Convention on international settlement agreements resulting from mediation

By Terence Xu, BAC/BIAC
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北京仲裁委员会/北京国际仲裁中心品牌管理高级主管许捷

Will mediation become the main mechanism to resolve disputes in future commercial transactions? During the 51st commission session of the United Nations Commission on International Trade Law (UNCITRAL), the Draft Convention on International Settlement Agreements Resulting from Mediation has been adopted and will be opened for signing during the so-called Singapore Convention. In this article, the author will briefly introduce the key elements and clauses in the draft convention, and briefly analyze the influences and opportunities it may bring to China’s mediation mechanisms.

During UNCITRAL’s 47th session in 2014, certain countries, with relatively developed mediation services, pointed out that “one obstacle to greater use of conciliation was that settlement agreements reached through conciliation might be more difficult to enforce than arbitral awards”, which served as a “disincentive to commercial parties to mediate”. These countries proposed that UNICTRAL’s working group II “develop a multilateral convention on the enforceability of international commercial settlement agreements reached through conciliation, with the goal of encouraging conciliation in the same way that the New York Convention had facilitated the growth of arbitration”.

From the background of the production of the draft convention, it is clear that the ultimate goal of the development of international dispute resolution mechanism is to resolve, as effectively and conveniently as possible, conflicts stemming from international commercial transactions. Such a goal is consistent with UNCITRAL’s mandate to “reduce or eliminate the differences among states’ international trade laws, and the obstacles they bring to trade flows”.

The successful mediations in certain countries and regions are gradually gaining international recognition, which is emphasized in the preamble to the draft convention, stating: “The parties to this convention … noting that mediation is increasingly used in international and domestic commercial practice as an alternative to litigation … convinced that the establishment of a framework for international settlement agreements resulting from mediation that is acceptable to states with different legal, social and economic systems would contribute to the development of harmonious international economic relations.”

In China, mediation is one of the focal points of current governance of society and legal reforms. There are specific concepts to establish mediation mechanisms in both specific administrative and legislative policies, such as the Suggestions on Optimization of Diverse Dispute Resolution Mechanisms and the Suggestions on Further Reform Diverse Dispute Resolution Mechanisms. Both documents regard the development of an independent and professional dispute resolution mechanism as being of critical importance. However, the two documents differ in their approaches to the enforcement of mediation results and the scope of application of the draft convention, which may prevent mediation from better performing its function in international trade.

For example, the arrangement of commission and designation of mediation procedure detailed in the Suggestions on Further Reform Diverse Dispute Resolution Mechanisms prevent the draft convention from being applicable to mediation results obtained through such arrangements.

Convention draft article 1(3) provides: this convention does not apply to settlement agreements … (a)(i) that have been approved by a court or concluded in the course of proceedings before a court; (ii) that are enforceable as a judgment in the state of that court; and (b) that have been recorded and are enforceable as an arbitral award. The purpose of such stipulation from the draft convention is to avoid possible overlap with existing and future conventions, namely the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958), the Convention on Choice of Court Agreements (2005) and the 2016 preliminary draft convention on judgments, under preparation by the Hague Conference on Private International Law.

Clearly, the legislators and policymakers in China need to untangle further the current complicated mediation systems, clarify the independence and neutrality of mediation, and design, in advance, more streamlined approaches to mediation for disputes that potentially may seek enforcement relief beyond the borders and, thus, tangibly utilize the functions of mediation under the draft convention. Similarly, for arbitration institutions in China, the draft convention may be an opportunity to amend arbitration rules further to allow parties to choose different dispute resolution mechanisms, such as mediation within arbitration or independent mediation, to accommodate better different practical situations.

Article 4 of the draft convention, with regards to the settlement agreements that seek enforcement internationally, provides that:

A party relying on a settlement agreement under this convention must supply to the competent authority of the party to the convention where relief is sought: (b) evidence that the settlement agreement resulted from mediation, such as: (1) the mediator’s signature on the settlement agreement; (2) a document signed by the mediator indicating that the mediation was carried out; (3) an attestation by the institution that administered the mediation; or (4) in the absence of (1), (2) or (3), any other evidence acceptable to the competent authority.

Such a stipulation means that evidence regarding mediation results and procedures, provided by mediators and mediation institutions, will be prerequisite for the draft convention to be applicable. Such a prerequisite will surely bring new international development opportunities to the currently growing industrial and civil mediation institutions.

Article 5 of the draft convention listed several scenarios where competent authorities from a party to the draft convention are allowed to deny enforceability of the settlement agreement, from which the following three are especially notable: (1) When the settlement agreement is “null and void, inoperative or incapable of being performed under the law to which the parties have validly subjected it, or, failing any indication thereon, under the law deemed applicable by the competent authority of the party to the convention where relief is sought under article 4”; (2) “The obligations in the settlement agreement are not clear or comprehensible”; and (3) “When there was a serious breach by the mediator of standards applicable to the mediator or the mediation without which breach that party would not have entered into the settlement agreement.”

First, in mediations that attempt to rely on the draft convention to seek relief, parties to mediation must clarify applicable laws to the specific settlement agreement as much as possible, or at least ensure that the content of the settlement agreement does not potentially violate any laws and regulations, causing it to be nullified. Such stipulation fully demonstrates the requirement of legal expertise in mediation. Currently, there are many entities involved in mediation. Apart from people’s mediation, there is no standardized threshold for practices of ordinary industrial and civil mediation. Therefore, for parties employing mediation under the framework of draft convention in China, choosing an experienced and credible mediator or mediation institution would be helpful to streamline the process of enforcement.

Second, the parties and mediators should pay special attention to the clarity and comprehensibility of the content of the settlement agreement by considering them along with the circumstances surrounding the disputes and the applicable law of the place of enforcement. On this aspect, legal service practitioners such as attorneys, judges and arbitrators, with experience and expertise in dispute resolution, will gain professional advantages from their outstanding grasp of the legal enforceability of the agreements.

It should be noted, however, that different emphasis of mediations on weights of rights and obligations and dispute resolutions over arbitration and litigation are a key basis of their value. Overemphasizing the professional advantages of legal service practitioners and, as such, creating barriers for people from other trades and industries to enter the process, may prevent it from fulfilling its role as a dispute resolution mechanism.

Finally, there is currently no relatively mature and universally applicable criterion regarding mediation’s standard of conduct, especially in its specific process, method of proceeding and techniques. Mediation has profound historical traditions and has been widely practised on the mainland and the Greater China region.

If a standard of conduct of mediation that accommodates the mainland’s cultural background and legal tradition can be developed from past experience, it will help China to produce a “Chinese standard of mediation” in the international dispute resolution arena and, as a result, assist Chinese enterprises to grow internationally. It will also help to satisfy the need for dispute resolution in the implementation of the Belt and Road initiative, and will effectively guide mediators to employ their expertise to promote communications between the parties, and assist them to evaluate and eventually resolve their disputes.

The draft convention took four years to take shape. The author has been fortunate enough to participate in the discussion and negotiation of its drafting since working group II’s 65th meeting as a representative of Beijing Arbitration Commission/Beijing International Arbitration Centre. China’s mediation industry needs more than internal development intended to divert domestic litigations, but also to actively pay attention to international dispute resolution arena’s discussions on mediation mechanisms and, thus, improve current levels of capability and standards of professionalism. External expansion may become one of the long-term goals of the development of this aspect. If the draft convention is to be readily adopted and signed by the Belt and Road states, mediation may become another main dispute resolution mechanism besides arbitration and litigation, and help promote commercial interactions among Belt and Road countries and regions.

Terence Xu is a senior manager at Beijing Arbitration Commission/Beijing International Arbitration Centre