Just over a week ago in Singapore, on August 7, 2019, 46 countries — including economic powerhouses such as China, India, South Korea and the United States — signed the U.N. Convention on International Settlement Agreements Resulting from Mediation (a/k/a the Singapore Mediation Convention) (“Convention”).
What’s the big deal? By way of background, companies have resisted using mediation to settle cross-border commercial disputes because of the practical difficulty of enforcing any settlement reached through mediation. Should one party fail to comply with the settlement agreement, the other party would first need to commence an arbitration or judicial proceeding for breach of contract in the jurisdiction specified in the agreement’s dispute resolution clause. Assuming it prevailed on its claim, the nonbreaching party would then likely need to enforce its judgment in a different jurisdiction where the defendant has assets. In short, enforcing settlements of international disputes reached through mediation has proven time-consuming and expensive.
The objective of the Convention is to change that dynamic by simplifying enforcement of settlements reached through mediation. Under Article 4 of the Convention, a party seeking enforcement of a mediated settlement need only present a court or other competent authority designated by a signatory State with:
(i) a copy of the settlement agreement signed by the parties, and
(ii) proof that the settlement agreement resulted from a mediation (which the Convention defines broadly in Article 2 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 dispute with the assistance of a third person or persons (“the mediator”) lacking the authority to impose a solution upon the parties to the dispute.”).
The evidence required to prove that a settlement resulted from a mediation is also extremely lenient: “(i) The mediator’s signature on the settlement agreement; (ii) A document signed by the mediator indicating that the mediation was carried out; (iii) An attestation by the institution that administered the mediation; or (iv) In the absence of (i), (ii) or (iii), any other evidence acceptable to the competent authority.” (emphasis added).
Given the provisions above, the aim of the Convention is plainly to encourage resolution of international disputes through mediation by facilitating enforcement of mediated settlements. But will the Convention fulfill this promise?
Article 5 Uncertainty
Some commentators are skeptical. Nicholas Lingard and his colleagues at Freshfields Bruckhaus Deringer opine in a recent article that the impact of the Convention will depend on how strictly or liberally courts interpret the grounds for refusing enforcement of a mediated settlement under Article 5 of the Convention (which specifies various grounds upon which a court may deny relief).
For example, Article 5.1(e) of the Convention permits courts of a signatory to deny relief where the defendant can prove that 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.” As mediator Peter Phillips observes in his thoughtful article, Concerns on the New Singapore Convention, this clause raises several unknowns:
What standards are applicable to this mediator and this mediation? What conduct of the mediator constituted violation of those standards? What witness to the alleged conduct is competent to testify as to the alleged violation? Shall the mediator be called to explain why the contested conduct does not constitute a violation of the applicable standards?
Similarly, Article 5.1(f) authorizes courts to deny relief where the defendant can prove that 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 to disclose had a material impact or undue influence on a party without which failure that party would not have entered into the settlement agreement.”
Again, the question is what standards will courts apply in determining whether a particular nondisclosure rises to the level of impugning the mediator’s impartiality? As we’ve previously discussed, California courts have embraced an extremely lenient view of mediator neutrality, holding that the California mediation statute does not impose impartiality standards or disclosure requirements on mediators. Section 9 of the Uniform Mediation Act, on the other hand, expressly (i) obligates a mediator to disclose “any known facts that a reasonable individual would consider likely to affect the impartiality of the mediator, including a financial or personal interest in the outcome of the mediation and an existing or past relationship with a mediation party or foreseeable participant in the mediation,” and (ii) denies the mediation privilege under Section 4 of the UMA to a mediator who fails to provide such disclosure.
Drafting Around Uncertainty
To reduce uncertainty from Article 5, parties to a mediated settlement of an international dispute may wish to include a provision in the settlement agreement specifying the standards applicable to the mediator and the conduct of the mediation for purposes of Article 5. For example:
The parties agree that, in the event of enforcement of this settlement agreement under the Singapore Convention, the mediation standards applicable to the mediation with respect to mediator disclosure and the conduct of the mediation, for purposes of Article 5 of the Singapore Convention, shall exclusively be the mediation standards applicable under Sections 1115-1129 of the California Evidence Code and California caselaw interpreting same.
Since the whole point of the Singapore Convention is to directly enforce the mediated settlement of the parties, it seems reasonable to expect that a court would also enforce a provision like the above in the event a party alleges a violation under Article 5. Obviously no guarantee, but cannot hurt to craft such a provision.
Article 8 Opt-in
Finally, Article 8 allows countries to provide that the Convention only applies if the parties to a mediated settlement have agreed that it will apply. Parties to a mediated settlement will thus obviously need to remember to include a provision in their settlement confirming the Convention’s applicability if they wish to enable enforcement of the settlement in any countries that adopt the reservation above.
In conclusion, how strictly or liberally courts will interpret the grounds for denying relief under Article 5 is certainly a wildcard, albeit one that may be somewhat mitigated through drafting, as proposed above. But assuming Article 5 does not turn out to be a major escape hatch, my sense is that the Convention will drive substantially increased use of mediation to resolve cross-border commercial disputes because it offers global corporations the opportunity to enjoy all of the advantages of mediation — such as the opportunity to craft a win-win solution tailored to the needs of the parties — without the current downside of expensive and time-consuming enforcement. In short, the Singapore Convention has removed the primary obstacle that deterred use of mediation to resolve international disputes in the past, and that should, it seems, open the floodgates.