Drafting Settlement Agreements with Enforcement in Mind

5 min read

There are currently a significant number of unresolved claims in Qatar as a result of the construction activities that took place in the lead-up to the FIFA World Cup, including due to the minimum wage increase, changes/variations, acceleration measures and price escalations. Many of these are moving towards settlement, but settlement is not always the end of the story, as a party may need to take steps to enforce the settlement sum. This article explores what a claimant should consider when entering into a settlement agreement to ensure a quick enforcement of the settlement sum, should this become necessary, and considers the potential use of expedited arbitration proceedings in this regard.

Enforcement: Settlement Reached after Proceedings Start

The party entitled to payment under a settlement agreement faces the question of how it can enforce payment should the debtor fail to pay after entering the settlement agreement. In the case of such a breach of payment obligations, the creditor typically will seek to avoid time-consuming arbitration or litigation proceedings to obtain an enforceable title. In practice, parties to a settlement agreement will often honour the agreement reached. However, parties are nonetheless advised to ensure the enforceability of their agreement beforehand, in the event that the settlement agreement is not complied with. 

Enforcement options are more straightforward under circumstances where parties settle a dispute after proceedings have been initiated before a state court, an arbitral tribunal, or a mediator:

  1. Civil procedure rules typically allow for a mechanism to enforce settlements that have been reached during court proceedings. 
  2. Arbitration rules typically provide for the option to record a settlement in a consent award, which can be enforced in case of non-compliance. For example, Article 33 of the International Chamber of Commerce ("ICC") Arbitration Rules 2021 allows the tribunal to issue a consent award.
  3. If a settlement is reached based on a mediation, which is subject to the UN Convention on International Settlement Agreements Resulting from Mediation (the "Singapore Convention"), such settlement can be enforced in the national courts of the member states, according to the rules of procedure of that state. In the Middle East, for example, Qatar has ratified the Singapore Convention.

Enforcement: Settlement Reached Before Proceedings Start

However, when parties reach a settlement before they have started any such proceedings, enforcement options are more limited if the parties do not wish to complete time-consuming arbitration, mediation or litigation proceedings in order to obtain an enforceable title:

Parties do not have the option to initiate an arbitration at the time of signing the settlement agreement with a view to obtain a consent award by an arbitral tribunal to "rubber stamp" the agreement, and so to obtain an enforceable title around the time of signing. Article 33 of the ICC Arbitration Rules 2021, for example, allows for consent awards "[i]f the parties reach a settlement after the file has been transmitted to the arbitral tribunal." This means that parties must reach such settlement after the file has been transmitted to the arbitral tribunal. The ICC is very cautious to proceed with the constitution of an arbitral tribunal where parties have already settled their dispute and have afterwards merely commenced an ICC arbitration for the purpose of recording that settlement in the form of a consent award. The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards would not apply (and so a consent award would not be internationally enforceable under this Convention) if the settlement was reached prior to commencement of an arbitration, as such an award would not "aris[e] out of differences between persons" (as required under Article I(1) of the Convention).

Similarly, it would not be advisable to initiate a mediation at the time of signing the settlement agreement with a view to having the settlement agreement "rubber stamped" by a mediator. The Singapore Convention, according to its Article 1, applies only to agreements "resulting from mediation", and so the enforcement regime under the Singapore Mediation would not apply in such a situation.

Civil procedure rules of national courts only sometimes allow for enforcement options of settlements reached prior to commencement of formal proceedings. German civil procedure rules, for example, allow for an immediate enforcement of a settlement agreement, if it has been notarised and the paying party has subjected itself in the document to immediate enforcement (§ 794(1) Nr. 5 German Code of Civil Procedure). Under Part 32 of the Rules of the DIFC courts, for example, parties may make a settlement offer before the commencement of court proceedings. If a settlement results from such an offer, a party may apply to the DIFC courts to enforce the terms of the settlement without the need for a new claim. Such options do not exist in Qatar.

Dispute Resolution of Choice: Expedited Arbitration Procedure

Parties in Qatar should therefore consider including a dispute resolution clause in their settlement agreement to allow for expedited arbitration proceedings, in particular in circumstances where enforcement abroad may be required. Expedited arbitration proceedings can typically be concluded in a much shorter timeframe than regular arbitration proceedings or court proceedings, and are therefore suited to a settlement situation, allowing an enforceable award to be obtained in a comparatively short time period. According to the Expedited Procedure Rules of the ICC Arbitration Rules 2021, for example, an arbitral tribunal must render its final award within six months from the date of the case management conference (Article 4(1) of Appendix VI). In case parties opt for these rules and the settlement sum agreed on exceeds the threshold amount of USD 3,000,000, up to which the Expedited Procedure Rules apply, the parties can specify in their settlement agreement that the Expedited Procedure Rules should apply irrespective of the amount in dispute (Article 30(2)(b) of the ICC Rules of Arbitration).

Furthermore, when adopting expedited arbitration proceedings as the dispute resolution mechanism of choice, parties should consider excluding any pre-arbitration steps that may have been required in the original contract between the parties (such as amicable settlement meetings or referral to a dispute board). Construction contracts in particular often contain complex multi-tier dispute resolution clauses, which are justified in view of the complex nature of construction claims, but are not suitable to disputes arising out of a settlement agreement, which are typically less complex.

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This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.

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