Singapore Convention Ushers in New Era for International Mediation

The Singapore Convention further legitimises mediation as a viable method of cross-border dispute resolution, say Amanda Lees and Eric Chan at Simmons & Simmons.

On 7 August 2019, the Singapore Convention on Mediation (“Singapore Convention”), was signed by 46 countries (link), including China, the US, Singapore, India and South Korea. Support for the Convention from some of the world’s largest economies is encouraging: a recognition that mediation has become a viable dispute resolution option.

The signing of the Singapore Convention is a positive development in the context of financial institutions as financial institutions may prefer to attempt mediation prior to commencement of formal proceedings to see if a dispute could be resolved without incurring significant additional costs.

The Singapore Convention seeks to expedite the enforcement of settlement agreements arising from the mediation of cross-border disputes by setting down a unified framework for enforcement.  It sits alongside other conventions that apply to the enforcement of judgments and awards in cross-border litigation and international arbitration – i.e., the Hague Convention and the New York Convention.

The increased enforceability of settlement agreements offered by the Singapore Convention may allow financial institutions, like banks and insurance companies, to turn towards mediation as a plausible process to settle their cross-border disputes.

The Singapore Convention will enter into force six months after it has been ratified by at least three signatory States. Ratification could take some time, depending on the domestic processes of the signatory States.

Key criteria

The Singapore Convention applies to mediated settlement agreements that satisfy the following main criteria:

  1. The agreement must be recorded in writing.
  2. The agreement must resolve a commercial dispute. The Convention does not apply to, for example, disputes arising from consumer contracts or are in relation to family, inheritance or employment law. Although the Convention does not define ‘commercial’ disputes, this would likely capture disputes between a financial institution and its clients in relation to banking issues.
  3. The agreement must be international, e., at least two parties should have their “place of business” in different signatory States or the State in which the agreement will be performed is different from the place of business of the parties involved. Where a party has multiple places of business, the Singapore Convention provides that the relevant place of business is that which has the “closest relationship” to the dispute (Article 2(1)(a)). This is relevant in the financial services context because some financial institutions operate in a different location from their customers. For example, a relationship manager in Hong Kong may service private banking clients in the South East Asia region.
  4. The agreement must have resulted from mediation. Mediation is defined broadly as “a process, irrespective of the expression used or the basis upon which the process is carried out, whereby parties attempt to reach an amicable settlement of their dispute with the assistance of a third person or persons lacking the authority to impose a solution upon the parties to the dispute” (Article 2(3)).
  5. A signatory State may refuse to enforce an international mediation agreement if any of grounds under Article 5 apply. To give a few examples, the grounds of refusal include:
    • incapacity of a party (Article 5(1)(a));
    • the settlement agreement is null and void, or is not binding or final (Article 5(1)(b));
    • the obligations in the agreement are not clear or comprehensible (Article 5(1)(c));
    • there was a “serious breach by the mediator of standards applicable to the mediator or the mediation” (Article 5(1)(e)); and
    • granting relief would be contrary to public policy of the State where enforcement is sought (Article 5(2)(a)).

Watch this space

Some questions remain concerning the application and operation of the Singapore Convention.

First, the Singapore Convention does not define what constitutes a “place of business” or how a court should apply the “closest relationship” test.  This can potentially create uncertainties for parties seeking to rely on the Convention.

Second, there may be arguments over what “standards” should apply when considering the ground of refusal under Article 5(1)(e) (serious breach of applicable standards), given that there are different models of mediation in use (facilitative, evaluative, transformative).  It will be interesting to see how frequently this ground is invoked and how a competent authority handles such challenges.

Third, the public policy ground for refusal (Article 5(2)(a)) can give flexibility to some States to refuse enforcement.  We expect similar public policy arguments to be rehearsed under the Singapore Convention as the ones deployed under the New York Convention.

Fourth, at present, the European Union member states (including the UK) and some Commonwealth countries (such as Australia and Canada) have not signed the Singapore Convention.  Their support will be important in further promoting the adoption of the Convention by other States, although we do expect that, with time, many more countries will sign the Singapore Convention (to recall, the New York Convention had a slow start with only 10 initial signatories).

Fifth, the Singapore Convention allows signatory States to make a reservation at any time to limit the application of the Convention to only those agreements where the parties have agreed to its application (Article 8(1)(b)).  This is a potentially significant limitation; there is currently no indication as to how many signatory States will decide to make this reservation.

Sixth, it is debatable whether the Singapore Convention applies to agreements reached under Court-mandated mediation (e.g., in Hong Kong, there is a process for engaging in mediation following the close of pleadings). This is because the Convention provides that it would not apply to settlement agreements that “have been…concluded in the course of proceedings before a court” (Article 1(3)(i)).  It is also questionable whether the Convention would apply to a settlement reached under the med-arb procedure, if the mediator is also the arbitrator. The Convention contemplates that, in order to fall within the definition of “mediation”, the mediator should lack “the authority to impose a solution upon the parties” (Article 2(3)).

Implications for Financial Services

Mediation is an inherently flexible and party-driven process by which parties reach a settlement of their disputes with the help of a third-party facilitator. When it works, it is a very cost-effective method of dispute resolution.

Certain jurisdictions actively promote the use of mediation as a means of resolving disputes. In Hong Kong, for example, financial institutions seeking authorisation with the HKMA or licensing/registration with the SFC must become members of the Financial Dispute Resolution Scheme (FDRS). By becoming members of the FDRS, they become bound by the FDRS rules, which provide for mediation as a possible means of resolving disputes with aggrieved customers. In our experience, mediation has been used to resolve misselling claims against financial institutions and other banking-related disputes.

In fact, the FDRS recently expanded upon its jurisdiction. Prior to January 2018, the FDRS could only handle claims made within 12 months from the date on which the claimant first had knowledge of his loss and where the amount in dispute does not exceed HKD 500,000. This has increased to 24 months and HKD 1,000,000, and parties are allowed to further exceed these restrictions by consent.

Although the Singapore Convention may not be applicable to FDRS-mediated agreements between a customer and a domestic financial institution (owing to the ‘international’ requirement), it remains to be seen what impact the convention may have on disputes between a customer and FDRS member with their primary business being overseas.

The Singapore Convention adds credibility and legitimacy to mediation as a method of dispute resolution for international disputes, and may lead to an increased adoption of mediation by commercial parties in cross border disputes.  It may also provide an impetus for the development of universally-recognised standards for mediation processes and mediators.

Text of the Singapore Convention is accessible at this link.

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