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Promod Nair and Shivani Singhal
The United Nations Convention on International Settlement Agreements Resulting from Mediation, which will be known as the Singapore Convention on Mediation (the “Convention”), has now opened for signature by all States and a formal signing ceremony took place today in Singapore.
India is one of the initial signatories to the Singapore Convention. The Convention will enter into force six months after a State has signed and ratified it and would apply to only those settlement agreements which are concluded after the date when the Convention enters into force for the concerned State.
The Singapore Convention is intended to promote the use of mediation for settlement of cross-border commercial disputes by providing a cross-border mechanism for enforcement of mediated settlement agreements. In the same way that the New York Convention allows a party to an international arbitration agreement to seek enforcement of an arbitral award (or the arbitration agreement) in any State which has implemented the New York Convention, the Singapore Convention on Mediation enables a party to a mediated settlement agreement to seek enforcement of the settlement agreement in any State which has ratified and implemented the Convention.
It is expected that the Singapore Convention will provide a further incentive to parties to choose mediation over (or at least prior to) arbitration and litigation for resolving cross-border commercial disputes.
Prior to the Convention, any mediated settlement agreement (unless incorporated in an arbitral award or a judgment of a court) would have been treated as a mere contract. A breach of this contract would have forced the aggrieved party to first approach the arbitral tribunal or court having jurisdiction over the contract to seek remedies for breach, and then take steps for enforcement of the arbitral award or the judgment in the relevant jurisdiction. Therefore, mediation was often considered a viable option only after the commencement of arbitration or court proceedings, when a mediated settlement agreement could be incorporated in the arbitral award or judgment to ensure ease of enforcement.
The present mediation landscape in India
Part III of the Arbitration and Conciliation Act 1996 (the “Arbitration Act”) relates to conciliation (or mediation, since the two terms are considered to be generally synonymous) of disputes and is based largely on the UNCITRAL Conciliation Rules of 1980.
Part III of the Arbitration Act deals with several aspects of conciliation such as the procedure for conduct of the conciliation, the confidentiality of the conciliation proceedings and the status and effect of a settlement agreement.
Section 74 provides that the settlement agreement shall have the same status and effect as an arbitral award rendered under Article 30 of the Arbitration Act. This provision, which is incidentally not contained in the UNCITRAL Conciliation Rules of 1980, is the only provision under the Arbitration Act relating to enforcement of a settlement agreement. This enabled a settlement agreement to be enforced as a decree of the court under section 36 of the Arbitration Act but at the same time allowed it to be challenged on the same grounds as an arbitral award under section 34.
Apart from the Arbitration Act, a number of other Indian legislations also provide for mediation of disputes. For example, section 89 of the Code of Civil Procedure 1908 (the “CPC”) encourages a civil court to proactively refer cases before it for mediation. In August 2018, the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act 2015 was amended to require mediation as a mandatory pre-action procedure prior to the filing of a commercial suit (unless a party required urgent interim relief from the courts). These requirements would apply equally to disputes of an international nature being litigated in India.
Parties to cross-border disputes, who enter into a settlement agreement outside India, currently have the following options for enforcing the settlement agreement in India:
The above options may, in addition to being time consuming, pose a number of challenges. For example, one of the grounds on which enforcement of New York Convention awards may be refused is that the award contains decisions on matters beyond the scope of the submission to arbitration. A mediated settlement agreement may include agreement on aspects which do not fall strictly within the scope of the arbitration agreement. In such a situation, obtaining enforcement of all the terms of settlement agreement could prove to be difficult.
Similarly, a foreign decree is not considered conclusive under the CPC if it has not been given on the merits of the case. High Courts in India have not taken a consistent view on whether a consent order should be treated as a judgment on the merits of a dispute. The Madras High Court, for instance, has taken the view that a compromise decree cannot be considered a judgment on the merits of the matter since no adjudication is involved (see Gudemetla China Appalaraju v. Kota Venkata Subba Rao, AIR 1946 Mad 296). For these reasons, enforcement of a foreign decree incorporating a settlement agreement may not be entirely straightforward in the Indian context.
Implementation of the Singapore Convention by India
The Singapore Convention is a welcome measure as it will allow parties to a cross-border mediated settlement agreement to directly seek enforcement of the settlement agreement before the competent authority in India, without facing the challenges associated with incorporating the terms of settlement in an arbitral award or judgment.
It is envisaged that ratification of the Convention will be accompanied by the adoption of the UNCITRAL Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation (the “Model Law”). The Model Law provides a template for State legislation for implementation of the Convention. To ensure effective implementation of the Convention, India (and other States) would have to enact legislation along the lines of the Model Law, and the success of the Convention will depend to a significant extent on adoption of the Model Law.
Key features of the Singapore Convention
Scope of application
The Convention is applicable to “international” mediated settlement agreements that resolve a “commercial” dispute. A mediated settlement agreement will be considered international if the parties have their place of business in different States; or if their place of business is different from (a) the State in which a substantial part of the obligations under agreement is performed, or (b) with which the subject matter of the agreement is most closely connected.
The applicability of the Convention may therefore have to be determined on a case-to-case basis by the competent authority. The meaning given to the term ‘commercial’ could also vary across jurisdictions. Although the Model Law suggests that the term ‘commercial’ should be given a wide interpretation so as to cover matters arising from all relationships of a commercial nature, whether contractual or not, it is possible that in India the term may be interpreted to exclude certain types of commercial disputes such as investor-State disputes.
In the context of the commercial reservation made by India under the New York Convention, the Delhi High Court has held that investor-State disputes under international investment agreements are not commercial in nature since they relate to State guarantees and assurances and are rooted in public international law, obligations of the State and administrative law (see Union of India v. Vodafone Group Plc, 2018 SCC OnLine Del 8842; Union of India v. Khaitan Holdings (Mauritius) Limited, 2019 SCC OnLine Del 6755). Although these rulings may not be the final word on this issue, it is possible that a similar approach could be taken in respect of interpretation of the term ‘commercial’ in the Convention.
The Convention excludes from its scope settlement agreements (a) that have been approved by a court or concluded in the course of proceedings before a court and are enforceable as a judgment in the State of that Court, and (b) that have been recorded in, and are enforceable as, an arbitral award. The rationale for these exclusions was to prevent an overlap with international instruments relating to enforcement of foreign judgments and arbitral awards, primarily the Hague Choice of Court Convention and the New York Convention.
The language of the exclusion could potentially be interpreted to mean that the enforcement regime under the Convention will not be available if the settlement agreement is enforceable as a judgment in the State of the Court which approved the settlement agreement, regardless of whether it is enforceable as a judgment in other States where it may have to be enforced.
It also remains to be seen whether the Convention regime would be held to be applicable where the enforcement of the judgment or arbitral award embodying the settlement agreement is eventually refused under applicable local law.
Can be used as a sword as well as a shield
The Convention not only provides for enforcement of mediated settlement agreements, but also allows a party to invoke it as a defence in subsequent proceedings. Under Article 3, if a dispute arises in respect of a matter that a party claims was resolved by a settlement agreement, the party would be entitled to rely on the settlement agreement to establish that the dispute has already been resolved and the initiation of a new proceeding on the same cause of action is therefore precluded.
Nature of the grounds for refusing relief
As in the case of the New York Convention, the grounds on which the competent authority in a State may refuse to grant relief to a party are exhaustively set out in the Convention. Further, the language used is permissive in that it enables the competent authority to allow enforcement even if any of the grounds for refusing enforcement is established by a party contesting enforcement of the settlement agreement. In the context of the New York Convention, Indian courts have held that enforcement of an award may be allowed even if one of the grounds for refusing enforcement under section 48 of the Arbitration Act is established (see Cruz City 1 Mauritius Holdings v. Unitech Limited, 239 (2017) DLT 649). It is likely that a similar approach will be taken to interpreting the grounds for refusing relief on the basis of a mediated settlement agreement.
Reservation by States
The Convention permits States to make only two reservations: (i) a ‘sovereign exception’ as per which a State may exclude the applicability of the Convention to settlement agreements to which it is a party, or to which any government agency or person acting on behalf of a government agency is a party, and (ii) an opt-in requirement as per which a State may declare that the Convention shall apply only to the extent that parties to the settlement agreement have agreed to the application of the Convention. India does not appear to have notified any reservations yet.
If the latter reservation is made, it would require parties to be aware of the Convention regime and expressly agree to its application in the context of their dispute. It is not clear whether the parties would have to agree to the applicability of the Convention prior to or at the time of submitting the dispute to mediation, or whether they would be able to do so even at the time of execution of the settlement agreement.
The situation could be problematic in circumstances where a settlement agreement, which does not contain an opt-in provision, contemplates performance of promises in several States some of which may have made this reservation. The settlement agreement would then be only partially enforceable under the Convention regime. For enforcement in the State which has made the reservation, the concerned party would have to avail of other options that may be available under local law.
A Convention with immense promise
Despite certain limitations, such as the exclusion from its scope of settlement agreements which can be executed as judgments or arbitral awards, the Convention has immense potential to transform mediation into a preferred mode for resolution of cross-border commercial disputes. The initial response to the Convention has been enthusiastic and it is reported that about 46 States have signed the Convention on the very day that it has opened for signature.
States could contribute to the growth of cross-border mediation by adopting the Model Law and also by facilitating training of mediators and ensuring that the competent authorities designated by them are able to function independently and expeditiously. Especially on account of the open language of some of the provisions of the Convention which require judicial interpretation, the competent authorities designated by States will have a vital role to play in fashioning the development of a pro-mediation jurisprudence and enabling the Convention to realise its immense promise.
About the authors: Promod Nair and Shivani Singhal are advocates at Arista Chambers in Bengaluru