SL ratifies UN convention on mediation for commercial dispute resolution

by Dhara Wijayatilake
Director and Secretary General of the International ADR Center

Sri Lanka ratified the UN Convention on International Settlement Agreements Resulting from Mediation, popularly known as the Singapore Convention on Mediation, held recently. As at today, the Convention has 56 signatories and has been ratified by 14 nations. The Convention was developed by the UN Commission on International Trade Law (UNCITRAL) after extensive consultations over almost four years, was adopted by the UN General Assembly in December 2018 and came into operation in September, 2020. This Convention is to Mediation what the 1958 UN Convention on Enforcement of Foreign Arbitral Awards (the NY Arbitration Convention), is to Arbitration.

Legislation to give effect to the Convention was enacted by the Sri Lankan Parliament in January, 2024 and is titled Recognition and Enforcement of International Settlement Agreements Resulting from Mediation, Act No. 5 of 2024. The Act will come into force and the Convention will apply to Sri Lanka with effect from six months from the date of ratification, i. e. from August 28, 2024.

UNCITRAL’s work was a response to a need for a uniform framework to enforce mediated international agreements. Mediation was becoming popular as a commercial dispute resolution method and uniformity of cross border arrangements was a dire need. The UN Convention recites in its preamble that mediation is increasingly used in international and domestic commercial practice as an alternative to litigation and that the use of mediation results in significant benefits such as reducing the instances where a dispute leads to the termination of a business relationship, facilitating the transaction of commercial business and producing savings to States in the administration of justice.

The Convention applies to settlement agreements that are the result of mediation; are international in nature at the time of the entering into the agreement; resolve a commercial dispute, and are in writing.

How does ratification benefit Sri Lanka?

The enactment of domestic legislation and the ratification of the Convention will contribute to Sri Lanka offering an improved dispute resolution regime that will be attractive to investors and to business partners engaged in cross border trade and business. Importantly, it signals to investors that Sri Lanka has a universally accepted regime for the enforcement of international mediated settlement agreements. Efficient contract enforcement is vital to attract foreign investment and to facilitate domestic commercial activities.

This development comes at a time when Sri Lanka’s dispute resolution regime is unattractive, because it is riddled with delay, expense and unpredictability. These weaknesses that were predominantly a feature of litigation has crept into the practice of Arbitration as well, with a few exceptions. In past years Sri Lanka struggled to improve its ease of doing business performance given its importance to attract investors. However, the business community was left with disappointing alternatives. The Sri Lankan scene is however changing.

In 2019, Sri Lanka signed the UN Convention when it was first opened for signature. The legislation to give effect to the Convention was prepared by the International Alternative Dispute Resolution Center (a purely private not for profit company established in 2018 to provide ADR services – www.iadrc.lk), and submitted to Government.

The key provisions of the Convention provide for the enforcement of an international mediated settlement agreement and provides for limited grounds on which an agreement can be refused. It also provides for the admissibility of a settlement agreement to establish that a matter being litigated was in fact settled by a mediated settlement agreement. The Sri Lankan Act incorporates these principles.

Countries in the region have invested in mediation with success. Singapore is a great example of a nation that has developed its mediation eco system with exemplary results. India enacted a new Mediation Act in October 2023 to promote and facilitate mediation for the resolution of commercial and other disputes. Efforts and initiatives in the countries in our region have had the support of their governments.

Sri Lanka has had Mediation statutes since 1988 to provide for the resolution of minor community disputes, but there was no legal regime for mediation in respect of higher value commercial disputes outside of State managed Boards. Currently, given the growth of mediation and its acceptance as a meaningful method of resolving all kinds of disputes, legislation is being prepared to establish a legal regime for mediation of civil and commercial disputes. The envisaged law will provide for principles and standards that will apply when parties refer disputes to mediation voluntarily to private mediators, but will not establish Boards or provide for mandatory reference to mediation.

Why Mediation?

The universal buzz about Mediation stems from the benefits the process offers. Mediation is a non adversarial process, where a third party (the Mediator) facilitates better communications and understanding between disputants to identify their interests and decide on how those interests can be satisfied. The Mediator has no power to impose a solution. There is no judgment of past actions and omissions nor a determination of right and wrong. Rather, it is a process that helps disputants identify and satisfy their needs and interests.

The role of the Mediator is extremely important and hence proper training is vital. The mediation process is informal but disciplined and structured and disputants engage directly with the Mediator and with each other. Lawyers play a role which is distinct from that of the adversarial Lawyer in litigation. Mediation advocacy is starkly different and requires a different focus that supports a settlement.

Confidentiality of matters discussed is ensured and is a key feature of the process. All statements made during the process are made without prejudice ensuring that concessions made and proposals submitted are not permitted to be used against the party making them in any other dispute resolution process. The independence and neutrality of the Mediator is ensured through an obligation to disclose real or perceived conflict of interest situations.

Party autonomy is ensured in several ways. The disputants have the discretion to select the mediator; disputants stay in mediation only if they wish to and have the option to leave at any time if dissatisfied with any aspect; disputants enter into a settlement agreement only when fully satisfied that the terms and conditions are acceptable to them; until disputants place their signature to a settlement agreement nothing is binding.

A mediated settlement agreement is as valid and binding and enforceable as any other written agreement between parties. It is a myth that such an agreement is not enforceable. Breach of any obligation in a settlement agreement can either be mediated again or enforced as a breach of a contractual obligation in a court of law. It is well known that the instances of breach is very insignificant given that such an agreement is the result of consensus reached through a process that affords the opportunity for a full, fair and exhaustive discussion of issues, concerns and interests. Mediation is a smart business option.

Global initiatives

In addition to the work of UNCITRAL, other International Organisations are expanding their services to include mediation to resolve disputes and to adopt Institutional rules. Some of these initiatives are the following –

• The International Bar Association adopted Investor-State Mediation Rules in 2012.
• The International Chamber of Commerce– adopted its Mediation Rules in 2014.
• The World Intellectual Property Organisation (WIPO) adopted its Mediation Rules in 2021.
• The International Center for Settlement of Investment Disputes (ICSID) (World Bank group) – adopted its Mediation Rules in 2022.
• The European Parliament and the Council, adopted Directive 2008/52/EC on ‘Certain aspects of mediation in civil and commercial matters’ in May 2008.

Sri Lanka’s challenge

The challenge to Sri Lanka is to provide for a comprehensive eco system for the delivery and sustenance of quality mediation services. This requires many things – a legal regime that adopts universally accepted principles; a judiciary that appreciates the vision; infrastructure that meets with international standards; service providers of excellent quality; awareness by stakeholders of the distinguishing features that offer benefits of value and very importantly policy acceptance at the highest levels of government. It is the country that will benefit from better and smarter dispute resolution options. A push from the private sector alone is inadequate.

(The author is a former Secretary to the Ministry of Justice)