Grounds for refusing the confirmation of enforceability

Despite what the wording of the Mediation Directive suggests, the grounds for refusal are not uniformly applied in the Member States. What contrary to the law means has been interpreted differently in the Member States, and the concepts are embedded in the national legal culture and remain ambiguous.⁴⁹⁵ For Finland,

490 Brooker 2013, p. 111.

491 Section 433a Austrian Code of Civil Procedure.

492 Frauenberger-Pfeiler and Risak 2012, p. 802. See also: Lentz and Risak 2017, p. 53.

493 Mediation Directive, Article 6, Recital 19.

494 Mediation Directive, Recital 5.

495 On the interpretation of the public policy exception in EU instruments of private international and procedural law: Hess and Pfeifer 2011. Hess notes that public policy is “often invoked, but seldom applied” as ground for the non-recognition of a foreign judgment or the non-application of foreign laws: Hess and Pfeifer 2011, p. 13.

contrary to the law means that confirmation of enforceability may be refused if the contract is against the law, clearly unreasonable or infringes on the rights of third parties. In Italy, the court examines whether the settlement is against public policy or against mandatory rules.⁴⁹⁶ In Sweden, confirmation is refused when the obligation is not enforceable either due to the nature of the obligation, or because it is clearly in conflict with fundamental principles of the legal system.⁴⁹⁷ In France, the Cour de cassation ruled that a settlement agreement (transaction) may only be reviewed with regard to the nature of the agreement and the compliance with ordre public and morality, hence whether there was a settlement and whether it had the appearance of regularity and complied with ordre public and good morals.⁴⁹⁸ In the judgment, the Cour de cassation rejected the applicant’s request to withdraw the confirmation of enforceability of a settlement agreement on the grounds that the settlement agreement had allegedly come into existence by way of blackmail and threat and that the applicant had filed a claim for the rescission of the settlement agreement with the competent court.

Although the concept of contrary to the law is ambiguous, the general tendency appears to be obvious. The courts exercise a limited formal review of the mediated settlement agreement. The standard for the review is a minimum standard of substantive fairness as the reference to fundamental principles of the legal system, public policy or clear unreasonableness suggests. Moreover, the mediation procedure creates a presumption in favour of the fairness of the mediated settlement agreement. This presumption may only be rebutted if protected fundamental public values are at stake or if the agreement is prohibited by the law. The protection of individual interests or the protection of the interests of the weaker party only rarely constitute fundamental values of the legal system. Legislation protecting the weaker party is often not applicable when the parties enter into an agreement once a dispute has arisen.⁴⁹⁹ In practice, the courts will therefore rarely refuse the confirmation of enforceability, where the formal requirements are met. This circumstance has already been noted in respect of the public policy exception that

496 It is, however, uncertain what ‘public policy’ means: Marinari 2012, p. 192.

497 Ficks 2012, p. 349.

498 Case 06-19527, Transaction - Homologation – Compétence, Bulletin 2011, II, n° 120. The case concerned the confirmation of enforceability of a traditional settlement agreement (‘transaction’) subsequent to Article 1441-4- of the French Code of Civil Procedure that applies also to the confirmation of the enforceability of a mediated settlement agreement, if the settlement has been established as a ‘transaction’. It is controversial, whether the same principles apply also for mediated settlement agreements that have not been established in the form of a ‘transaction’. See further: Deckert 2013, pp. 473, 475.

499 For instance, in consumer law a difference is made between terms that have been individually negotiated and so-called standard terms that have not been individually negotiated. A standard term is regarded as unfair if “contrary to good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer”: Directive on unfair terms in consumer contracts, Article 3. The terms of mediated settlement agreement are always individually negotiated and therefore not standard terms.

constitutes a ground for the non-recognition of foreign judgments in exequatur procedures: “public policy is often invoked, but seldom applied.”⁵⁰⁰

Against the law is not equal to against principles of mediation.⁵⁰¹ There is therefore no procedural public policy exception. The courts do not engage in a review of the procedural fairness of mediation. The circumstance that there has been a mediation is a condition for the declaration of enforceability. The courts must therefore ensure that mediation has formally taken place and that the mediator meets the statutory requirements. Once this has been established, there are few grounds that would entitle a court to refuse the declaration of enforceability as being against the law or against public policy. This is due to the vagueness of the concept of mediation. It is also due to a lack of understanding what the essence of mediation is. There is still no answer to the question about what the principles are that are so fundamental to the procedure that a lack of compliance with these principles would be contrary to the very concept of mediation and such be comparable to fundamental values of other procedures, such as the independence and impartiality of the judge, the right to be heard or the ability to present one’s case.⁵⁰²

The courts’ ability to review the fairness of mediation is further limited by the nature and principles that are inherent in the mediation. Mediation is an oral and confidential procedure. Detailed minutes are rarely kept.⁵⁰³ The mediator may take notes, but the taking of notes is kept to a minimum. The mediator has no obligation to record what the parties have stated or what evidence they have discussed. Extensive note taking would also distract the mediator from actively communicating with the parties.Mediators may use notes in private meetings as an instrument to control the information that they pass on to the other party.

These notes constitute the mediator’s personalized tool to manage the process and therefore do not provide an objective summary of the contents of the discussions or the course of the procedure. Moreover, the notes taken in the private meetings may be subject to a contractual confidentiality obligation.

500 Hess and Pfeifer 2011, p. 13.

501 The question of whether a court may refuse the enforcement of a mediated settlement agreement on the basis of deficiencies in the mediation is an issue that is the subject of controversial discussion in the UNCITRAL Working Group II on the preparation of an instrument on enforcement of international commercial settlement agreements resulting from conciliation. The draft proposal of the secretary suggests the following as grounds for denying enforcement: a manifest failure by the conciliator to maintain fair treatment and the conciliator’s failure to disclose circumstances likely to give rise to doubts as to the conciliator’s impartiality or independence (UNCITRAL Working Group II, 29.11.2016, Draft provisions 4 (d) and 4 (e)). The Working Group could not find an agreement on the issue and the view was expressed that such defence would be contrary to the objective of the instrument or problematic as it would require an authority to investigate domestic standards on the conduct of the conciliator or the conciliation process: UNCITRAL Working Group II, 16.2.2017, p. 10.

502 For arbitration see: Kurkela and Turunen 2010, p. 37.

503 The EUIPO Rules expressly provide that no recording should be made, and that the mediator should return, destroy or delete materials obtained for the purpose of mediation after mediation: EUIPO Rules on Mediation, Section 7.3. In Italy, a record of the outcome is made: Marinari 2012, p. 192. Ervasti and Nyland consider that one page of notes is usually sufficient: Ervasti and Nylund 2014, p. 332.

In addition to the orality of the procedure, confidentiality is a central value of mediation. The parties may overcome the lack of trust that they encounter in negotiations only in an environment that allows them to exchange their views and make settlement proposals without having to fear that they may jeopardize their position in possible later litigation or arbitration or that confidential information will be disclosed to the other party without their consent. The confidentiality of the proceedings collides with the court’s capacity to review the mediated settlement agreement. The court’s power to take oral evidence to exercise the review is limited:

it is a fundamental corner stone of the Mediation Directive that the mediator and other persons participating in the administration of the mediation should not be obliged to give evidence regarding “information arising out of or in connection with a mediation process.” Exceptions should only apply if this is necessary for the sake of public policy or when disclosure of the contents of the agreement is necessary to implement or enforce the mediated settlement agreement.⁵⁰⁴

The second ground for refusing the confirmation of enforceability relates to the nature of the obligation. An obligation may not be confirmed as enforceable if the obligation is not enforceable under applicable law. An obligation may lack enforceability if the obligation fails to fulfil the requirement of specificity.This is the case when the mediation agreement does not specify what a party needs to perform or to refrain from doing. An obligation may also be unenforceable when rights are not at the disposal of the parties or when obligations do not constitute legal obligations, but only a moral duty.⁵⁰⁵ The mediated settlement agreement may contain a set of obligations: obligations to pay or refrain from doing so, obligations to discontinue court proceedings, obligations to monitor compliance with the agreement, obligations to enter into an agreement, obligations to adjust the agreement, or an obligation to apologize. Only some of these obligations will constitute an enforceable obligation under the law of the respective Member State. If contractual principles were applied, the combination of enforceable and unenforceable contract provisions would be examined as a question of severability.

One would then ask if the invalidity of one provision had an impact on other provisions in a way that would make the entire mediated settlement agreement invalid, whether the parties would need to honour the provisions of the agreement that are valid or whether some of the contractual provisions need to be adjusted. In the procedure for the declaration of enforceability, the court is not given the power to determine questions of severability. The court only has the option of declaring the entire agreement unenforceable or of declaring the mediated settlement agreement enforceable in respect of the obligations that may be enforceable.

504 Mediation Directive, Article 7. On confidentiality, see Chapter 4.5.

505 In general, enforcement requires a legal obligation to be specific: see, for instance, Wieczorek 2013, p. 373.

Lindfors 2011, p. 63.

A general refusal to confirm the enforceability of agreements that contain unenforceable provisions does not appear to be an option. Such refusals would have as a consequence that the mediated settlement agreement needed to be drafted in a way that it contains exclusively legal and enforceable obligations. The need to draft the mediated settlement agreement as concisely as possible to be able to monitor compliance has also been stressed in mediation theory.⁵⁰⁶ However, mediation would lose its distinct character if the mediated settlement agreement was only to contain legally enforceable obligations. It is part of the nature of mediation that the settlement is not confined to legally enforceable obligations, but also contains obligations that are directed to future rights and obligations, or are not legal by their very nature. The denial of a declaration of enforceability on the ground that the mediated settlement agreement contains legally enforceable and unenforceable provisions would therefore amount to denial of the enforceability of most mediated settlement agreements.

The only alternative appears to be that one accepts a partial declaration of enforceability of the mediated settlement agreement. ⁵⁰⁷ This means that obligations that are legally enforceable under the respective law of the Member State are declared enforceable, irrespective of whether the remaining agreement is legally enforceable. The partial declaration of enforceability mirrors the ambiguous nature of the mediated settlement agreement. The legal order recognizes and reproduces different obligations, while it leaves other obligations without attention. The parties may give the obligations a value different from that given by the legal system, but the reproduction within the legal systems will mirror the parties’ values, interests and needs only to an insufficient extent, unless the parties are able to reproduce these values and interests as legally enforceable obligations.

From the (contractual) bindingness and the enforceability of the confirmed mediated settlement agreement, the finality of the confirmed mediated settlement agreement is to be distinguished. The question is whether the confirmed mediated settlement agreement is res iudicata. While the bindingness of the mediated settlement agreement as between the parties and its enforceability is generally accepted, there are different approaches regarding the question of whether the confirmed mediated settlement agreement is to be considered as having a res iudicata effect.⁵⁰⁸ Some jurisdictions recognize that a confirmed mediated settlement agreement is res iudicata while others consider that is has only certain substantive effects. The confirmed mediated settlement agreement is then not final

506 Moore 2014, pp. 479-481.

507 Finnish courts, for instance, may declare those parts of the settlement agreement enforceable that can be enforced: Government Bill 2010 for the Finnish Mediation Act p.18, 29.

508 On a comparative study of court settlements: Atteslander-Dürrenmatt 2006, p. 17.

(res iudicata) but may be used as a defence in later litigation on the basis of an exceptio rei transactae.⁵⁰⁹

The question of res iudicata arises also within the framework of the Brussels I Regulation (EU) No. 1215/2012 (recast). It may be asked, whether the enforcement of a confirmed settlement agreement in another Member State in accordance with the Brussels I Regulation (recast) implies the recognition of a res iudicata or equivalent effect. It appears to be the generally accepted view that authentic instruments are private acts and cannot be recognized in any manner equivalent to a judgment in respect of their finality.⁵¹⁰ Also in respect of court settlements approved by a court, it is the prevalent view that they lack the effect of res iudicata.⁵¹¹ Nevertheless, the enforcement of the confirmed mediated settlement agreement has been regarded by some authors as the implied recognition (within the sense of international procedural law) of the private aspects of the settlement.⁵¹² Even though the confirmed mediated settlement agreement may not be regarded as res iudicata, its enforcement constitutes a recognition of the contractually agreed status between the parties.⁵¹³ It can therefore be concluded that the confirmed mediated settlement agreement is equivalent to a judgment in that it terminates the dispute between the parties, serves as an enforcement title, and recognizes the contractually agreed status between the parties.

509 Another question is whether the further disputes concern the same matter. This can only be determined by means of an interpretation of the mediated settlement agreement.

510 Fitchen and Kramer 2015, pp. 532, 537.

511 Fitchen and Kramer 2015, p. 537, 538. Kramer 2016, p. 988.

512 In this sense Fitchen and Kramer 2015, p. 538.

513 Kramer 2016, p. 988.

Table 2. Table 2 shows an example of the transition of the mediated outcome from a binding agreement to an enforcement title to finality in comparison to court proceedings. The Finnish law recognizes the res iudicata effect of a confirmed settlement agreement if the period for the appeal against the confirmation of the settlement agreement as enforceable has expired or the parties have declared that they will not seek to appeal the confirmation of the settlement agreement granted by the District Court.⁵¹⁴ An appeal against the confirmation of the settlement agreement as enforceable may be sought on the basis of the invalidity of the mediated agreement, or if the mediated agreement is contrary to the law, clearly unreasonable, or if it violates the right of a third party.

Mediated a District Court that can no longer be challenged.

Res iudicata

Equivalent to judgment of a Court of Appeal or judgment of a District Court that can no longer be challenged.