Mediation in aviation disputes: reaching higher altitudes with the Singapore Convention on Mediation

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Melvin Lum^[1]
WongPartnership, Singapore
melvin.lum@wongpartnership.com

Introduction

The aviation industry is particularly suited to adopting mediation in its dispute resolution process. However, aviation disputes have traditionally been resolved through litigation or arbitration. This is largely due to the absence of a universally recognised framework for the direct enforcement of international mediated settlement agreements. The United Nations Convention on International Settlement Agreements Resulting from Mediation (‘Singapore Convention on Mediation’, initially signed on 7 August 2019 and currently holding 52 signatories) provides the means to address this void.

The benefits of mediating aviation disputes

In the aviation industry, contracting parties commonly enter into long-term commercial arrangements, with some contracts lasting decades. For example, Singapore Airlines recently announced that it has renewed a suite of aviation services contracts with ground handler SATS for a further period of five years, whereas Allegheny Technologies Incorporated announced that it has entered into multiple new long-term contracts with GE Aviation.^[2] The aviation industry is also dominated by a few suppliers or providers of goods and services. As such, disputants are likely to want to maintain a good working relationship, even if a dispute has arisen. In this regard, mediation, which focuses on parties’ interests rather than rights, is a fitting dispute resolution mechanism for the aviation industry. In mediation, disputants are empowered to decide the outcome of mediation proceedings as they see fit and, unlike litigation and arbitration, this does not result in a clear ‘winner’ or ‘loser’. This helps to avoid the further breakdown of parties’ commercial relationships.

No disputant likes to incur significant costs in and spend time resolving a dispute. Litigation and arbitration proceedings generally take longer to conclude than mediation. The Singapore International Arbitration Centre reported that, during the period of 2013–2016, the mean duration of arbitration cases was 13.8 months, whereas the median duration was 11.7 months.^[3] Prolonged legal proceedings are disruptive to parties’ business and can result in significant costs. On the other hand, most disputes in mediation are resolved within two or fewer full-day sessions. Mediation proceedings are facilitated by a neutral and independent mediator who guides disputants to find a mutually beneficial solution to the dispute. Aviation industry players will appreciate that mediation proceedings are confidential and without prejudice. The former averts any negative publicity and the latter facilitates discussion between disputants, who do not have to fear that anything disclosed during mediation will be used against them later on. Mediation thus provides swifter resolution of aviation disputes, at a substantially lower cost, and avoids any unwanted publicity. Having been counsel in an aviation dispute that was settled via mediation, I am aware of how much an airline saved in terms of legal costs and management time. I am also aware of their level of satisfaction with both the process and outcome of the mediation. Their sense of control over the outcome also eliminated the anxiety that can be caused by uncertainty in litigation or arbitration. All of this is in the best interests of the client.

Aviation transactions typically involve cross-border trades and investments. If an aviation dispute is litigated or arbitrated, parties will have to decide which jurisdiction the hearing would take place in. Inevitably, the court rules and arbitration protocols may be foreign to one or both of the disputants, who will nevertheless be forced to adhere to these unfamiliar rules and protocols. On the other hand, mediation is a relatively informal process with no fixed process rules. The flexibility of the mediation process is designed to enable parties to focus on the substantive issues, rather than procedural formalities. Furthermore, unlike the outcomes of litigation or arbitration, a mediated outcome is not limited to legal remedies. Instead, parties are usually encouraged to think creatively and find a win-win solution that not only addresses the real concerns and grievances of parties, but also preserves or adds value to a commercial relationship (something which traditional legal remedies are unable to offer). Relatedly, parties in mediation are empowered to appoint an industry professional as their mediator. This is beneficial as many aviation disputes concern specialised issues and such a mediator is likely to better appreciate the nuances upon which the parties’ dispute turns.

Conventional views against mediating aviation disputes

Despite its desirability, mediation is often shunned due to concerns over the enforceability of an international mediated settlement agreement. This view is supported by the results of a recent international survey conducted by the Singapore International Dispute Resolution Academy, which show that enforceability was a key factor as to why arbitration remained the most often used dispute resolution mechanism, despite dissatisfaction with its costs.^[4] Furthermore, in a 2016 survey conducted by the Singapore Academy of Law, respondents in Singapore and around this region reflected that 71 per cent preferred to use arbitration, 24 per cent litigation and a mere five per cent mediation, with enforceability being identified as the critical factor in their preference for arbitration and litigation.^[5]

Currently, in order to enforce an international mediated settlement agreement, the enforcing party must first sue the defaulting party in the appropriate forum for breach of contract. Thereafter, the enforcing party would have to enforce the judgment in the jurisdiction where the assets of the defaulting party are located. The process of registering and enforcing a foreign court judgment may not be straightforward. The court in the jurisdiction where the assets are located may also have discretion on whether to recognise the foreign court judgment. Ultimately, the current enforcement process creates uncertainty for the enforcing party as to whether the international mediated settlement agreement could be enforced at all and, if so, when it can be done.

Singapore Convention on Mediation tackles conventional views^[6]

A 2017 survey found that 84 per cent of participants would be more likely to use mediation in cross-border disputes if a uniform global mechanism similar to the New York Convention was put in place to enforce international mediated settlement agreements.^[7] The Singapore Convention on Mediation was introduced specifically to establish such a framework. As of 25 February 2020, Fiji and Singapore have deposited their Instruments of Ratification of the Singapore Convention on Mediation at the United Nations Headquarters.

The Singapore Convention on Mediation only applies to cross-border commercial transactions and would directly benefit the aviation industry, given its international nature. The Singapore Convention on Mediation prescribes that a party seeking relief (ie, enforcement of the settlement agreement in the Contracting State) should supply the competent authority with a settlement agreement signed by the parties and evidence that the settlement agreement resulted from mediation. These formality requirements are easily attainable and provide flexibility by not exhaustively prescribing the type of evidence that may be accepted under Article 4(1)(b) of the Singapore Convention on Mediation. Instead, it urges the relevant competent authority to exercise its discretion. This sort of flexibility would provide comfort to parties and prevent them from being penalised for unforeseen circumstances which are beyond their control. For example, where a mediator refuses to sign the settlement agreement to avoid the risk of being called as a witness.^[8] Further, it takes into consideration the fact that parties in mediation tend to focus on resolving the dispute at hand, rather than on the formalities to enforce an international mediated settlement agreement. Indeed, by opting for mediation, parties typically assume that the likelihood of default necessitating enforcement actions would be low. After all, the terms were voluntarily agreed to.

It is also encouraging to note that the Singapore Convention on Mediation expressly provides that the competent authority should act expeditiously when considering the request for relief. Further, there are only limited grounds for refusing relief. The Working Group made clear that their intention was to prevent the Singapore Convention on Mediation from being overly complicated with the inclusion of many grounds of review, which would inevitably impede the efficiency of mediation proceedings.^[9] The Singapore Convention on Mediation thus provides certainty that international mediated settlement agreements will be enforced in all cases, save for exceptional circumstances. This provides assurance that the time and resources spent by parties on negotiating an international mediated settlement agreement will not be wasted. It would also provide disputants with the required certainty of closure to move on from the dispute.

The Singapore Convention on Mediation does include some reservations. First, a Contracting State may declare that the Singapore Convention on Mediation does not apply to settlement agreements to which it or any governmental agencies are a party. Second, a Contracting State may declare that the Singapore Convention on Mediation only applies if parties to the settlement agreement have agreed to its application. It is currently uncertain whether any Contracting State would ratify the Singapore Convention on Mediation with the aforesaid declaration of reservation(s). However, to promote certainty of enforcement, parties to a commercial contract (be they private or public entities), can insert an opt-in clause to state that the Singapore Convention on Mediation will apply to any settlement agreement that they may enter into.

In short, the Singapore Convention on Mediation facilitates the aims of achieving certainty, finality, simplicity, time savings and cost efficiency for the direct enforcement of international mediated settlement agreements. The Singapore Convention on Mediation can overcome the conventional views against using mediation to resolve aviation disputes.

The way forward

Additional efforts by various parties are needed before mediation becomes one of the main dispute resolution mechanisms in the aviation industry. The Singapore Convention on Mediation will only come into force six months after ratification by three Contracting States, but this is believed to be inevitable with time. Notably, the first reading in Singapore’s Parliament of the Singapore Convention on Mediation Bill 2020 has already taken place on 6 January 2020.

One issue is that Australia, the European Union and the United Kingdom have not signed the Singapore Convention on Mediation (whereas China, India and the US have). While they are considered very important in air transport, the fact that these countries are not Contracting States affects only the enforcement of an international settlement agreement which resulted from a mediation in these countries. Enforcement under the Singapore Convention on Mediation of an international settlement agreement resulting from mediation in other Contracting States is still possible, even if the parties to the settlement agreement are from non-Contracting States, especially if the parties provide in their settlement agreement that the Singapore Convention on Mediation will apply.

Even with the Singapore Convention on Mediation, wide coverage on the benefits of mediation is still imperative for it to become accepted as one of the main dispute resolution mechanisms in the aviation industry. Compared to other industries, the aviation industry is highly regulated by regulatory agencies and national civil aviation authorities. Together with the International Air Transport Association and International Civil Aviation Organisation, these organisations can help internalise mediation as a dispute resolution mechanism by encouraging or requiring disputants to consider or undergo mediation in the first instance of a dispute.

Further, legal practitioners play a key role in promoting mediation as a dispute resolution mechanism in the aviation industry. Litigation proceedings are often portrayed in movies or books, whereas mediation is less well known as a dispute resolution mechanism. It is thus incumbent on legal practitioners to raise the possibility of mediation, highlight the benefits and explain the mediation process, as well as the impact of the Singapore Convention on Mediation to their clients. This should be done both before and after the occurrence of a dispute, either through the inclusion of a mediation or multi-tier dispute resolution clause at the stage of drafting the commercial contract or by encouraging parties to undergo mediation as the first step to dispute resolution, even in the absence of a mediation clause in the contract.

In conclusion, efforts to embrace and promote mediation should be increased now, as with the introduction of the Singapore Convention on Mediation, there is less reason to doubt the efficacy of and shun mediation, particularly for aviation disputes.

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