterward, with or without the continued assistance of the mediator. It is not clear whether the Convention extends to such circumstances and, if so, how an enforcing court should assess whether in any particular case there was a sufficient connection between the mediation and the settlement.
Parties engaged in post-mediation negotiations should therefore bear in mind that they may be in a stronger position to rely on the Convention, if that becomes necessary,
if the mediator remains involved. In any case, the mediator’s confirmation would be likely to take on particular importance in such circumstances and parties can put themselves in the best position by liaising with the mediator in advance to ensure that the necessary confirmation is obtained if that is justifiable in the particular case.
Anticipating grounds for refusal to enforce
The Convention sets out (in Article 50) a list of grounds upon which a member state can refuse to recognise and enforce a settlement agreement. Many of these are unsurprising and are broadly familiar from other enforcement regimes such as the New York Convention.
Many of the listed factors are matters that could justify a domestic court refusing to enforce an agreement, and so should already be in parties’ minds when drawing up mediated settlement agreements. These include party incapacity, the agreement not being clearly final and binding, the terms not being clear and comprehensible and the matter not being one capable of being mediated under the applicable law.
However, the introduction of the Convention adds a new dimension in the sense that, if it becomes necessary to enforce the agreement abroad, the foreign court will be considering these matters directly, rather than via an application to enforce another court’s judgment. Depending on the country involved, that assessment might be conducted against the backdrop of a very different legal framework to that in which the settlement agreement was drawn up, possibly underpinned by different legal norms and public policies.
This underscores the need to draft the mediation arrangements and any settlement with an eye to how a foreign court might view the provisions (ideally by reference to the particular state(s) where enforcement would be required, if that is ascertainable at the time). In particular, consider any steps that can be taken to minimise the risk of an enforcing court objecting to a settlement on the following grounds:
- Mediator misconduct (the mediator’s serious and material breach of applicable standards or material failure to disclose conflicts). Unlike the position with arbitrators, there is no broadly accepted international code or body of judicial authority on mediator standards and conflicts. There is therefore potentially greater scope for courts in different jurisdictions to take differing views of the same conduct. This underlines the importance of the relevant provisions in the mediation agreement accurately reflecting the mediator’s obligations and any conflict disclosures being fully documented.
- Public policy of the enforcing state. As in other enforcement regimes such as the New York Convention, this ground is intended to be applied very narrowly, only where a state’s most basic and fundamental legal norms would be offended by enforcing the agreed terms. These norms obviously differ state to state but examples include rules against punitive damages, contractual penalties and unreasonable restraints of trade.
If there is an unavoidable risk of some of your agreed terms falling foul of such rules, consider including in the agreement severability provisions, to support an argument that the offending terms should not prevent the enforcement of other terms in the agreement.
In many cases, risk minimisation may simply involve erring on the side of including fuller detail and explanation in the mediation and settlement documents and not assuming that a reader will know and apply principles that are well understood in your home jurisdiction.
(An extended version of this article first appeared as a post by Jan O'Neill, Professional Support Lawyer, on the Practical Law Dispute Resolution blog on 18 September 2019.) "I f (the US) ratifies the Convention, a party who successfully mediates with a US opponent is likely to be better placed to enforce in the US than it would be with an English or other EU court judgment."
For further information, please contact:
Alastair Henderson, Partner, Herbert Smith Freehills
alastair.henderson@hsf.com
