As an extraordinary year draws to a close and a brighter one (hopefully) beckons, we consider whether the compromises and sacrifices everyone has had to make to mitigate the effects of COVID-19 will inspire a greater willingness to rely on non-contentious means to resolve international commercial disputes. ‘Tis the season to be merry and mediate? Or will international arbitration continue to be the dominant means for resolving cross-border commercial disputes in 2021?
Mediation is a process by which parties attempt to resolve a dispute amicably with the assistance of a third party (ie the mediator) who has no authority to impose a solution on the parties. For the process to be successful, the parties must be willing to attempt to resolve their dispute through guided discussions on the issues in dispute coupled with a focus on their shared interests. The entire process is voluntary and usually can be terminated at any stage.
In contrast, arbitration is a process in which a neutral third party (ie the arbitrator or a three-person tribunal) is empowered, usually through the terms of a contract agreed before any dispute has arisen, to render a reasoned award binding on the parties. The great advantage of arbitration is that arbitral awards are enforceable practically anywhere in the world pursuant to the New York Convention.
Since a settlement agreement is one which the parties have agreed to comply with voluntarily, in theory, an enforcement procedure should not be necessary. But just as goodwill and harmony can subside at this time of year soon after the gift wrapping has been put away or the guests sent home, a party may live to regret a mediated settlement to which it has previously agreed. Alternatively, there may be a dispute as to the proper interpretation of the mediated agreement or whether its terms have been satisfied. In these circumstances, enforcement might be necessary. Traditionally, this has required the bringing of a court action. This can be a lengthy and expensive process, particularly if the assets being enforced against lie in a country (or countries) different to that of the enforcing party.
The Singapore Convention – a promising start
The Singapore Convention seeks to achieve for mediated settlement agreements what the New York Convention has done for international arbitration by providing a framework for the recognition and enforcement of mediated settlement agreements arising from international commercial disputes.
A court subject to the Singapore Convention is required to enforce a mediated settlement agreement in accordance with its rules of procedure unless one of the limited grounds for refusing enforcement has been established, which include:
In addition, the Singapore Convention recognizes the res judicata effect of a settlement agreement. The courts of contracting parties to the Convention are therefore required to allow a party to invoke a settlement agreement if another party seeks to pursue a claim in relation to a matter that has already been resolved under its terms.
The benefits of arbitration vis-a-vis mediation
The benefits of arbitration as a dispute resolution mechanism are well-known. They include:
Mediation possesses many of these strengths, and in some cases to a greater degree (e.g. such as the ability to control the time and cost of the proceedings). Mediation may also be preferable to arbitration in cases where parties wish to control the ultimate outcome of the dispute instead of risking an adverse decision by a tribunal.
However, the enforceability of mediated settlement agreements pales in comparison to arbitral awards. Being a new treaty, the Singapore Convention only has six states which have signed and ratified the Convention as of the date of writing, and it could take decades before its worldwide reach approaches that of the New York Convention.
In addition, there may be circumstances where parties may be unable to achieve an amicable settlement through mediation and tougher action may be required. For example, the counterparty may be unwilling to participate meaningfully in mediation; there may be important principles in dispute that need to be clarified; limitation periods may be at risk of expiring, the gap between the parties may be too wide to be resolved amicably; or there may be concerns about the dissipation of assets during an attempted mediation. In such situations, there may be a need to resort to arbitration. Formal legal proceedings may also help focus minds and encourage the adoption of more reasonable positions in parallel negotiations.
Whether we will see a significant increase in mediations in the new year will depend in part on the rate at which states sign up to the Singapore Convention. Even more significant, however, will be whether commercial parties consider mediation to be a viable means for resolving international commercial disputes, which will often depend on the precise circumstances and the nature of the relationship between the parties. Ultimately, mediation or negotiations without the assistance of a mediator can only work if both parties are willing to participate constructively in the process and settle their disputes amicably.
We take this opportunity to wish everyone happy holidays and a joyous and rewarding 2021, which will be hopefully largely immune to the ill-effects of COVID-19.
1) In contrast, parties to court litigation have no say over which judge is appointed, who may or may not be familiar with the subject matter of the dispute.
2) This is likely to be preferable to having to submit contractual disputes to the national courts of only one party.
3) With that said, if the confidentiality of arbitration is desired, it should be stated expressly in the contract subject to national laws that do not imply such an obligation automatically (such as Australia). In contrast, the confidentiality of arbitration is implied by law in places like Singapore and England, for instance.
4) Court trials in most jurisdictions typically taking longer than arbitrations to conclude, especially if interlocutory and appellate procedures are taken into account.
5) While arbitrators, unlike judges, need to be paid by the parties, evidentiary hearings contribute to the bulk of the costs incurred by the parties and are usually significantly shorter in length in international arbitration compared to litigation. Choong, Mangan, and Lingard, A Guide to the SIAC Arbitration Rules (OUP, 2nd Ed, 2018), paras 15.04 to 15.07.
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