As many owners and contractors involved in the international construction industry are aware, international arbitration is a popular dispute resolution device for international construction disputes because, in part, international arbitration awards are, broadly speaking, enforceable in practically every jurisdiction in the world. This facet of international arbitration has been set out in the U.N. Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) — a multilateral convention that requires the courts of the contracting states to recognize and enforce arbitration awards made by tribunals seated in other contracting states. Now, with 160 signatory states and the increasing popularity of international arbitration around the world, the New York Convention is widely viewed as one of the most successful international conventions ever.
Recently, in July and August 2019, a pair of international organizations introduced two new international conventions — the 2019 Convention on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters (the 2019 Enforcement Convention) and the U.N. Convention on International Settlement Agreements Resulting from Mediation (the Singapore Convention on Mediation) — which seek to replicate the success of the New York Convention and create a system for the universal recognition and enforcement of foreign court judgments and mediated settlement agreements.
While both conventions are in their infancy, as explained below, they are worth watching and, in some ways, may affect the manner in which international construction owners and contractors approach international dispute resolution in the future.
2019 Enforcement Convention
On July 2, delegates to the 22nd Diplomatic Session of the Hague Conference on Private International Law finalized the 2019 Enforcement Convention. In sum and substance, the 2019 Enforcement Convention seeks to accomplish for national court judgments what the New York Convention has done for international arbitration awards.
Specifically, the 2019 Enforcement Convention requires contracting states to recognize and enforce civil and commercial judgments — including money and non-money judgments — rendered in another contracting state. In doing so, the 2019 Enforcement Convention attempts to do away with a complicated and inconsistent patchwork of treaties, statutes and codes in jurisdictions around the world concerning the enforcement of foreign court judgments in favor of a more comprehensive, streamlined set of standards.
That said, the 2019 Enforcement Convention is not without its limitations. For example, much like the New York Convention, the 2019 Enforcement Convention expressly prohibits the enforcing courts from conducting a review of the merits of the judgment and, instead, offers contracting states relatively limited grounds to refuse enforcement, including improper service, fraud, manifest incompatibility with the public policy of the enforcing jurisdiction, and failure of the court that rendered judgment to recognize the parties’ agreement to resolve their dispute before a different court. The 2019 Enforcement Convention also permits enforcing courts to refuse to enforce a judgment if, and to the extent that, the judgment awards damages such as exemplary or punitive damages.
Whether the 2019 Enforcement Convention will radically alter the current status quo remains to be seen. Given the significant differences between legal systems around the world, it seems unlikely that the 2019 Enforcement Convention will receive widespread acceptance — at least in the near future. For the time being, international arbitration will likely remain the dispute resolution method of choice for international construction disputes given the broad enforceability of international arbitration awards.
Singapore Convention on Mediation
Approximately one month after the announcement of the 2019 Enforcement Convention, on August 7, the Singapore Convention on Mediation was opened for signature. Unlike the 2019 Enforcement Convention, the Singapore Convention on Mediation has gained widespread support from some of the more prominent economies in the world — including China and the United States.
The Singapore Convention on Mediation aims to create a framework that offers businesses engaging in international transactions greater certainty that cross-border disputes can be resolved through mediation without resorting to local courts. Specifically, mediated settlement agreements, practically speaking, can only be enforced as a matter of contract. If a party seeks to renege on a settlement agreement, the injured party’s only remedy is to revert to the courts of a specific jurisdiction (often selected by the parties), prove breach of contract, and, ultimately, enforce the resulting judgment. The process is cumbersome and creates significant inefficiencies for a dispute resolution method that attempts to reduce transaction costs by avoiding the need for formal litigation or arbitration proceedings.
To address this problem, the Singapore Convention on Mediation calls for the courts of the contracting states to enforce mediated commercial settlements if the mediated settlement agreement meets certain criteria: (i) the settlement agreement is “international”; (ii) the agreement is signed by the parties and “resulted from mediation”; (iii) the agreement does not fall in an excluded category of settlement agreements (e.g., family law, consumer disputes); and (iv) none of the grounds to refuse enforcement exist.
As to the final prong, much like the New York Convention and the 2019 Enforcement Convention, the Singapore Convention on Mediation affords the enforcing courts the right to refuse enforcement under certain limited circumstances, such as a party’s lack of capacity, mediator misconduct, or serious defects in the terms of the settlement agreement. However, as long as the mediated settlement agreement satisfies these requirements, the courts of the contracting states must recognize and enforce the agreement without a substantive review of the dispute.
While the Singapore Convention on Mediation appears promising, especially in light of the broad support it has received, many commentators have questioned the need for such a convention and whether the convention’s procedures are workable. This is especially so because, while mediation as a dispute resolution mechanism is relatively common in the United States and United Kingdom, the practice is less recognized in other jurisdictions. As a result, there remains a great deal of uncertainty concerning how the Singapore Convention on Mediation will be applied in practice by parties, mediators and various courts.
Ultimately, much like the 2019 Enforcement Convention, time will tell whether the Singapore Convention on Mediation will alter the current environment of international dispute resolution. However, given that 46 countries have already signed the agreement, with many more likely to follow, the Singapore Convention on Mediation holds promise. Importantly, given that the United States is now a party to the convention, U.S.-based firms would be well-advised to consider how the Singapore Convention on Mediation affects the dispute resolution provisions commonly incorporated into their cross-border agreements and how those firms conduct mediations to ensure that they can avail themselves of the protections of this newly created treaty.
Now is an interesting time for international dispute resolution. With the growing popularity of international arbitration and the success of the New York Convention, other similarly minded efforts to create uniform standards for other dispute resolution procedures were bound to develop. While the Singapore Convention on Mediation is most likely to create a lasting impact, owners and contractors engaged in the international construction industry should take note of both new conventions.