The Singapore Convention
This letter is dedicated to the major event that took place in Asia in August and has global significance: the signing of the "Singapore Convention" (United Nations Convention on International Settlement Agreements Resulting from Mediation). As the Convention has already been the subject of numerous commentaries and theoretical analyses, this presentation will focus on the practical perspective of the professional and the specifically Asian angle. The opening of the signatures on August 7, 2019, of the "Singapore Convention on Mediation," according to its official abbreviated title, attracted simultaneous signatures from 46 nations, a record for a United Nations convention in the field of international trade. With five additional countries having since joined the original signatories on September 25 and 26, the number of states committed to respecting the terms of the Convention already stands at 51. This is a positive indicator regarding its chances of entry into force, which could occur six months after ratification by three member states, a goal that seems anything but unrealistic.
Newsletter No. 3 - United Nations Convention on International Settlement Agreements Resulting from Mediation
A Convention for Emerging Countries?
One point immediately catches the eye: among the signatories, there is not a single European state. And not a single "Western" country either, with the notable exception of the United States. However, the list is substantial among the "Greater Asia-Oceania" countries: Brunei Darussalam, China, Fiji, India, Malaysia, Maldives, Philippines, Republic of Korea, Laos, Samoa, Singapore, and Timor-Leste. It is also extensive with African and Near/Middle Eastern countries, plus Ukraine and Kazakhstan. One might have expected greater interest from other countries, the very many member states that are signatories to the New York Convention (Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958). In the meantime, we are seeing the emergence of a potential bloc of legislation favourable to mediation, centered around Asia, South America, Africa, and the Gulf States. This should intensify trade relations within and between these regions, rather than between them and the West.
But where France occupies a unique position
France's position, however, is not entirely similar to that of its Western partners or competitors. Indeed, it is the only European country, along with Belgium, Switzerland, Luxembourg, and Hungary, and the only Western country, along with two Canadian states (Nova Scotia and Ontario) and twelve US states (including the District of Columbia but not Delaware), to have adopted a domestic law inspired by the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Conciliation. This is an interesting observation to compare with the list of Asian countries that have done the same, which includes only one state: Malaysia. All that remains is for France to sign the Singapore Convention so that a link can be established between the two countries, with Paris and Kuala Lumpur thus becoming two privileged places for the conduct of commercial mediations between not only Malaysia and France but also all countries qualifying according to the two criteria. If we compare the 51 signatory countries of the Singapore Convention with the 33 countries that used the Model Law as a model, the result is as follows, pending new countries joining the Convention:
Benin
Congo
Democratic Republic of the Congo
Gabon
Guinea-Bissau
Honduras
North Macedonia
Malaysia (for the record)
Chad
Other countries influenced by the Model Law that are likely to accede to the Convention have some form of connection with France, particularly African countries:
Burkina Faso
Cameroon
Guinea
Mali
Niger
Central African Republic
Senegal
Togo
Considerable potential therefore lies ahead for France as a major center for international commercial mediation with Asia and Africa and between these continents.
The benefits of mediation
The "Traditional" Advantages of Mediation
The most frequently cited advantages of mediation are well known: speed, flexibility, lower cost than arbitration, and, some might say, less risk of being bound by a decision that cannot be appealed and that may be of insufficient quality by one or both parties, even though formally irreproachable according to the criteria of the New York Convention.
To this must be added a non-legal argument: a greater chance of preserving the continuity of commercial relations between the parties.
An additional advantage: flexibility and…
...the potential use of "commercial imagination." Guided by a mediator experienced in the relevant industry or trade sector, the parties can agree on a mutually acceptable solution that is not simply the result of comparing the validity of each party's legal arguments, but also a direct path to a settlement that may involve elements external to the dispute, within the framework of a more comprehensive vision of their global commercial or industrial interests. This may involve, while respecting competition rules where applicable, market sharing, or legal instruments such as trademarks in the form of a coexistence agreement. Only mediation allows for this broader, pragmatic approach, and this less frequently cited advantage should not be overlooked. This requires, but is the very foundation of international commercial mediation, the intervention of a mediator familiar with the company in general and the relevant sector: a simple bilateral and head-on negotiation cannot achieve the same level of effectiveness.
A more neutral element of comparison than it appears: confidentiality
Another frequently cited advantage in favour of arbitration over recourse to the courts is confidentiality. However, on the one hand, this is not always a requirement or even a desire of the parties, and on the other hand, it can be guaranteed contractually. Admittedly, in the latter case, a breach of the confidentiality agreement can only be the subject of a claim for compensation under the rules of common law, in a jurisdiction other than that of the settlement agreement if the mediation is international. However, the legislative and regulatory framework for mediation can contribute to respecting confidentiality in countries that have adopted the principles of the UNCITRAL Model Law on International Commercial Conciliation into their domestic law. The Model Law devotes two articles to this topic. Article 9, entitled “Confidentiality,” unequivocally establishes this principle: “Unless otherwise agreed by the parties, all information relating to the conciliation proceedings shall remain confidential, except where disclosure is required by law or is necessary for the implementation or enforcement of the agreement resulting from the conciliation.” Article 10, “Admissibility of Evidence in Other Proceedings,”
Prohibits a party, the “conciliator” (which includes the mediator in the Model Law’s phraseology), and any person “associated with the administration of the conciliation proceedings” or “other third parties” (who may be witnesses or experts) from relying on or presenting in any arbitral or judicial proceeding any information (according to a specific list) exchanged or disclosed during the mediation; Provides that disclosure cannot be ordered by an arbitral tribunal, a state court, or any other competent authority, and that such information, if presented in contradiction to this principle, is inadmissible.
The weaknesses of International Commercial Mediation
Mediation has two well-known drawbacks as a method of final dispute resolution.
A widely highlighted weakness…
...is that it cannot be concluded without the agreement of both parties and that it is not binding. The parties, in fact, are under no obligation to adhere to the mediator's recommendation. This is exactly the opposite of the advantage/disadvantage of arbitration. As such, it can be considered that both avenues are of equal value, and that the choice between the two depends on the informed preference (if possible) of the parties.
But the obstacle remains…
...of the enforcement of the transaction, which follows the rule of contract enforcement. This may not be a serious drawback in the case of domestic mediation, but it is different in international mediation, where the parties, and especially their assets, may be located in a jurisdiction different from that of the place where the transaction was concluded.
As things currently stand, the party affected by the non-performance of a transaction in another state has no other recourse than to bring an action for breach of a contractual obligation, which requires obtaining a judgment in a jurisdiction other than their own and having it enforced.
It is this flaw in the mediation mechanism that largely makes arbitration the default option in most international contracts.
The Lack of Finality of Mediation
Unlike an arbitration award, a settlement agreement does not necessarily mean the end of the conflict. The issue does not arise if the parties spontaneously execute the settlement agreement, which is not uncommon in business practice, where corporate managers are often "relieved" to no longer have to devote managerial time to a case (and pay legal fees). However, there remains the risk, and it is not merely theoretical, of the other party's unwillingness to comply with the settlement agreement. This can occur due to resistance from certain internal departments, organizational changes, etc., and even, in some cases, outright dishonesty. It is then that the additional step of enforcement in another jurisdiction based on an agreement whose sole value is that of any other contract becomes a real problem. In more complex situations, it may happen that a party having waived certain rights in a settlement agreement seeks recognition of those rights in separate arbitration or judicial proceedings in a jurisdiction other than the one where the agreement was entered into. This may be for the same reasons as above, or due to a change in business strategy. In such cases, the bona fide signatory to a settlement agreement cannot automatically refuse this action but must prove the validity of the settlement agreement before the jurisdiction where enforcement is sought, which is not necessarily their own but may be the one where they have significant assets.
The contribution of the Singapore Convention is decisive, and addresses both of these aspects.
Under the Convention, the signatory countries and their courts undertake to recognise and enforce the settlement agreement (or "settlement agreement" in the Convention's phraseology) without any examination of the merits or, a fortiori, the requirement for a new action. Consequently, it is also possible to request any interim measures or specific performance of commitments before the courts of the place of enforcement.
The Singapore Convention allows:
- the enforcement of settlements resulting from international mediation in a State other than the one where they were concluded, in accordance with the procedural rules in force in the State where enforcement is sought (Article 3.1); and
- the recognition of the settlement agreement, allowing a party subject to legal action for a cause already contained in a settlement agreement to rely on that agreement to contest the claim (Article 3.2).
The scope of the Convention…
...is partly determined by the specific characteristics of mediation, and partly inspired by the model of international arbitration, although it is not an exact copy. The settlement agreement whose enforcement is sought must be the product of mediation, defined in the Singapore Convention as a process by which the parties seek an amicable solution to their dispute with the assistance of one or more third parties who do not have the power to impose a solution, and this agreement must be in writing; The dispute that is the subject of the settlement agreement:
- must be commercial in nature (which excludes personal law, consumer law, labor relations law, etc.), the "commerciality reservation" of the New York Convention therefore being an integral part of the Convention without constituting an option for a Contracting State.
- must have been the subject of written records capable of serving as a basis (if not as evidence in the strict sense) for mediation, regardless of their form and which may consist, in particular, as is more frequently customary in alternative procedures for the resolution of commercial disputes, of (sometimes extensive) email exchanges.
- must be international in nature, because the parties have their headquarters or principal place of business in different jurisdictions or in a jurisdiction different from that in which the mediation takes place, or from the one with which the mediation is most closely connected.
Finally, the settlement agreement must not contradict any of the grounds for refusal by a competent authority, inspired by the New York Convention but adapted to take into account the greater flexibility of the mediation procedure. Settlement agreements concluded during court proceedings and those concluded during arbitration proceedings are by nature excluded (including Arb-Med-Arb, which is discussed below). If they can be subject to international enforcement, this can only be by virtue of the conventions that apply to them, namely, respectively, the Hague Convention on the Recognition and Enforcement of International Disputes and the New York Convention of 1958.
La Convention de Singapour et l’Asie
It is sometimes argued that, since the settlement is the expression of a freely agreed compromise within the framework of mediation, its execution is not likely to pose any difficulties. This is correct in abstract logic, but does not take into account the resistance of one of the parties, who may use mediation to prolong the resolution of the dispute and rely on the exhaustion of the other party, through weariness or diminished financial resources, when resorting to arbitration or legal action as a next step. Is this different in Asia, where the search for consensus is supposed to be part of the culture, including business? The issue is more complex, because while the principle of seeking amicable resolution is indeed dominant and is integrated into many commercial contracts in which at least one party is Asian, this does not extend to execution. While in a Western view the forced execution of an agreement that has become final and definitive does not shock, it is different in Asia where amicable solution and amicable execution are merged within the same concept of “sincerity”. This can result in a tendency to consider that the execution of an agreement can only occur through the goodwill of the parties, as the path that led to the agreement itself. This, in the context of mediation with a foreign party, could be likely to leave the Asian party in deep doubt as to the voluntary execution by the other party. It can be considered significant that according to a study of the “Global Pound Conference series”, almost two-thirds of the persons/entities interviewed established in Asian jurisdictions expressed that the priority in the perspective of improving the legal framework for commercial disputes would be legislation facilitating the execution of settlement agreements. This was only a secondary concern in the other jurisdictions interviewed. This can be observed at the closest to the field. In Malaysia, for example, “domestic” mediation is used, but international mediation is rarely, if at all, used, the explanation given being that “it is not part of the local culture”. The same is true in Singapore, where the mediation centre declares itself to receive requests for mediation administration, but mainly of a domestic nature. These findings point to the confirmation of a real “appetite” for mediation as such, but with serious reservations regarding its international aspect, this being in all likelihood (since it constitutes the only significant element of differentiation) related to the uncertainty regarding the execution of the settlement agreement. This deficit of confidence in the execution of an international commercial transaction observed in Asia could explain why Asian (and African, and South American) countries have shown the most enthusiasm in adopting the Singapore Convention. It appears that there is a correlation between signing the Convention and a lack of confidence in the enforcement of international settlement agreements, whether due to ignorance of mediation mechanisms in countries where it is rarely used, or due to a presumption of high resistance to the voluntary enforcement of these agreements.
A Largely Asian Solution: Arb-Med-Arb
A formula combining…
…mediation and arbitration is not without its attractions. In principle, it should provide a chance for amicable resolution at a lower cost, while leaving open the option of resorting to arbitration in the event of failure. The only pitfall to avoid is clauses that do not provide objective evidence to establish the failure of mediation, and this is not limited to a time limit.
Under this condition, the preliminary stage should not significantly add to the costs or duration of dispute resolution, as mediation is assumed to have clarified the disputed points of fact and law. This, however, depends on the quality of the mediator and the cooperation of the parties, as well as the arbitral tribunal's assessment of the value of the mediation procedure.
Successful functioning requires the fulfilment of two conditions: that the parties agree with each other and with the mediator that the discussions that took place during the mediation process be disclosed to the arbitral tribunal, and that the arbitral tribunal is willing to accept this evidence in its proceedings.
A structured form…
...of this two-step approach exists in the form of mediation-arbitration (Arb-Med-Arb), popular in Asia. Parties opting for this system initiate arbitration proceedings, but may divert all or part of them to mediation. If the latter is successful, the portion of the dispute covered by mediation returns to arbitration, where it is incorporated as a "consent award." This approach is included in the legislation of several Asia-Pacific countries (Malaysia, Australia, Hong Kong, Singapore, and China) and proposed by some arbitral bodies.
China…
...perhaps for practical reasons as much as cultural ones, is the most advanced in this direction, since mediation has been a mandatory preliminary step in civil litigation since the 2012 reform of the Code of Civil Procedure, and even more relevant, before the recently created International Commercial Chambers under the Rules of Procedure of December 2018.
The model clause suggested by the AIAC…
... (Asia International Arbitration Centre) of Kuala Lumpur in its Arbitration Rules contains the following option: “Before referring the dispute to arbitration, the parties shall seek an amicable settlement of that dispute by mediation in accordance with the AIAC Mediation Rules as in force on the date of the commencement of mediation.” However, this is not a pure Arb-Med-Arb clause, since the search for an amicable settlement must take place before the commencement of the arbitration proceedings.
The arbitration centre…
… (Singapore International Arbitration Centre SIAC) et le centre de médiation (Singapore International Mediation Centre SIMC) de Singapour offrent une clause optionnelle plus élaborée. Celle-ci permet qu’un différend déjà soumis à arbitrage puisse être dirigé vers la médiation soit dans sa totalité soit en partie après avoir été scindé. En cas d’accord transactionnel, celui-ci peut être réincorporé à la demande des parties sous forme de “consent award” exécutoire en vertu de la Convention de New York, et à défaut d’un tel accord la procédure d’arbitrage reprend son cours.
The Limits of Arb-Med-Arb
As attractive as it may seem…
...this formula is not without its weaknesses. Not least of which is that the court (of the judicial order) from which enforcement is sought will subject it to the criteria of the New York Convention, and could call into question the mediator's neutrality, independence, and the free consent of the parties in a procedure less administered than arbitration, even if it ultimately takes the form of arbitration but without having followed its rigorous curriculum. In other words, the question of the compatibility between the "imaginative" flexibility of mediation, which can be more commercial than legal, and the strict rules of the New York Convention, remains uncertain.
To the extent that Arb-Med-Arb is a hybrid…
...one may wonder about its chances of thriving alongside a form that is not, that of enforceable international mediation via the Singapore Convention.
On the other hand, new formulas…
...adopted in a purely contractual form could logically emerge with the aim of combining the advantages of both systems. These clauses would then provide for two clearly distinct stages (and not integrated as in the typical Arb-Med-Arb clause): first, mediation, and, if this fails, recourse to arbitration, each procedure following its own rules. This would allow mediation, as a stand-alone procedure, to escape accusations of a procedure aimed at unduly benefiting from the enforcement advantages of the New York Convention. Since the eligibility criteria for the Singapore Convention and its grounds for refusal are different from those of the New York Convention, although not devoid of similarities but not identical, the validity of each procedure would be strengthened.
Conclusion Convention de Singapour
The Singapore Convention puts the final touch to the balance between the three methods of resolving international commercial disputes, offering, from the negotiation and drafting of the contract and its dispute resolution clause, a choice between three avenues:
- The courts, with international enforcement of judgments under the Hague Agreements; Accords de La Haye ;
- Arbitration, with international enforcement of arbitral awards under the New York Convention; and
- Mediation, with international enforcement of settlement agreements under the Singapore Convention.
Neither solution is inherently superior to the other two. But mediation, which has become a credible alternative, can no longer be ignored and undoubtedly presents a challenge to the practice of making arbitration clauses the default option for dispute resolution sometimes and even often chosen in ignorance of its mechanism and its consequences.
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The content above is purely for informational purposes, relating to a selected overview of legislative, regulatory and case law developments in the relevant geographical area, which is not and does not claim to be exhaustive.
It does not constitute legal advice in relation to any particular case and should not be regarded as such. A more detailed doctrinal study on any of the topics mentioned may be requested.
Philippe Girard-Foley is a Registered Foreign Lawyer accredited by the Supreme Court of Singapore before the Singapore International Commercial Court – Certificate of Full Registration under Section 36P Legal Profession Act (Chapter 61).