How will Singapore Convention affect trade in Africa?

Disputes will inevitably emerge as a result of commercial activities affected by Covid-19. As such, the coming into force of the United Nations Convention on International Settlement Agreements Resulting from Mediation (the Singapore Convention on Mediation) on 12 September could not be more timely.

“We will see an increase in commercial disputes and in the uptake of dispute resolution,” says Kwadwo Sarkodie, Partner in the London Office of international law firm, Mayer Brown, specialising in litigation and arbitration. Sarkodie leads the firm’s Africa team and advises some African governments and businesses, including in his native Ghana.

“The Covid-19 pandemic,” he adds, “has given rise to a significant drop in commodity prices as a result of a sharp decline in demand. Restrictions on travel due to lockdowns are likely to affect the ability of parties to deliver on contracts. There will inevitably be non-compliance even with the best of intentions.”

This changing economic, financial and business landscape, he reckons, is unavoidable. It will impact on commercial relationships and vendor contracts, which were profitable at the outset but due to Covid-19 might no longer be viable to one or both parties.

This in turn increases the importance of dispute resolution. Arbitration is one option, but it is costly, and the process can be drawn out. Sarkodie strongly advises commercial parties to also consider mediation.

International experts such as Professor Sundra Rajoo, the erstwhile CEO of the Asian International Arbitration Centre (AIAC), concur that “as a result of the impact of Covid-19, there are likely to be a lot of disputes related to various claims and defences.”

To him it is also a financial issue in that litigants may have difficulty in paying professional and other fees relating to the mediation process and any settlement agreement. The impact of the pandemic, especially if there is a second wave of infections, will be drawn out over a few years, which means that increased dispute resolution may become a feature of the business and finance landscape in countries around the world.

Convention will facilitate international trade and commerce

Thirteen African countries have signed up to the Singapore Convention on Mediation, including Nigeria, Ghana, DRC, Mauritius, Gabon, Guinea-Bissau, Benin, Congo, Eswatini and Chad. The US and China are founding signatories, but the majority of members are from developing countries.

The Singapore Convention, according to Sarkodie, will facilitate international trade and commerce by enabling disputing parties to easily enforce and invoke settlement agreements across borders. Businesses will benefit from mediation as an additional dispute resolution option to litigation and arbitration in settling cross-border disputes.

Countries such as Ghana, which became the 53rd country to sign up to the convention earlier this year, have been trying to encourage infrastructure and energy companies to invest and conduct business in the region. They have taken several steps to assure directors and potential investors that business activity is done fairly and safely.

Ghana’s accession to the Singapore Convention is another positive step in that direction. Whether it and other African countries are going far enough to reassure businesses that they are a ‘safe bet’ to invest in or to trade with, only time will tell.

Sarkodie warns against overstating the convention’s effect. “It’s another tool and recourse in dispute resolution with regards to investment and allows parties to manage the risks of disputes. A country like Ghana, in signing up, won’t transform the landscape for investment, or ease of access or doing business. It is a positive step, another piece of potential reassurance in doing business.”

The Singapore Convention, explained K. Shanmugam, Singapore’s Minister for Home Affairs and Law at its launch, “is the missing piece in the international dispute resolution enforcement framework. It will help enhance the cross-border enforceability of mediated settlement, and business and finance will benefit from greater certainty and assurance.”

It complements the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) developed by the United Nations Commission on International Trade Law (UNCITRAL).

“The New York Convention is the most successful arbitration and dispute resolution mechanism. The aim is for the Singapore Convention to repeat this success in the field of mediation,” says Sarkodie. “However, users of the arbitration convention do stress its high costs and duration. Mediation is one other means by which that process can be shortened in the interest of all commercial parties. It is a faster and less costly means of forcing mediation and supporting its outcome.”

Increasing confidence in process

The Singapore Convention promotes and encourages mediation by increasing the confidence of the parties in the process which will lead to a settlement agreement which can be enforced in courts of the jurisdictions that have acceded to it.

The difference between the two conventions is that the New York one covers arbitration while the Singapore one applies to disputes which can be resolved by mediation and a settlement agreement.

“Arbitration is a binding process more like court proceedings. It is usually included in contracts to which both parties agree to. Mediation is a more consensual process. Parties have agreed to settle via discussions through the process of a mediator. An arbitration clause and a mediation clause are not mutually exclusive. Parties can often provide for both. I would advise for the parties to do that,” adds Sarkodie.

The high cost and duration of arbitration is a strong motivation for contracting parties to agree to mediate. The Singapore Convention is welcomed by developing countries as shown by the fact that they are the main countries who signed the convention.

A lot also depends on how well China will use it in its Belt and Road initiative. China’s vast commercial relations with Africa usually take place through state-owned or quasi state-owned companies, which have a huge amount of commercial leverage. That is an opening where the Singapore Convention offers a positive outlook. China and Ghana have shown that mediation is a positive and useful means to settle disputes.

Given that Islamic commercial contracts are on the increase in Africa, where 28 countries are members of the Islamic Development Bank, Sarkodie agrees that mediation is a strongly recommended tool in Islamic commercial law.

“The Singapore Convention does not prescribe the form of mediation. It’s up to the parties to agree the format. If they agree to a format which is Shariah-compliant and mediation is conducted accordingly then the resulting agreement could then be enforced without worrying about falling foul of Shariah legal principles,” he contends.