Enforcement of International Mediated Settlement Agreements

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The new Mediation Ordinance (Cap. 620) (“MO”) came into operation on 1 January 2013. With many jurisdictions increasingly using mediation to resolve disputes other than through litigation in courts, it is believed that the MO will enhance Hong Kong’s status as a leading Centre for dispute resolution in the Asia-Pacific region.

That said, there are important issues to be resolved. In the context of international commercial mediation conducted in Hong Kong, the lack of an effective method of enforcement for cross-border Mediated Settlement Agreements is widely seen as a major impediment to the further development of international mediation. Some questions commonly faced by mediators are: Can the Mediated Settlement Agreement (whose legal effect is similar to a contractual agreement) be enforced overseas? If not, how can parties in international commercial disputes make full use of mediation given the risk that any outcome might be unenforceable? Why would international parties not simply resort to arbitration where the New York Convention of 1958, with its 148 member states, ensures the enforceability of both arbitration agreements and arbitral awards?

In some jurisdictions such as the US, it is possible to apply to the court for entering a settlement agreement as a consent judgment, which would then make it enforceable. The EU Mediation Directive, also, expressly contemplates such a method of enforcement. However, the difficulties of enforcing a judgment in a foreign jurisdiction where assets reside would remain.

Similarly, jurisdictions such as South Korea (Korean Commercial Arbitration Board) and Sweden (Stockholm Chamber of Commerce) provide for the entry of an arbitration award to record an agreement reached in mediation. That said, there are also many countries where a “dispute” has to exist at the time that the arbitrator is appointed, before the award can be recognised. The problem here is that once a settlement agreement had been reached, there would technically not be a “dispute” any more when the mediator is subsequently appointed as an arbitrator in order to make an arbitral award.

Pursuant to the MO and the Arbitration Ordinance (Cap. 609), the law surrounding such situations is unclear and untested in Hong Kong. While some practitioners suggest that consent awards rendered by an arbitrator appointed before the settlement could be governed by the New York Convention, and therefore be enforceable, it is nevertheless unclear if the more straightforward process of appointing the mediator as an arbitrator after settlement can do likewise.

Therefore, it is necessary to develop this area of law so that mediation can find its rightful place in the arena of international commerce. Only with this issue resolved can international mediation be truly adopted in Hong Kong.

 

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