Singapore Convention on mediated settlements a welcome development for the construction sector

On 7 August 2019, Singapore hosted the signing ceremony for the United Nations Convention on International Settlement Agreements Resulting from Mediation. Now known as the Singapore Convention, 46 countries have signed the convention to date.

The Singapore Convention applies to settlement agreements resulting from mediations resolving cross-border commercial disputes. It provides a standardised framework for enforcement within signatory states, in a manner analogous to the New York Convention for the recognition and enforcement of arbitration awards.  You can read our commentary on the Singapore Convention here and here.

The introduction of the Singapore Convention should come as a welcome development for the construction sector.

Construction disputes are often complex, fact and document intensive and require various fields of expert evidence when pursued through to a full and binding determination by an arbitral tribunal or court.  This can result in the parties expending significant time and costs to obtain a final determination.

However, many construction disputes may be ideally suited to mediation at an early stage, thereby avoiding the time, cost and risk of proceeding through an entire formal dispute resolution procedure.  That is particularly the case where a construction contract requires the parties to provide detailed particulars of their claims at an early stage of the dispute resolution process, so that the parties can be in a position to understand the merits and risks of each party's position early on in the lifecycle of a dispute.

Mediation can also provide a useful tool for resolving related disputes at different levels of a project in a single forum by bringing together the owner, contractor, sub-contractors, professionals and insurers in a cost-effective environment.

The mediation process is usually short, and cost effective.  Mediation sessions usually take no more than a day or two and can be arranged as soon as the parties are ready. Not only does mediation in this way preserve the momentum of a project (particularly where claims arise during the course of construction), but it also ensures the continuity of positive commercial relations between the parties.

For this reason, construction contracts (particularly for larger projects) also sometimes contain multi-tiered dispute resolution frameworks. Such frameworks ordinarily provide that parties must first use more cooperative dispute resolution processes (e.g. negotiation and/or mediation) before escalating to more adversarial alternatives (e.g adjudication, arbitration or litigation).

Mediation is a common tier in multi-tiered dispute resolution frameworks and some standard form industry contracts also contemplate the use of mediation as a part of such a multi-tiered framework.  For example, certain JCT forms and the AIAC Main Contract include mediation provisions.  However, care should be taken when drafting these frameworks into a construction contract.  You can find our guidance on multi-tiered dispute resolution clauses and dispute avoidance here.

A further feature of construction disputes is that they often involve a cross-border element. Whether this is the procurement of equipment or services from outside the country where the project is being developed, or where a contractor is foreign to the place of the project owner.  A good example of such projects are those arising from China's Belt and Road initiative.  We have previously discussed the suitability of mediation to disputes specifically arising under China's Belt and Road Initiative here and, more recently, here.

In these cross-border scenarios, the settlement of disputes by mediation may give rise to issues of enforceability.  This is where the introduction of the Singapore Convention may have its greatest impact, by improving the enforceability of mediated settlement agreements without the need to re-litigate or arbitrate the dispute.

The initial signatories include China, India and the U.S.A., as well as many other countries that are significant for international construction projects and activity.  The complete list of initial signatories can be found here.  It does not include any EU countries, but this was said to be only a procedural matter of whether the Convention should be signed by individual EU nations or by the EU on their behalf. While it remains to be seen how many states will sign up to the Singapore Convention and how its principles will be enacted in domestic legislation and applied by domestic courts, it is hoped that the Singapore Convention will in time encourage parties to engage in mediation as a useful tool for the time and cost effective resolution of cross-border construction disputes.

For more information please contact Alastair Henderson, Partner, Dan Waldek, Of Counsel, or your usual Herbert Smith Freehills contact.