Sunday Times 2
Sri Lanka’s Singapore Convention on Mediation Bill: A leap forward in international commercial dispute resolution
View(s):By Dhara Wijayatilake
The Enforcement of International Settlement Agreements Resulting from Mediation Bill was published in the Gazette of October 16, 2023. It is expected that Justice Minister Wijeyadasa Rajapakshe, P.C will present the Bill in Parliament soon and will hopefully receive the support of all political parties to enact a statute that will be of benefit to Sri Lanka.
The Bill establishes a domestic regime to enforce international commercial settlement agreements that have resulted from mediation. The provisions are based on the principles of the UN Convention on International Settlement Agreements Resulting from Mediation adopted by the UN General Assembly in December 2018, and which came into operation on September 12, 2020. Sri Lanka signed the Convention when it opened for signature in Singapore on August 7, 2019. As of October this year, 56 States including five of the six largest economies of the world — the USA, China, Japan, India, and the UK — as well as South Korea which is one of the largest economies in Asia, have signed the Convention. Twelve States have ratified the Convention, Singapore being one of the first and Japan being the most recent (October 1, 2023). Sri Lanka is poised to ratify the Convention after the enactment of the law. Known also as the Singapore Convention on Mediation, it is to international commercial mediated settlement agreements what the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) is to foreign arbitral awards.
Investors look for better dispute resolution systems in a country. Illustration courtesy acerislaw.com
Why was a Convention needed?
As of 2014, standards for the use of mediation for commercial dispute resolution were contained in the UNCITRAL Rules (1980) and a Model Law (2002). While these documents provided for procedural matters that could be adopted universally, they did not provide for cross-border enforcement. The UNCITRAL Model Law of 2002 stated that “If the parties conclude an agreement settling a dispute, that settlement agreement is binding and enforceable” and left it to each State to include provision as to the method of enforcing the settlement agreement. The result was that a party seeking to enforce the settlement agreement was required to pursue a civil action in a foreign court and be subjected to the laws of that country. This was a serious problem given the ensuing absence of uniformity to govern the enforcement process and the applicability thereby of different legal systems. This was identified as an impediment to the greater use of mediation because it was burdensome and time-consuming. It was to address this concern that UNCITRAL commenced its work to simultaneously formulate the text for a Convention as well as a new Model Law, both of which were adopted in 2018.
International trade and business was booming aided also by technological advancements that facilitated cross border transactions. The contract enforcement regime for cross-border trade and business needed to have meaningful options for better dispute resolution. The popularity of mediation was growing due to its intrinsic features that recognised party autonomy, voluntariness to submit to and stay in the process, confidentiality, and a wider array of options that served business interests as opposed to a right vs wrong approach. The process also offered the potential to be cost effective and to produce a faster resolution acceptable to all disputants. In the world of trade and business, these were significant benefits. Many International Organisations have adopted their own Rules to govern the process and provide mediation services.
The Singapore Convention on Mediation seeks to facilitate international trade and commerce by providing a uniform framework for the enforcement of mediated settlement agreements across borders. In its preamble, the Convention noted that Mediation is increasingly used in domestic and international practice as an alternative to litigation and also considered that the use of mediation results in significant benefits such as reducing the instances where a dispute results in the termination of a commercial relationship and also that the use of mediation produces savings in the administration of justice by States.
When Singapore celebrated the Singapore Convention Week in August this year, the Singapore International Mediation Centre (SIMC) organised its signature event – “MNCs for Mediation: From Disputes to Deal-Making” – stating that “a good corporate governance framework should include redress to deal with disputes in a timely, cost-effective manner. Mediation lends itself well to this purpose as a management tool and demonstrates a strategic commitment to ESG (Environmental, Social and Governance) that extends beyond one’s products and services.” Forty-two MNCs and industry associations from ten countries signed the Declaration of Intent to support mediation. The SIMC hailed the response, stating that the business community has demonstrated that mediation is an appropriate and viable option for resolving commercial disputes.
The Sri Lankan Bill is faithful to the provisions in the Singapore Convention and incorporates the following key principles of the Convention –
the Act will apply to Settlement Agreements that have been concluded by parties to resolve a commercial dispute, are in writing, are international in nature at the time of conclusion, and are the result of a mediated settlement.
There is no definition of the term “commercial” as in the Convention. During its deliberations, UNCITRAL’s Working Group II agreed that a definition of the term “commercial” was not required in the Convention. The Model Law of 2002 and the new Model Law of 2018 contain the following, identical explanation in a footnote to Article 1(1):
‘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. Relationships of a commercial nature include, but are not limited to, the following transactions: any trade transaction for the supply or exchange of goods or services; distribution agreement; commercial representation or agency; factoring; leasing; construction of works; consulting; engineering; licensing; investment; financing; banking; insurance; exploitation agreement or concession; joint venture and other forms of industrial or business cooperation; carriage of goods or passengers by air, sea, rail or road.’
A settlement agreement is “international” where at least two parties have their places of business in different States, or the State in which the parties have their places of business is different from either the State in which a substantial part of the obligations under the settlement agreement is performed or the State with which the subject matter of the settlement agreement is most closely connected. The term “place of business” is defined.
The Bill sets out categories of disputes that are excluded from its scope in an exhaustive list. These are, settlement agreements in respect of disputes where one party to the transaction has been a consumer for personal, family or household purposes and disputes relating to family, inheritance, or employment law, and settlement agreements that have been concluded or recorded as a judgment of a court, in the course of judicial proceedings and are enforceable as a judgment of a court; or are enforceable as an arbitral award. The justification is that such judgments of court and arbitral awards have a defined enforcement procedure already.
The Bill makes provision for a party to the settlement agreement to make an application to the High Court to seek relief, ie. to have the agreement entered as a decree of court. It also recognises the admissibility of a settlement agreement where a matter that has been settled is included in litigation.
The Bill provides for limited grounds on which an objection can be made to the grant of a decree. These are based on the incapacity of a party, issues relating to the settlement agreement and issues resulting from a breach of applicable standards by the mediator. The court may also refuse to grant a decree if granting relief would be against the public policy of Sri Lanka or the subject matter of the dispute is not capable of settlement by mediation under the laws of Sri Lanka.
Importantly, the Bill recognises that every international settlement agreement shall be valid and enforceable unless a decree of the High Court has been refused and states that obligations assumed by parties under such an agreement shall be honoured as in any other contractual agreement.
The Singapore Convention deals only with how mediated settlement agreements can be enforced and not with any aspect of the mediation process. It must be emphasised that the Convention and hence the Bill does not apply to compel the use of mediation or to adjudicate on the terms of the settlement. Since the grounds for objecting to a settlement agreement are specified, the jurisdiction of the court is limited to awarding a decree or refusing one. The court does not assume jurisdiction to judge the validity or the correctness of the terms of the settlement.
Sri Lanka’s aspiration to emerge as an attractive destination for investment requires a concerted strategy to implement a broad-based business environment. The efficacy of the contract enforcement regime needs to be addressed seriously. This is a challenge given that Sri Lanka’s performance in the past has been an issue. Dispute resolution must be efficient and effective. Litigation is woefully slow and costly. The culture around arbitration needs to improve. Investors will look to a comprehensive ecosystem that offers better dispute-resolution options. Sri Lanka needs to work its way through some of the disadvantages that prevailed previously and which slotted the country in the lower positions of the Ease of Doing Business rankings.
A comprehensive ecosystem requires excellent ADR services, infrastructure facilities of a high standard to fulfill international expectations and Governmental policy commitment to support such efforts. Sri Lanka now offers commercial mediation services through the International ADR Center which also offers arbitration. The Center is a private entity and has world class facilities for the conduct of commercial arbitrations and mediations with access to experienced Arbitrators and Mediators from overseas as well, and conducts programs to create awareness regarding commercial mediation. The enactment of this Bill will showcase Sri Lanka as a country that is committed to creating a conducive environment for international trade and business.
Mediation for domestic
dispute resolution
The Singapore Convention Bill will be supplemented by another Bill titled “Mediation (Civil and Commercial Disputes) Bill which is expected to be finalised soon. This Bill seeks to provide for a range of matters to set standards that must be observed throughput the mediation process. These include voluntariness to submit to mediation, party autonomy during the mediation, the non coercive role of the mediator, confidentiality and without prejudice rule. The Bill will also provide for standards of conduct that must be observed by mediators. It needs to be emphasized that the community mediation programme which has been implemented since 1988 and the establishment of Mediation Panels for the resolution of land and financial disputes, which are funded and managed by the State, is distinct from the scope of the envisaged new Bill and will not be affected.
Sri Lanka’s initiatives to promote mediation for commercial dispute resolution are being pursued at a time when other countries in the region, Singapore, Hong Kong, Malaysia, India, Bangladesh, Pakistan and the Maldive Islands have already made much headway in this regard.
Further information on mediation services offered by the International ADR Center may be obtained via its website www.iadrc.lk
Correspondence on this subject may be addressed to secretarygeneral@adr.lk
(The writer was a secretary to
the Ministry of Justice)