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Article: December 2019: Asia-Pacific Litigation Update

Business Litigation Reports

Recent Changes to the International Dispute Resolution Framework

The last few years have witnessed a number of significant developments in treaties facilitating the resolution of international disputes, many of which have an Asian nexus.  On the Alternative Dispute Resolution front, August 2019 witnessed the signing of the Singapore Convention on Mediation (the Singapore Convention), while the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) replaced the failed Trans-Pacific Partnership (TPP) when it came into effect at the close of 2018.  On the conventional, court-based front, the 2019 Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (the Hague Judgments Convention) was adopted by the Hague Conference on Private International Law (HCCH) in July 2019. 

The Singapore Convention

Mediation is a popular dispute resolution tool to facilitate the commercial settlement of disputes, without the formality of either arbitration or litigation. Unlike an arbitrator, the mediator’s role is not to adjudicate, but rather to facilitate discussions between disputing parties to arrive at a mutually acceptable solution. The mediation process is thought to offer greater flexibility, as well as be more cost and time efficient, than traditional dispute resolution processes.  However, a regular criticism of mediation was the lack of an efficient and harmonized framework for the cross-border enforcement of settlement agreements. It was in response to this criticism that the Singapore Convention was developed and adopted by the United Nations, through the auspices of the United Nations Commission on International Trade Law (UNCITRAL).

The lack of a framework for the enforcement of mediated settlement agreements meant that, typically, the non-breaching party could only enforce the settlement agreement as a fresh contract claim, either through court proceedings or via arbitration (had the parties so agreed).  The commencement of such proceedings could be both costly and time consuming, with the parties having then to deal with enforcement issues wherever the assets of their counterparty might have been found.

In June 2018, and after three years of lively debate, a finalized draft of the Singapore Convention was issued by Working Group II of UNCITRAL. The Singapore Convention was intended to be similar to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), becoming an instrument in the facilitation of international trade and the promotion of mediation as an alternative and effective method of resolving trade disputes. It was further meant to strengthen access to justice and the rule of law by ensuring that a settlement reached by the parties became binding and enforceable in accordance with a simplified and streamlined procedure.

Like the New York Convention, the application of the Singapore Convention is also limited to international commercial disputes.  As such, disputes concerning (for example) family law, inheritance law or employment law are excluded.  Unlike the New York Convention, however – but similar to the UNCITRAL-developed Convention on Contracts for the International Sale of Goods (CISG) – parties may opt-out of the Singapore Convention. 

On August 7, 2019, Senior Officials representing 70 countries attended the Singapore Convention Signing Ceremony and Conference in Singapore, while 46 States, including the world’s two largest economies - the United States and China - along with such Asian economic powerhouses as India and South Korea, signed up to the convention.  Although Japan is not yet a signatory to the Singapore Convention, serious discussions to that end are currently taking place.  The Convention will enter into force six months after being ratified by at least three of the signatory States.

Once ratified, parties from ratifying States can streamline the process of enforcing cross-border mediated settlements, by simply supplying the competent authority of a contracting State with the signed settlement agreement, accompanied by evidence that the agreement was the result of international mediation. 

 

The New Comprehensive and Progressive (Free Trade) Agreement for Trans-Pacific Partnership

Although the TPP was signed on 4 February 2016, following the withdrawal of the United States in 2017 it never entered into force.  Following the United States’ departure, however, Japan took the initiative and moved the discussions with the remaining parties over to a new, yet very similar free trade agreement: the CPTPP.

In January 2018, all of the non-US TPP signatories reached agreement to conclude the CPTPP, and the formal signing ceremony was held on 8 March 2018 in Santiago, Chile.  Along with Japan and Chile, signatories included Mexico, Singapore, New Zealand, Canada, Australia and Vietnam; representing approximately 15% of the world’s economy.  Each of the signatories, other than Chile, have ascended to the treaty.  Interestingly, the United States, along with the United Kingdom, Columbia, Taiwan, Indonesia, South Korea and Thailand, have all expressed an interest in joining the CPTPP in the future.

Despite recent controversies surrounding Investment-Treaty Arbitration, for the most part the CPTPP allows for a fairly conventional dispute resolution mechanism for investors from signatory states to settle their disputes with CPTPP member states by way of international arbitration.  New Zealand did, however, enter into five separate side letters: two (with Australia and Chile) disallowing Investor-State arbitration; and three (with Brunei, Malaysia and Vietnam), requiring some form of Investor-State mediation before an investor may move to arbitration. 

The distinction between the CPTPP and the Japan-European Union (EU) Economic Partnership Agreement (the EPA) is notable.  The European Union and Japan signed the EPA on July 17, 2018.  It is the largest trade agreement ever negotiated by the EU, and it has created an open trade zone covering over 600 million people.  Though finalized, the EU and Japan have yet to reach agreement on how they intend to settle Investor-State disputes.  Discussions on how to deal with investor-state disputes remain on-going.  Japan continues to push for conventional international arbitration, while Europe pushes for their newly-proposed investment court system. 

 

The Hague Judgments Convention

On July 2, 2019, the delegates of the 22nd Diplomatic Session of the HCCH adopted the Hague Judgments Convention.  Some describe the Hague Judgments Convention as a revolutionary instrument, akin to a form of “New York Convention of Judicial Judgments,” as it seeks to make foreign judgments as readily enforceable as foreign arbitral awards.  This may, however, be an optimistic evolution of the situation, as the Convention has yet to enter into force.  Uruguay became the first signatory state, thereby indicating its eventual intention to accede to the convention.  The very next day, the EU announced that it would also start preparing for accession.  It is hoped by many in Europe that the Hague Judgments Convention can help address most post-Brexit judgment recognition issues between the EU and the United Kingdom.  It is also noteworthy that China dispatched the largest number of delegates to the HCCH in order to participate actively in the discussions, with the Chinese government now also considering ascension to the convention.

The Convention will enter into force 12 months after the accession of the first two states. As no States have yet ascended, we are at least a year away from the Convention coming into effect.  As such, the Hague Judgments Convention has not yet changed the international disputes settlement scenario materially (if at all).  It is, however, important to monitor the situation as the Convention has the potential to have a significant impact on international dispute resolution. 

 

Conclusion

While the Singapore Convention and the Hague Judgments Convention have yet to come into effect, the CPTPP entered into force as between Australia, Canada, Japan, Mexico, New Zealand and Singapore in December 2018, with Vietnam participating from January 2019.  As such, investors are now in a position to plan their investments in CPTPP economies while considering the Convention’s investor protection provisions.

The Singapore Convention, meanwhile, will likely come into force soon and will include some of the world’s largest economies.  Although mediation has always been a commonly utilized form of dispute resolution, this new Convention may act to encourage further use of cross-border mediation as a means of settling complex commercial disputes.

Commercial parties should take a “wait-and-see” approach to the Hague Judgments Convention, as there is still no certainty that it will enter into force.  That being said, as both the EU and China are considering ascension to the Convention, we may in the future witness a significant new development in the efficient handling of international disputes.