Enforcement of mediated settlement agreements

Time for an international standard

Publication May 2016

The current methods of enforcement for international mediated settlement agreements – by way of litigation or arbitration; enabling legislation; and consent awards – are considered inadequate. To address this matter, UNCITRAL has undertaken work on creating a new legal instrument for the expedited enforcement of such agreements.

In the past 20 years, mediation has become a common way to resolve international commercial disputes. There are now a variety of international mediation centres, such as the ICC International Centre for ADR and the Singapore International Mediation Centre.

An enduring challenge to mediation as a means of settling an international commercial dispute is that the result of a successful mediation is an international mediated settlement agreement (or IMSA), which traditionally has no better legal status than any other contract. There is currently no mechanism for IMSAs to be directly enforced internationally. This means that if one of the parties to an IMSA refuses to honour the parties’ agreement, the other party will have to rely on one of the available methods, which are discussed below.

Current IMSA enforcement

Litigation or arbitration

Traditionally, if one party to an IMSA refuses to honour the parties’ agreement, the other party has to sue on the settlement agreement, whether through court or arbitration. This undermines the benefits behind the original reason to go through mediation. Enforcement proceedings may well be simplified (because the dispute has been narrowed through the IMSA, as opposed to re-litigating on the terms of the original dispute), but additional time and costs will be incurred, perhaps substantially so. In addition, if a party is seeking to enforce an IMSA through domestic litigation, enforcement options outside the home jurisdiction will be limited (in the same way as domestic judgments).

Enabling legislation granting IMSAs award/judgment status

Certain states have enacted legislation that provides for an expedited process whereby settlement agreements are converted into enforceable judgments or arbitral awards. The Swiss civil procedure code (article 217) and the Italian decree on mediation in civil and commercial disputes (28/2010) are both good examples of this type of enabling legislation. Whether the law in question covers IMSAs will depend very much on the particular legislation.

Where an IMSA can be converted into a judgment, this method faces the same difficulties around enforcement by parties outside the home jurisdiction.

“It is time to dispense with the legal fiction which has been created between consent awards issued after – as opposed to before – the commencement of an arbitration.”

A technical issue arises in legislation that converts an IMSA into an arbitral award (usually by the appointment of an arbitrator to endorse the IMSA). Most commentators agree that the New York Convention requires that a dispute exists at the time of appointment; if, therefore, an arbitrator is appointed after the settlement, the converted IMSA will likely not be enforceable as an arbitral award under the New York Convention.

Consent awards

The consent award method involves reaching a settlement after the commencement of arbitration proceedings and requesting that the arbitrator record the parties’ IMSA as a consent award. As discussed above, consent awards are generally regarded as enforceable under the New York Convention. These types of awards are expressly referred to in the Model Law (article 30) and in most arbitration institutions’ rules. This solution does little to assist parties that did not consider commencing arbitration before reaching a mediated settlement.

Arbitration–mediation–arbitration

One cannot help but question whether there is any legitimate reason to distinguish between consent awards on the basis of whether the arbitrator was appointed before or after the IMSA was agreed.

However, to avoid this issue, parties considering mediation should first commence arbitration, after which they can immediately suspend the arbitration in favour of mediation. Where the mediation is successful, the IMSA can then be recorded as an enforceable consent award. Should the mediation fail, the parties can resume the arbitration. This method is the rationale behind provisions such as SIAC’s Arb-Med-Arb protocol.

This approach may attract some criticism as an attempt to legitimize what would otherwise be an ‘unenforceable’ IMSA, but it does comply with the technical requirements of the New York Convention.

Future IMSA enforcement

A ‘New York Convention’ for IMSAs

UNCITRAL is preparing an international instrument for the enforcement of IMSAs. This process is ongoing, with no clear idea yet as to what form such an instrument might take.

What has become clear is that the treatment and enforceability of IMSAs should not focus on the timing of the appointment of an arbitrator to bestow award status on the settlement agreement. It is time to dispense with the legal fiction which has been created between consent awards issued after – as opposed to before – the commencement of an arbitration. The terms of such agreements are primarily entered into without the supervision of the tribunal, and the tribunal has little or no input into the substance and form of the settlement agreement. The timing of the appointment of the tribunal therefore has limited effect on the content of an IMSA.

Perhaps the real question that we need to ask is this: do we want an international mechanism for the expedited enforcement of IMSAs? If the answer is yes, then we must determine what formal requirements should be in place before expedited enforcement can be granted.

Most of the participants in the UNCITRAL working group appear to favour an international mechanism for IMSAs. This view is not universal: some participants have expressed concern that there is no fundamental difference between agreements which are the outcome of negotiation and agreements resulting from mediation or conciliation. In other words, the legal status of an IMSA is no different from any other contract and, therefore, it is questionable whether such contracts should be granted special status.

Significant work remains to be done by the working group to agree a framework, starting with basic concepts: determining the scope and nature of agreements to be covered; developing a functional definition of ‘international commercial mediation/conciliation’; setting out form and substance requirements for IMSAs; setting out requirements of due process. Even when the committee reaches consensus, many barriers still exist before a convention (or other instrument) is drafted and, eventually, ratified.

Regardless of the results of the UNCITRAL process, it is clear that the current avenues for enforcing IMSAs are inadequate, and there is interest for a more effective and internationally cohesive method of recognizing such agreements abroad. If, when and how this will occur – and how such an instrument would co-exist with other international dispute settlement mechanisms such as arbitration – will only be determined in due course.

KC Lye is a partner and Tim Robbins is an associate in the Singapore office of Norton Rose Fulbright.

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