Switzerland: Can Arbitrators Promote Settlement In Arbitration?

Parties can always attempt to settle their dispute in an amicable manner, even if the dispute has been referred to arbitration. ¹ However, different opinions emerge regarding the arbitrators' role in the settlement process.

Certainly, arbitrators may facilitate settlement indirectly. As stated by Kaufmann-Kohler, arbitrators "can simply ask a few well-targeted questions at the right time, which may shed light on the weaknesses of a party's case and trigger settlement discussions between the parties." ² However, can arbitrators directly and proactively promote settlement? Or is their role strictly limited to deciding disputes? Regarding this question, in 2021, a Working Group mandated by the International Mediation Institute conducted interviews with 75 individuals from various jurisdictions.

In response to the question, "Do you think an arbitrator has a role in fostering settlement?", 78.38% responded "Yes" and 21.62% responded "No." Polling during the consultation sessions produced similar results, with 80% responding positively. Thus, most respondents recognised that arbitrators have a part to play in facilitating settlement. The comments expanded on the positive responses by explaining that the arbitral tribunal: "Has an important role in helping the parties understand the procedural options to settlement, outside of the arbitral proceedings as well as within the arbitral proceedings;" "The arbitrator can have an active role provided this is in line with expectations/wishes of the parties;" "The arbitral proceedings can be framed in a manner favorable to possible settlements;" "An arbitrator plays a significant role in fostering settlement;" and "It is the arbitrator's duty to encourage the parties to settle the dispute." ³

In this note, we will address this topic from a (I) national as well as an (II) institutional perspective. We will also envisage (III) several techniques that arbitrators may use to promote settlement in arbitration. These techniques are, however, (IV) to be exercised with caution.

I. Can Arbitrators Promote Settlement in Arbitration? – National Law Perspective

Under English law, Rule 1.4 of the Civil Procedure Rules (1998) provides that courts must further the overriding objective, i.e., to deal with cases fairly and at a reasonable cost, ⁴ by actively managing cases. The active management of cases include, inter alia, "helping the parties to settle the whole or part of the case."

In France, Article 21 of the French Civil Procedure Code states that conciliation falls amongst the court's main attributions. This provision applies to domestic arbitration via Article 1464 of the French Civil Procedure Code.

In Germany, Section 278(1) of the German Code of Civil Procedure expressly states that "[i]n all circumstances of the proceedings, the court is to act in the interests of arriving at an amicable solution of the legal dispute or of the individual points at issue." In this respect, Section 278(2) stipulates that the oral hearing shall "be preceded by a conciliation hearing unless efforts to come to an agreement have already been made before an alternative dispute-resolution entity, or unless the conciliation hearing obviously does not hold out any prospects of success. In the conciliation hearing, the court is to discuss with the parties the circumstances and facts as well as the status of the dispute thus far, assessing all circumstances without any restrictions and asking questions wherever required. The parties appearing are to be heard in person on these aspects."

Other jurisdictions have specific provisions regarding arbitrators' active role in settlement directly in their national arbitration statutes. This role is, however, subject to the parties' consent:

• The Hong Kong Arbitration Ordinance stipulates in its Section 33(1) that "[i]f all parties consent in writing, and for so long as no party withdraws the party's consent in writing, an arbitrator may act as a mediator after the arbitral proceedings have commenced." Section 33(2) then stipulates that if the arbitrator acts as a mediator, "the arbitral proceedings must be stayed to facilitate the conduct of the mediation proceedings."
• Likewise, Section 17(1) of the Singapore International Arbitration Act provides that "[i]f all parties to any arbitral proceedings consent in writing and for so long as no party has withdrawn the party's written consent, an arbitrator or umpire may act as a conciliator." A similar provision figures in Section 63 of the Singapore Arbitration Act applicable to domestic arbitration.
• In Japan, pursuant to Article 38(4) of the Arbitration Law, arbitrators may "attempt to settle the civil dispute subject to the arbitral proceedings, if consented by the parties."
• In Bangladesh, Section 22 of the Arbitration Act makes clear that it is not "incompatible with an arbitration agreement for an arbitral tribunal to encourage settlement of the dispute otherwise than by arbitration and with the agreement of all the parties, the arbitral tribunal may use mediation, conciliation or any other procedures at anytime during the arbitral proceedings to encourage settlement."
• The same is stipulated in Section 30(1) of the Indian Arbitration and Conciliation Act: "It is not incompatible with an arbitration agreement for an arbitral tribunal to encourage settlement of the dispute and, with the agreement of the parties, the arbitral tribunal may use mediation, conciliation or other procedures at any time during the arbitral proceedings to encourage settlement."

II. Can Arbitrators Promote Settlement in Arbitration? – Arbitration Institutions' Perspective

While not all institutional rules refer to the arbitrators' active role in the settlement of the parties' disputes, ⁵ several contain specific provisions in this regard. Again, the role that arbitrators play in facilitating settlement is subject to the parties' consent:

• Article 47(1) of the CIETAC Rules provides that "[w]here both parties wish to conciliate, or where one party wishes to conciliate and the other party's consent has been obtained by the arbitral tribunal, the arbitral tribunal may conciliate the dispute during the arbitral proceedings."
• Article 19(5) of the Swiss Rules of International Arbitration stipulates that "[w]ith the agreement of each of the parties, the arbitral tribunal may take steps to facilitate the settlement of the dispute before it."
• Appendix IV(h)(ii) of the ICC Arbitration Rules also provides that "where agreed between the parties and the arbitral tribunal, the arbitral tribunal may take steps to facilitate settlement of the dispute, provided that every effort is made to ensure that any subsequent award is enforceable at law."
• Article 26 of the German DIS Rules states that "[u]nless any party objects thereto, the arbitral tribunal shall, at every stage of the arbitration, seek to encourage an amicable settlement of the dispute or of individual disputed issues."
• Article 28 of the VIAC Arbitration Rules also provides that "[a]t any stage of the proceedings, the arbitral tribunal is entitled to facilitate the parties' endeavors to reach a settlement."
• Schedule III, paragraph 7, to the CEPANI Arbitration Rules states that "[i]f the circumstances so permit, the arbitrator may [...] ask the parties to seek an amicable settlement and, with the explicit permission of the parties and of the secretariat, to suspend the proceedings for whatever period of time is necessary."
• Article 42(1) of the Arbitration Rules adopted by the Beijing Arbitration Commission (BAC) stipulates that an arbitral tribunal "may, at the request or with the consent of the parties, conduct a conciliation of the case in such manner as it considers appropriate."

Finally, various soft law instruments also envisage the arbitrator's role in promoting the settlement of disputes:

• General Standard 4(d) of the IBA Guidelines on Conflict of Interest in International Arbitration provides that an arbitrator "may assist the parties in reaching a settlement of the dispute, through conciliation, mediation or otherwise, at any stage of the proceedings. However, before doing so, the arbitrator should receive an express agreement by the parties that acting in such a manner shall not disqualify the arbitrator from continuing to serve as arbitrator".
• Article 8 of the IBA Rules of Ethics for International Arbitrators also stipulates that, upon the consent of the parties, "the tribunal as a whole (or the presiding arbitrator where appropriate), may make proposals for settlement to both parties simultaneously, and preferably in the presence of each other." The provision then goes on and makes explicit that, although "any procedure is possible with the agreement of the parties, the arbitral tribunal should point out to the parties that it is undesirable that any arbitrator should discuss settlement terms with a party in the absence of the other parties since this will normally have the result that any arbitrator involved in such discussions will become disqualified from any future participation in the arbitration."
• Article 9.1 of the Prague Rules on the Efficient Conduct of Proceedings in International Arbitration confirms that "[u]nless one of the parties objects, the arbitral tribunal may assist the parties in reaching an amicable settlement of the dispute at any stage of the arbitration." Article 9.2 then states that, upon the written consent of the parties, the arbitrator may also "act as a mediator to assist in the amicable settlement of the case."

III. Different Techniques Used by Arbitrators to Promote Settlement in Arbitration

Various techniques exist that might be used at different stages of arbitration in order to promote settlement. These techniques have been the subject of a number of studies carried out, for instance, by the ICC Commission on Arbitration and ADR ⁶ and the Centre for Effective Dispute Resolution. ⁷ We will address the main features of several of these techniques in the following paragraphs.

1. Promoting Settlement in Arbitration Through Case Management Techniques

There are several case-management techniques whose aim is to ensure the ongoing efficiency of arbitration. One of these is the "first case management conference", sometimes called a "first session". It is usually during the first management conference that the parties and the arbitrator discuss the procedural timetable and the Terms of Reference. ⁸

However, as noted by the ICC Commission on Arbitration and ADR, "Case management techniques do not stop at the first" ⁹ case management conference. Arbitral tribunals may schedule further meetings at different stages of the arbitration, called "mid-stream conferences" ¹⁰ or "mid-arbitration reviews". ¹¹ During these meetings, the arbitrators may enquire whether the initial positions of the parties have changed. Their value is significant as the "parties are given an opportunity to confirm or re-assess their expectations of the outcome, potentially narrowing the gap between both sides and encouraging potential settlement." ¹²

One of the mid-stream conferences is the "Kaplan Opening" or "Kaplan Hearing", an idea developed by Neil Kaplan, a well-known Hong Kong-based arbitrator. This technique is described by Kaplan himself as follows:

The advantages of this technique may be summarized as follows: ¹⁴

2. Mediation/Settlement Windows

Another technique to promote settlement is for arbitrators to suggest a so-called mediation or settlement window that is "intended to prompt the parties to consider an amicable resolution through mediation". ¹⁵ Should the parties agree to mediation, the arbitrators may also act as mediators under several domestic laws and institutional rules, as mentioned above.

However, several practitioners have raised concerns about the use of some ADR/mediation techniques by arbitrators, and mainly caucusing. Caucusing is a technique typically used by mediators that includes conducting separate meetings between the mediator and each party individually. As stated by Berger and Jensen, this technique is to be exercised with caution:

IV. Caution in Exercising Arbitrators' Proactive Role in the Settlement of Disputes

While the arbitrators' power to facilitate settlement is generally accepted, it should, nevertheless, be exercised with caution. One of the possible drawbacks of the arbitrator actively promoting settlement is the loss of his or her objectivity and impartiality (at least in the parties' minds) should the settlement fail and the arbitration resume.

Several provisions deal with the consequences of the parties' consent, allowing the arbitrators to act as conciliators and mediators and shield the latter against challenges regarding their impartiality. For instance:

• Section 33(5) of the Hong Kong Arbitration Ordinance stipulates that "[n]o objection may be made against the conduct of the arbitral proceedings by an arbitrator solely on the ground that the arbitrator had acted previously as a mediator in accordance with this section."
• Article 19(5) of the Swiss Rules of International Arbitration also states that, when the parties give their consent that the arbitrator shall facilitate settlement, "Any such agreement by a party shall constitute a waiver of its right to challenge an arbitrator's impartiality based on the arbitrator's participation and knowledge acquired in taking the agreed steps."

Likewise, General Standard 4(d) of the IBA Guidelines on Conflict of Interest in International Arbitration stipulates that the parties' agreement "shall be considered to be an effective waiver of any potential conflict of interest that may arise from the arbitrator's participation in such a process, or from information that the arbitrator may learn in the process. If the assistance by the arbitrator does not lead to the final settlement of the case, the parties remain bound by their waiver."

However, General Standard 4(d) maintains that the obligation of the arbitrator to remain impartial is of the utmost importance. It stipulates that "notwithstanding such agreement, the arbitrator shall resign if, as a consequence of his or her involvement in the settlement process, the arbitrator develops doubts as to his or her ability to remain impartial or independent in the future course of the arbitration."

Conclusion

While promoting settlement is within the arbitrators' discretion as part of their "inherent authority to conduct an arbitration", ¹⁷ the extent to which they can actively participate in settlement discussions may vary based on domestic and institutional rules. While arbitrators cannot impose settlement on the parties, they possess several techniques to effectively promote and facilitate it. The use of these techniques is, however, to be exercised with caution. The arbitrators must ensure that the requirements of due process are properly safeguarded and that they remain objective and impartial throughout the entire process.

Footnotes

1.See, e.g.,Settlement and ICC Arbitration, published by Aceris Law LLC, 15 May 2021.

2.G. Kaufmann-Kohler,When Arbitrators Facilitate Settlement: Towards a Transnational Standard, Arbitration International (2009), p. 188.See alsoP. Marzolini,The Arbitrator as a Dispute Manager – The Exercise of the Arbitrator's Powers to Act as Settlement Facilitator, in The Arbitrator's Initiative: When, Why and How Should It Be Used?, ASA Special Series, No. 45 (2016); H. Raeschke-Kessler, The Arbitrator as Settlement Facilitator, Arbitration International (2005); K. Peter Berger, J. Ole Jensen,The Arbitrator's Mandate to Facilitate Settlement, Int'l Comm. Arb. Rev. 58 (2017).

3.Arbitrator Techniques and their (Direct or Potential) Effect on Settlement, Working Group 4, International Mediation Institute, 16 November 2021, p. 7.

4.The Civil Procedures Rules 1998, Rule 1.1.

5.For instance, the LCIA, the SCC, and the SIAC Arbitration Rules do not appear to contain any specific provision in this respect.

6.Facilitating Settlement in International Arbitration, ICC Commission on Arbitration and ADR (2023).

7.CEDR Commission on Settlement in International Arbitration, Final Report (November 2009).

8.See, e.g.,The Terms of Reference in ICC Arbitration, published by Aceris Law, 18 January 2019.

9.Facilitating Settlement in International Arbitration, ICC Commission on Arbitration and ADR (2023), p. 6.

10.Facilitating Settlement in International Arbitration, ICC Commission on Arbitration and ADR (2023), p. 6.

11.Arbitrator Techniques and their (Direct or Potential) Effect on Settlement, Working Group 4, International Mediation Institute, 16 November 2021), pp. 31-35.

12.Facilitating Settlement in International Arbitration, ICC Commission on Arbitration and ADR (2023), p. 6.

13.N. Kaplan,If It Ain't Broke, Don't Change It, German Arbitration Journal (2014), p. 279.See alsoArbitrator Techniques and their (Direct or Potential) Effect on Settlement, Working Group 4, International Mediation Institute, 16 November 2021, pp. 31-35.

14.N. Kaplan,If It Ain't Broke, Don't Change It, German Arbitration Journal (2014), p. 279.

15.Arbitrator Techniques and their (Direct or Potential) Effect on Settlement, Working Group 4, International Mediation Institute, 16 November 2021, p. 17.

16.K. Peter Berger, J. Ole Jensen,The Arbitrator's Mandate to Facilitate Settlement, 2017 Int'l Comm. Arb. Rev. 58 (2017), p. 62.

17.Arbitrator Techniques and their (Direct or Potential) Effect on Settlement, Working Group 4, International Mediation Institute, 16 November 2021, p. 8.

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