The IMI/CCA/Strauss Institute Mixed Mode Taskforce have just published a series of articles on mixed mode dispute resolution in the New York Dispute Resolution Lawyer. These articles are reprinted with permission. The below article was produced by Working Group 6, and authored by Kathleen Paisley and Jane Player.
When disputes cannot be avoided and are subjected to a formal amicable dispute resolution procedure involving a neutral, whatever that procedure may entail, the value of resolving that dispute is enhanced to the extent that the outcome is enforceable if the other side does not live up to its side of the bargain. Knowing that the result will be respected either voluntarily or through legal enforcement mechanisms increases party buy in to the process, increasing the likelihood that the dispute will be resolved.
Although parties voluntarily comply with most amicable resolutions, enforcement mechanisms are an important piece of the dispute resolution process. Their speed and predictability encourage party participation and enhances the credibility of the process with reluctant parties.
The primary enforcement mechanisms available to enforce amicable resolutions internationally are the Singapore Convention on Mediation1 and the New York Convention on arbitral awards.2
Enforcement Considerations in Planning Dispute Resolution Proceedings
During the Task Force’s tenure, the means available to enforce amicable resolutions was significantly enhanced when the Singapore Convention on Mediation was adopted on 20 December 2018 and entered into force on 12 September 2020. By providing a recognized means of enforcement of mediated settlements, the goal of the convention is to promote the use of mediation as a faster, less expensive form of dispute resolution for international disputes and one which is more likely to preserve commercial relationships.
Prior to the entry into force of the Singapore Convention, mediated settlements were typically treated the same as any other contract or settlement agreement for purposes of enforcement.3 This required a party seeking enforcement of a mediated settlement to proceed in the same way it would have for the breach of the underlying contract that was the initial source of the dispute, potentially leading to another dispute resolution procedure. The Singapore Convention eliminates the need to litigate the breach of (the settlement) contract; now the obligations contained in international settlement agreements are directly enforceable in contracting states by virtue of the fact that they resulted from a mediation.
Prior to the Singapore Convention (and today except in the five countries that have ratified it), the alternative was to have the mediated settlement reflected in a consent award that could be enforced under the New York Convention. As will be discussed further below, the New York Convention generally allows for enforcement of consent awards where the arbitrator was in place before the mediation and when a genuine dispute existed. However, where an arbitrator is put in place later, or the mediator becomes an arbitrator after the settlement was reached for purposes of issuing a consent award, the New York Convention may not allow for enforcement.
The uncertainty with respect to the enforcement of mediated settlements led UNCITRAL to consider promulgating a specific convention geared at the enforcement of meditated settlements. The need for such a convention was hotly debated. One set of practitioners questioned the need for it as 80% of mediated settlements are adhered to anyway because they are the parties’ own agreed solutions to their commercial problems and so there is high likelihood of compliance. However, an equally forceful counter argument was made, perhaps rightly, that as much effort is put into negotiating and agreeing a settlement, if the other party then decides not to perform, the company requesting the performance has few options other than litigation or arbitration, the very processes they wanted to avoid in the first place, and therefore an internationally recognized enforcement mechanism was needed. Further, the lack of enforcement was often used as a basis for reluctant parties (and their counsel) to refuse to mediate and the Convention’s entry into force has removed this obstacle.
The Singapore Convention now provides a standard framework for the enforcement of mediated settlements to resolve international commercial disputes similar to the New York Convention for arbitral awards that has been in place since 1958. As of September 12, 2020, 53 countries have signed the Singapore Convention including the U.S., China and India; however, the U.K., EU and Australia have yet to sign and only five countries have ratified. At the same time, the New York Convention with its 166 ratifying countries continues to allow for broad enforcement of arbitral awards including consent awards falling within its scope.
In the context of considering the combination of dispute resolution processes, if enforcement is a consideration, it will be important for parties to consider how to structure the process so the outcome is most likely to be enforced either under the Singapore Convention or New York Convention in a place where the party against whom enforcement is sought has assets, taking into account the following questions.
- Has the country or countries in which enforcement would be sought ratified either the Singapore Convention or New York Convention or both?
- In the context of the Singapore Convention, has the potential enforcing state made a reservation requiring an opt-in to the convention?
- Where one or both conventions have been ratified, are their procedures in place in practice for timely enforcement?
- Are the courts friendly to enforcement under the relevant convention(s)?
Keeping in mind that, at the time of writing, only five countries have ratified the Singapore Convention compared with the 166 that have ratified the New York Convention, if the possibility of enforcement is an important consideration, as further discussed below, it would be wise to follow a process pursuant to which a bona fide arbitration is brought as a first step when a dispute is extant and any additional agreement for mediation is put in place thereafter. However, looking forward, more countries will ratify the Singapore Convention and it will provide an increasingly viable addition and/or alternative option for parties seeking an enforceable result.
With that in mind, the following section briefly outlines the factors to be taken into account to ensure enforcement of a mediated settlement under the Singapore Convention and a consent award under the New York Convention.
Mediated Settlements Under the Singapore Convention
Under the Singapore Convention, contracting states agree that if a party to a mediated settlement agreement requests enforcement, each contracting state will recognize and enforce that agreement in accordance with its own rules (subject to the contracting state’s ratification or approval of the Singapore Convention). Importantly, unlike the New York Convention, the Singapore Convention does not contain a reciprocity requirement so that the enforcing country must recognize the mediated settlement if it has ratified the Singapore Convention even if the country in which the mediation was held has not adopted the convention.
The party seeking enforcement must produce a copy of the settlement agreement and evidence that the agreement was reached through the use of mediation and establish that it was international in scope, in the sense that: (i) at least two parties to the agreement have their places of business in different states; or (ii) the state in which the parties to the agreement have their places of business is different from either the state in which a substantial part of the obligations under the agreement is performed or the state with the closest connection to the subject matter of the agreement.
Evidence that the settlement was reached through mediation may include:
- the signature of the mediator on the mediated agreement itself, or
- a document signed by the mediator indicating that the mediation happened, or
- attestation by an institution that administered the mediation, or
- if 1-3 are not possible, any other evidence acceptable to the court before which any application for enforcement is made.
If these criteria are met, the Singapore Convention permits contracting states to refuse enforcement only on limited grounds, which are similar to those set forth in the New York Convention and also to those for which enforcement of a contract could be challenged, as follows:
- a party was under some incapacity, or
- the agreement is null and void under applicable laws, or it is not binding or it is not final according to its own terms or has been subsequently modified, or
- the obligations in the agreement have been performed or are not clear or comprehensible, or
- there was a serious breach by the mediator under the standards applicable to that mediator, which resulted in the agreement, or
- the application to enforce is contrary to the agreement itself, or
- the application to enforce is contrary to public policy in the country of enforcement, or
- the subject matter of the dispute is not capable of settlement under the laws in force in Singapore (to include family, inheritance and employment cases for example).
As such, the Singapore Convention potentially enables parties in cross-border commercial transactions who have settled their dispute through mediation to enforce their settlements directly.
Some practical considerations that may arise in the context of potential enforcement of a mediated settlement that should be kept in mind are:
- What form of proof will be provided to establish that the settlement was reached through mediation and is the proposed mediator comfortable to provide it?
- When a settlement is reached with a time lag after the mediation meetings, how will it be established that the settlement resulted from the mediation (as opposed to some other ongoing process while the dispute was pending) and to what extent does this mean that the mediator should remain available to attest to the process?
- If the mediated settlement contains some provisions that would run contrary to public policy or go beyond the scope of the Singapore Convention (e.g., employment), what means will be put in place so that the remainder of the mediated settlement would be enforceable under the convention?
- Is the settlement agreement sufficiently clear on its face to be enforceable?
Consent Awards Under the New York Convention
Although the Singapore Convention has been enthusiastically received by many countries, until it has been ratified more extensively, enforcement under the New York Convention often remains the only alternative for parties seeking to achieve an enforceable result through a combined process.
If the parties to an arbitration reach a settlement during the course of an arbitration, they may ask the tribunal to record their settlement as a consent award (otherwise referred to as an award on agreed terms). This is provided for expressly by most international arbitration rules including the International Chamber of Commerce (ICC) rules, the AAA/ICDR American Arbitration Association rules, London Court of International Arbitration rules, UNCITRAL Arbitration rules, and the WIPO Arbitration rules, among others.
The application of the New York Convention to consent awards turns on whether a consent award is properly considered to be an award within the meaning of the New York Convention, and further whether it arises out of a dispute such that it falls within the convention’s scope.
With respect to whether a consent award is properly considered to be an award, the prevailing view is that a consent award is an award within the meaning of the New York Convention, and neither the language of the New York Convention itself nor that of the major international arbitration’s rules would argue against a consent award being considered an award. As discussed in a recent article in this publication, two recent United States district court cases firmly held a consent award entered by an arbitral tribunal and reflecting the settlement by the parties to be an “award” enforceable under the New York Convention and the same position applies under the UNCITRAL model law Article 30(2) which states expressly that “[a]n award on agreed terms has the same status and effect as the award on the merits of the case.4
However, in order to be enforceable under the New York Convention it is not sufficient that a consent award is considered to be an arbitral award; the award must also arise out of a dispute. The New York Convention provides: “This Convention shall apply to the recognition and enforcement of arbitral awards … arising out of differences between persons, whether physical or legal.”
As to whether a consent award arises out of a dispute, the conclusion may differ depending on when the arbitration was brought. In cases where there is an ongoing arbitration at the time of the settlement, even if it has been paused for example to allow for mediation, the consent award would arise out of the dispute that was before the tribunal. This would be the case whether the settlement was procured through mediation or not. However, where a settlement is reached, whether through mediation or otherwise, in advance of the arbitrators being appointed and an arbitration is instituted thereafter merely to issue a consent award, or a mediator later becomes an arbitrator to issue a consent award, many take the view that the consent award would not arise out of a difference and therefore would not be enforceable under the New York Convention. While this issue remains undecided in many jurisdictions, precaution would warrant avoiding this eventuality where possible.
To avoid this risk, when parties are considering how to structure a combined process, if they desire the result to be enforceable under the New York Convention, it would be wise to initiate an arbitration first or at least at the same time as the mediation. For example, this approach is adopted by the Singapore International Mediation Centre and Singapore International Arbitration Centre (SIAC) Arbitration-Mediation-Arbitration protocol.
Under most arbitration rules, the tribunal has the discretion whether to issue a consent award, and considerations that arise for a tribunal when confronted with a request for a consent award include:
- Does the settlement agreement go beyond the scope of its jurisdiction because it addresses issues outside the claims brought in the case?
- Does the settlement agreement raise potential concerns related to fraud or illegality (including money laundering) and to what extent do the tribunals’ obligations extend to probing such issues?
- To what extent should the tribunal review the settlement and explore the circumstances surrounding settlement before issuing a consent award?
- Parties and mediators should take these considerations into account in structuring a settlement that would be subject to a consent award.
Other Enforcement Issues Impacting Combined Dispute Resolution Processes
Enforcement considerations may also act as a constraining factor in designing combined processes. Example of factors to be considered are:
- When a stepped clause is employed, have the steps been crafted so that they do not act as a barrier to arbitration or create potential enforcement risk?
- When the same neutral acts as a mediator and arbitrator in the same case have proper consents been put in place such that if an arbitration award is ultimately rendered it would be enforceable? When do those consents have to be given and by whom?
- Even if proper consents are obtained, if a neutral engages in ex parte communication with the parties during a mediation process and thereafter acts as an arbitrator, does this create risks for enforcement?
- When an arbitrator undertakes activities geared towards settlement, do those procedures create a risk for enforcement of the award? If so, when and how should he/she consider doing this to ensure the enforceability of the award?
- When a mediator and an arbitrator are acting in the same case, when and to what extent would communications between them create a risk to enforcement?
In the context of the enforcement of international arbitral awards under the New York Convention, the first step in challenging enforcement will be to seek to annul or set aside the award at the arbitral seat, in which case such issues would be raised during that proceeding. This means that in deciding how to structure a combined procedure or to employ the other mechanisms considered by the various working groups in the context of a procedure involving an arbitration, an underlying consideration will be the extent to which any award so produced could pose a risk of being set aside or not enforced under the New York Convention. These factors have been taken into account by the various other working groups in considering the subjects addressed herein, but it may be wise to consider in specific cases whether issues are raised under the New York or Singapore Convention or the law of the arbitral seat or of a likely enforcing court.
Parties and neutrals should always consider enforcement risk in structuring and implementing combined processes. Considering that 80% of amicable resolutions are voluntarily complied with, enforcement will still be the exception rather than the rule. However, the availability of enforcement should it become necessary is important to many parties (and their counsel) and therefore can hinder development of, and participation in, combined processes when not available.
When the Singapore Convention has been ratified more broadly, parties will have an important additional tool in their enforcement toolkit, and until then enforcement under the New York Convention remains a viable alternative, provided processes are designed with enforcement in mind.
- United Nations Convention on International Settlement Agreements Resulting from Mediation, adopted on 20 December 2018 and entered into force on 12 September 2020 (referred to as the “Singapore Convention on Mediation”).
- Convention on the Recognition and Enforcement of Foreign Arbitral Awards was adopted by a United Nations diplomatic conference on 10 June 1958 and entered into force on 7 June 1959 (referred to as the “New York Convention”).
- An exception to this is Directive 2008/52/EC of the European Parliament and of the Council of 21 May 2008 on certain aspects of mediation in civil and commercial matters, OJ L 136, 24.5.2008, p.3–8 (and national laws promulgated thereunder).
- Laura A. Kaster, Consent or Agreed Awards and the New York Convention—What Is the Status?, NY Dispute Resolution Lawyer, 11 (2) (Fall 2018) (and cases cited therein).
WG6 is co-chaired by Kathleen Paisley and Jane Player. For a full list of WG 6 members, go to https://imimediation.org/mmtf. kathleen Paisley is a recognized international arbitrator (and mediator) based in the U.S. and Europe. She has acted in commercial arbitration cases under all the major international arbitration rules and in investor-state cases before ICSID and under the UNCITRAL rules and is triple qualified in law (Yale), finance (MBA) and accounting (CPA Exam). Jane Player is a leading mediator based in London, a member of the IMI Users Council and and an honorary member of the International Academy of Mediators.
This article is reprinted with permission from: New York Dispute Resolution Lawyer, 2021, Vol. 14, No. 1, published by the New York State Bar Association, One Elk Street, Albany, NY 12207.