28 May 2020 - Article
7 August 2019 was a historic moment for Singapore. 46 countries signed the Singapore Convention, more formally known as the United Nations Convention on International Settlement Agreements Resulting from Mediation –a record number of first-day signatories for a UN trade convention.
The signatories include the world’s two largest economies, China and the US, as well as major Asian economies, India, South Korea and Saudi Arabia.
Better enforceability of the mediated agreement
The aim of the Singapore Convention is to provide an internationally uniform framework to recognise and enforce mediated settlement agreements, similar to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) for international arbitration awards. By providing a stronger enforcement mechanism for mediated settlement agreements, the Singapore Convention will elevate the importance and effectiveness of mediation globally and provide another attractive option for businesses in resolving international commercial disputes.
According to a 2019 study by Ipsos and Singapore Academy of Law, enforceability is the biggest factor for legal professionals in their choice of dispute resolution options. Without an effective enforcement mechanism, there is no assurance that either party will honour their side of the bargain or satisfy any judgment or award against them. Traditionally, settlement agreements are legally treated as contracts and a party must first sue for breach of contract in order to obtain an enforceable judgment/award. In Singapore, subject to the requirements under the Mediation Act, parties can convert their mediated agreement immediately into an enforceable court order.
The New York Convention coupled with decades of jurisprudence has greatly promulgated the usage of international arbitration worldwide. A large majority of arbitral awards are complied with little need to resort to enforcement measures since the straightforward resort to enforcement is simply there. The New York Convention started with 10 signatories in 1958 and now boasts 160 signatories. With the success of the New York Convention, the reception for the Singapore Convention certainly looks promising. The Singapore Convention will similarly grant a greater level of expectation and efficiency with regards to mediated settlement agreements.
Better for businesses and investments
With its non-adversarial and relationship-preserving process, mediation could very well be the alternative dispute resolution mechanism of choice for commercial parties. Considering the enabling legal framework put in place by the Singapore Convention, being a party to the Singapore Convention signifies a greater commitment to international trade and uniform best practices. A Singapore Convention signatory would be a good place to start for businesses looking to explore investment and business opportunities overseas.
A major issue for transnational businesses and investments is the unfamiliar and cumbersome cross-border dispute resolution process. The immediate problems include unpaid accounts, missed deadlines, and increased costs from rectification or changes. Unresolved disputes can also lead to the potential loss of profits from the breakdown of business relationships and the diversion of resources away from further business development. A cumbersome process would involve high legal costs and expenses. An unfamiliar dispute resolution system will also deter businesses and investors from entering the country. If the dispute resolution process can be simplified, streamlined and made uniform across borders, the reduced costs required to resolve disputes would create a robust and more attractive business climate.
The Singapore Convention also complements Singapore’s plans to accelerate business and infrastructure development in the region, such as through Enterprise Singapore’s initiative Infrastructure Asia. The Asian Development Bank estimates that Asia requires US$1.7 trillion in investment into infrastructure annually. The Belt and Road Initiative involves infrastructure development across 152 countries and has stemmed various projects in ports, railways, highways, aviation, power and telecommunications. To promote infrastructure and other projects in Asia, there is a need to put in place a business-friendly legal and regulatory framework for public-private partnerships.
With so many ambitious and promising Asian projects on the horizon, the private sector will definitely have plenty of opportunities to get involved. To those mindful of the past Asian financial crisis, a strong international dispute resolution mechanism can allay the risk-averse and rebuild trust in the system. Ideally this should lead to better private sector funding and usher in a new age of economic development in the region.
When will the Singapore Convention apply?
The Singapore Convention applies to settlement agreements that result from mediations to resolve international commercial disputes. The following criteria must be met for the purposes of recognition and enforcement of the settlement agreement between the signatory states:
1. The agreement is “international”, meaning 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 is most closely connected to the agreement, is different to the parties’ place of business.
2. The agreement is signed by the parties and “resulted from mediation”. Mediation is defined broadly as a process whereby parties attempt to reach an amicable settlement of their dispute with the assistance of a third-party (mediator) lacking the authority to impose a solution upon either party to the dispute.
3. The agreement does not fall within the list of excluded agreements:
(i) arising from transactions engaged by one of the parties for personal, family or household purposes;
(ii) relating to family, inheritance or employment law;
(iii) which have been approved by a court or concluded in the course of proceedings before a court and are enforceable as a judgment in a court; and
(iv) recorded and enforceable as an arbitral award.
4. None of the exhaustive list of grounds for refusing relief applies:
(i) A party to the agreement was under incapacity;
(ii) Granting relief is contrary to public policy;
(iii) Subject matter of dispute is not capable of settlement by mediation;
(iv) Settlement agreement is null and void, inoperative, incapable of being performed, not binding, not final, not clear or comprehensible;
(v) Serious breach by the mediator of standards applicable to the mediator or the mediation;
(vi) Failure by the mediator to disclose circumstances relevant to the mediator’s impartiality or independence.
Countries that have signed will have to go through a domestic process to ratify the Convention. The Convention will only formally come into effect after the ratification process has been completed by at least three signatory states. This is likely to be achieved, given that 46 countries signed on the first day it opened for signatures.
While its full impact, particularly whether it will be as significant as the New York Convention, remains to be seen, but strong early uptake is a very promising indicator.
Consistently ranked amongst the top least corrupt country in the Corruption Perceptions Index and the only Asian country within the top ten, Singapore is well-poised to service businesses in the Asian region and beyond. Singapore law is well-established, commercially-sensitive, has its roots in English law, and will be familiar to any common law practitioner. Singapore’s unique position as the crossroads between the East and West, and its proficient dispute resolution institutions, make it the ideal location to base businesses and resolve disputes. The Singapore Convention will further reinforce Singapore as the premier hub for dispute resolution in Asia.
A version of this article was first published in the July 2019 issue of The Business Times