COVID-19 SPECIAL

Firms should consider mediation to settle rows amid Covid-19 disruption

Mediation is a flexible process in which a neutral third-party mediator facilitates the parties' settlement negotiations.
Mediation is a flexible process in which a neutral third-party mediator facilitates the parties' settlement negotiations.PHOTO: ISTOCKPHOTO

The unprecedented consequences of the Covid-19 outbreak are being felt everywhere. Not only has it resulted in dire health outcomes for millions across the globe, but it is also having a devastating impact on the global economy.

According to the International Monetary Fund (IMF), the global economy is expected to contract by 3 per cent this year - the worst recession since the Great Depression. Closer to home, the IMF has warned that economic growth in Asia is expected to stall at 0 per cent in 2020. This would be the worst growth performance for the region in almost 60 years.

This paralysing effect on regional economic activity - disrupting supply chains, causing job issues, weakening consumer and business confidence, and leading to unfulfilled contractual obligations - is likely to give rise to a tsunami of disputes, as flagged in the commentary on these pages by V.K. Rajah and Goh Yihan: The Covid-19 pandemic and the imminent legal epidemic (The Straits Times, May 7, 2020).

When disputes arise - as they will amid economic gloom when businesses run into difficulties - one tool that will help businesses get their activities back on track is mediation.

It is timely, then, that the Singapore Convention on Mediation - an international trade dispute resolution treaty - is set to come into force later this year.

WHY IT'S THE BEST TOOL

Mediation is a flexible process in which a neutral third-party mediator facilitates the parties' settlement negotiations so that they eventually reach a mutually acceptable and amicable solution.

The mediation process itself is swift and inexpensive. The economic standstill brought about by Covid-19 means that many parties simply do not have the funds or capacity to engage in protracted litigation or arbitration.

With mediation, parties can largely avoid the costs associated with legal proceedings as it is a quick process that is often completed within a day or two.

In contrast, arbitration and litigation can take months, if not years, to reach a resolution, with substantial outlays throughout the process.

While parties may choose to negotiate on their own, the benefits of having a neutral third party cannot be overstated. The settlement rate for mediation is routinely high. At the Singapore International Mediation Centre, for example, about 80 per cent of disputes lead to settlement agreements.

Such settlement agreements are generally binding and enforceable, so if any party does not perform its obligation, the other party can commence an action against it - either in court or by way of arbitration, depending on the dispute resolution clause set out in the settlement agreement.

Given its flexibility, mediation can also be used in combination with arbitration or litigation, as part of a tiered dispute resolution approach.

In these cases, even if mediation does not lead to final settlement, some issues may be resolved, leaving only key outstanding issues to be decided by a tribunal or court. This results in greater efficiency in the conduct of the arbitral or court proceedings.

Settlement agreements are seen as "win-win" outcomes, compared to the "win-lose" results in adjudicative settings.

An important aspect of mediation is that it allows parties to forge creative solutions beyond monetary damages. Creative problem-solving takes into account parties' genuine interests and their financial positions, which will help preserve their relationship in the future, when the economic outlook improves.

ROOTS IN ASIA

Mediation is highly compatible with Asian values and was traditionally practised in Asian communities long before alternative dispute resolution methods were developed.

For instance, mediation has always been a part of China's cultural fabric. In China, Confucianism is a fundamental value system in which harmony is valued and constantly strived for. When harmony gave way to disputes, it would be restored through compromise, facilitated by respected intermediaries.

This is comparable to India's panchayat system, in which respected village elders aid in resolving community disputes. Similar methods of mediation are also ingrained in South-east Asian culture. In Malaysia, for instance, it is common to refer disputes to a penghulu or ketua kampung, the headman of the village, who acts as a third party to resolve disputes.

Mediation's inherent compatibility with Asian culture shows the potential for commercial mediation to significantly develop into a useful tool that could facilitate economic activity regionally.

SINGAPORE CONVENTION ON MEDIATION

On Aug 7 last year, the Singapore Convention on Mediation opened for signing, with an initial 46 signatories. Since then, six more countries have signed

The Singapore Convention is set to come into force on Sept 12 this year, having recently been ratified by Singapore, Fiji and Qatar. Its implementation encourages cross-border mediation by providing a uniform and enforceable dispute resolution framework, lending legitimacy to the process.

In terms of teeth, the convention facilitates the direct enforcement of cross-border settlement agreements resulting from mediation between commercial parties. It streamlines the enforcement procedure by allowing parties seeking a settlement payment to apply directly to the courts of the state where the assets are located.

At home, for example, the Singapore Convention on Mediation Act 2020 will provide a legislative framework for parties to apply to the High Court for their settlement agreements to be recorded as court orders, which facilitates the efficient and effective enforcement of the settlement terms.

The signatories include three of Asia's four largest economies - China, India and South Korea - and five of the 10 Asean countries - Brunei, Laos, Malaysia, the Philippines and Singapore.

With uncertainties surrounding Covid-19 as well as the introduction of trade initiatives in the near future, such as the Asean Economic Community, it is all the more important that cross-border commercial disputes are swiftly and efficiently resolved.

The Singapore Convention can pave the way for the smooth adoption of mediation across Asia, creating a conducive business environment that cultivates long-lasting commercial relationships and maintains harmony. In such uncertain and unstable times, the value of this in staving off the gloom and doom cannot be overstated.


 • Kohe Hasan is a partner in the Singapore office of international law firm Reed Smith, and a director in its formal law alliance partner Resource Law LLC.  Teh Joo Lin is deputy CEO of the Singapore International Mediation Centre. Sofea Khan, a second-year student at the University of Bristol, contributed to this commentary.

A version of this article appeared in the print edition of The Straits Times on May 23, 2020, with the headline 'Firms should consider mediation to settle rows amid Covid-19 disruption'. Print Edition | Subscribe