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Enforcing Mediated Settlements Internationally: A New Horizon

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By Benjamin Caddaye, Law Clerk and Alicia Hill, Principal, MST Lawyers

Mediation is a key method of resolving disputes prior to resorting to formal adjudication before a Court or Tribunal. Whether it is a dispute between two Australian residents or an Australian resident and a resident of another country, mediation has become a vital part of the dispute resolution landscape.

However, in the context of disputes between residents of different countries, a dilemma arises. Under the current legal framework, there is no international instrument enabling the enforcement of mediated settlements which occur in one jurisdiction or another. If a mediation in Melbourne between an Australian company and a Chinese company results in a settlement, there is no mechanism for this to be recognised and enforced in China.

This problem has been recognised by the United Nations Commission on International Trade Law (UNCITRAL). The UNCITRAL was created by the UN General Assembly in 1966 and is the peak international body for the harmonisation and modernisation of international trade law. It is made up of 60 UN member states who serve six-year terms. Australia is currently a member of the Commission, serving until 2022.  During the 51st session of the Commission which took place in July, a proposal to remedy this problem was unveiled. Titled the Singapore Convention, the proposal provides for an international mechanism to enforce mediated settlements and is due to be voted on in Singapore in late 2019.

Historical Role of Arbitration

Arbitration, conciliation and mediation form the core of alternative dispute resolution (ADR). These processes provide a way of resolving disagreements between two or more parties without resorting to a formal State sanctioned judicial process. They can be instrumental in the context of international disputes because they can overcome issues of jurisdiction, legal and cultural barriers, lack of a formal juridical process and, on the whole, can be more effective in reaching a commercial outcome.

The process of Arbitration is a reflection of the western common law legal culture and by its nature is an adversarial process. It has historically been the key method of resolving trade disputes. Since 1958, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (The New York Convention) has facilitated the enforcement of arbitral awards internationally. The Convention provides that where two parties agree in writing to submit to the arbitration of any issues arising between them, the resulting decision of the Arbitrator shall be recognised and enforceable in any country which is a signatory to the Convention.

Mediated Processes

Despite being a part of the ADR landscape, conciliation and mediation have in the past proved less popular methods of resolving trade disputes. However, as the centre of the global economy has shifted to Asia over the past two decades, conciliation and mediation have become increasingly common. Business culture in Asia has a preference for avoiding confrontational processes such as Arbitration. The preference is instead to resolve disputes amicably through agreement and the maintenance of continued relationships. This preference is well catered for in the conciliation and mediation processes and is a key reason why their use has become increasingly common in the past few years.

However, as conciliation and mediation have increased in popularity, so too have the problems surrounding the enforcement of the outcomes. Unlike with arbitral awards, there was no standardised mechanism for the enforcement of settlements reached through these processes in jurisdictions other than the one in which the process took place. The contract between the parties which constituted the settlement agreement was subject to the vagaries and hybrid mismatch of other jurisdiction’s contract laws.

The UNCITRAL Model Law and Convention

At the Commission’s 47th session in 2014, a proposal was adopted to undertake work on the preparation of a Convention and Model Law to directly address the issue of enforceability. The function of a Model Law is to provide a suggested legislative framework that can be incorporated to take effect within a States domestic law. A Convention, on the other hand, is an instrument of international law that States can choose to become a party.

There are two key differences between the two documents. Firstly, parties to a convention do not have the power to alter the text of the convention, whereas the Model Law can be altered in any way before being incorporated into domestic law. Secondly, under domestic law, a Model Law is enforceable within the Court system because it is an act of the Legislature. A convention does not have any effect in domestic law until ratified by the State’s Legislative body.

The work of the UNCITRAL since 2014 has culminated in the release of the draft Model Law and Convention in July. They operate to provide an international mechanism for enforcing settlements reached through a mediated settlement process (mediation and conciliation). The Convention provides for enforcement as follows:

Article 3(1): Each Party to the Convention shall enforce a settlement agreement in accordance with its rules of procedure and under the conditions laid down in this Convention.

Article 4(1): A party relying on a settlement agreement under this Convention shall supply to the competent authority of the Party to the Convention where relief is sought:

(a) The settlement agreement signed by the parties;

(b) Evidence that the settlement agreement resulted from mediation, such as:

(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.

Adoption of the Singapore Convention

Australia is a member of UNCITRAL Working Group II, the body within the Commission responsible for the deliberations and drafting of the Model Law and Convention, and was even elected as Rapporteur or Secretary of the Group at its meeting in February of this year. This key involvement indicates that Australia will likely be a key supporter of the Convention when it is voted on in late 2019.

However, the adoption and ratification of the Convention is not guaranteed. Given Australia’s strategic proximity to the Asian market and the key role Asia will play in our economic future, MST Lawyers encourages you to lobby your local Business Association, Member of Parliament, State Senators and directly to the Department of Foreign Affairs and Trade.

A key proponent of the reforms has been the Australia Chamber of Commerce and Industry, the national affiliate of the International Chamber of Commerce. Director of Trade and International Affairs Bryan Clark has played an active role in supporting the Singapore Convention.

This domestic pressure will help ensure that the Convention is supported by Australia next year in Singapore, and will aid Australian businesses to enforce mediated settlements worldwide.

For more information on the operation of the Model Law or Convention, please see the links below. If you would like to discuss any of the matters raised in this article, please feel free to contact Alicia Hill from our Dispute Resolution and Litigation team by email, or call +61 3 8540 0200.

 

Click the links for a more detailed understanding of Model Law and Convention