"... [E]very arbitrator's perception of his or her role will be shaped by the legal and procedural culture with which he or she is most familiar."1 International arbitration is, in fact, a hub for practitioners from various legal backgrounds. Applicable rules of procedure, place and language of arbitration, applicable laws to the merits of the dispute, the professional and legal background of arbitrators, and the nationality and legal culture of party counsel all provide diversity to international arbitration. However, inevitably, this diversity leads to the clash of customary practices, a dispute over acceptable and questionable practices, and the means to a due and proper resolution of disputes.
Among the long-disputed subjects in international arbitration is the promotion by arbitrators of settlement. A study by PricewaterhouseCoopers and the School of International Arbitration in 20082showed that 34% of arbitration proceedings, which constitutes a material portion, settle during the course of arbitral proceedings. Hence, the possibility of settlement even after arbitration commences is worth to invest in, which brings the role of the arbitrator in such settlement into question. In fact, this possibility is seen among the opportunities present in arbitration proceedings in the face of a proactive tribunal3. This article aims to introduce and briefly discuss settlement in international arbitration and how arbitrators are involved.
Settlements in International Arbitration
There may be many reasons why parties to a dispute would prefer to settle instead of resolving the dispute through continuing litigation, including arbitration. These reasons may include the benefit to resolve a conflict before investing and, thus, by sparing costs and time, avoiding a possible inability to collect or implement an award, duration of enforcement, continuity of business, and so forth. The parties may choose to not go to arbitration, and resolve their disputes in advance through settling, or through the arbitration proceedings, they may engage in negotiations to settle.
In the practice of international arbitration, parties may settle prior to the first hearing, during, or after an evidentiary hearing. If the proceedings are bifurcated, a settlement window may be foreseen between two stages of proceedings. The arbitral tribunal, if involved in the settlement process, may declare preliminary views and non-binding findings, offer suggested terms of settlement, or chair settlement meetings4. There are certain procedures which provide a hybrid mechanism including both of mediation and arbitration, whereby, if mediation is unsuccessful, the arbitration will continue; or where an award that is written and sealed and which is yet to be disclosed, will not be disclosed or become binding, provided that the parties reach a solution through mediation5.
Against this factual background, it is important to assess the applicable rules and acceptable practices governing the settlement of parties, and the involvement of arbitrators.
Difference of Approach to Facilitating Settlement
Before assessing the applicable arbitration rules, it is worthy to emphasize the diversity in international arbitration. Participants, counsel, and arbitrators, all coming from different legal backgrounds, will reflect the practice and legal culture they are familiar with. This, inevitably, affects the course of international arbitration proceedings. When assessing the encouragement by arbitrators to settle, the differences between two main legal systems, civil law and common law become significant. While certain views desire and regard the facilitation of settlement among the roles of arbitrators, certain other views reject such encouragement from arbitrators.
In the common law tradition in that the parties present the full picture of their case at the trial, this is called a "back loaded" litigation6. Here, the judge will consider not being substantively acquainted with the case up until the evidentiary hearing; hence, they will be reluctant to be involved proactively to achieve a settlement between the parties. However, now there is a trend "toward judge-managed procedures."7 As opposed to common law, civil law judges are involved throughout a litigation procedure, exercising control over the evidentiary or fact-finding process. However, even civil law is not unified with respect to facilitating settlement. Germanic systems, and also several East Asian countries, actively promote proactive judges to try to reach a settlement; whereas, for instance, in France and Italy, the applicable legislation enables judges, but does not incentivize them, to move towards settlement and mediation8.
Applicable Rules of Arbitration
In order for an arbitrator to encourage or facilitate settlement, it is important that the parties' arbitration agreement does not forbid the arbitrator in such attempts9. Even though a similar restriction would, in theory, be applicable if the applicable rules to the arbitration forbid such attempts, it is seen that the institutional arbitration rules do not contain such prohibition.
To the contrary, some rules seem to enable, or in certain instances, even to encourage, arbitrators. On the other hand, certain rules only regulate consent awards, i.e. the award rendered by an arbitral tribunal upon the parties reaching a settlement, without foreseeing involvement of arbitrators in such settlement.
- The Swiss Rules of International Arbitration10 ("SRIA") Art. 15/8 states that provided that the parties agree, the arbitral tribunal may take steps to facilitate settlement of the dispute before them.
- The German Institution of Arbitration (Deutsche Institution für Schiedsgerichtsbarkeit "DIS") Rules11 expressly regulates in Art. 32.1 that the arbitral tribunal should seek to encourage amicable settlement of the dispute.
- The London Court of International Arbitration Rules12 ("LCIA Rules") foresee a consent award, regulating in Art. 26.9 that the arbitral tribunal may decide to make an award recording the settlement upon the joint request of the parties; or that the tribunal will be discharged if parties confirm in writing that they have reached a final settlement.
- The American Arbitration Association Commercial Arbitration Rules and Mediation Procedures ("AAA Rules") Rule R-48, Istanbul Center of Arbitration Rules of Arbitration and Rules of Mediation13 ("ISTAC Rules") Art. 38, and Singapore International Arbitration Centre Rules14 ("SIAC Rules") Art. 28.8, contain similar provisions.
- The International Chamber of Commerce Rules of Arbitration15 ("ICC Rules") also regulate, in Art. 32, the award by consent upon request of the parties. However, Appendix IV to the ICC Rules governing case management techniques, in paragraph (h), places an emphasis on informing the parties that they are free to settle all, or part, of the dispute, and where agreed between the parties and the arbitral tribunal, the tribunal may take steps to facilitate settlement.
A quick perusal of the rules shows how national legal cultures reflect upon arbitration practices. Institution rules under the influence of Germanic systems (such as SRIA and DIS Rules) foresee explicit encouragement to arbitrators for facilitating settlement; whereas, common law-related rules (such as LCIA Rules, AAA Rules, similarly under ISTAC rules, SIAC rules) only foresee consent awards. It is noteworthy to mention that the new Appendix IV to the ICC Rules contain a new emphasis enabling the arbitral tribunal to step in and facilitate settlement.
The Centre for Effective Dispute Resolution ("CEDR") also focused on encouraging arbitrators to settle in international arbitration as of 2007. As a result, the CEDR published the CEDR Rules for the Facilitation of Settlement in International Arbitration16 ("CEDR Rules").These CEDR Rules were designed to supplement the applicable rules and legal provisions. Similarly, the International Bar Association also published guidelines on Conflicts of Interest in International Arbitration17 ("IBA Guidelines on Conflicts"). Paragraph 4(d) also provides a possibility for the arbitrators to assist the parties in reaching settlement.
Both the CEDR Rules and the IBA Guidelines on Conflicts point to certain necessities in order for the arbitral tribunal not to make its award susceptible to a successful challenge. This is mainly due to the possible negative effects of such facilitation as to the independence and impartiality of arbitrators.
How to Avoid Challenge
The arbitral tribunal should not knowingly act in such a way to make its award susceptible to challenge (CEDR Rules art. 3/1). The CEDR Rules, the IBA Guidelines on Conflicts, and legal practitioners18 underline certain necessary steps in order for the arbitral tribunal's involvement in settlement not to cause future problems that may affect the integrity of the arbitration proceedings:
- The arbitrator should not engage in facilitation of settlement in the absence of the agreement of all parties concerned. The parties should provide their express consent, including a waiver of confirmation that they will not challenge or disqualify the arbitral tribunal from continuing to serve as arbitrator. This could be through a separate a written waiver, the approval of CEDR Rules, or otherwise. To prevent any potential conflict under some jurisdictions, it is advised that such waiver/agreement be in writing. This agreement is necessary to protect the arbitrator from further challenges.
- It may be advised that the arbitral tribunal discuss and agree with the parties the steps they will be taking to facilitate the settlement. However, the tribunal should refrain from meeting separately with either party, nor obtain information from one party that is not shared with the other.
- The arbitral tribunal should have an open but not empty mind, having read and understood the parties' pleadings, in order to be able to identify the relevant issues.
- The arbitral tribunal should disregard substantive matters discussed in settlement meetings in making an award, unless it was already introduced in arbitration.
- In protecting the integrity of the arbitration proceedings, the arbitrator may need to refrain from using certain alternative dispute resolution techniques. Techniques intended to obtain further information from the parties should, therefore, be used with caution.
- It is advised that the tribunals not directly provide a detailed settlement proposal, but rather, either state their preliminary analysis, or provide the parties with general guidelines as to how they may reach settlement.
- The timing of settlement discussions needs to be set on a case-by-case basis, bearing in mind the circumstances. A suggestion made pre-emptively may shed doubt on the dedication of the tribunal, too late an attempt may be rendered useless if too much time and money has already been spent: It is up to the arbitrators to determine the appropriate timing.
- The arbitrator shall resign if, as a consequence of involvement in the settlement process, the arbitrator doubts his or her ability to remain impartial or independent in the arbitration proceedings.
Any other particular requirement for enforcement of arbitral awards, such as grounds to set aside or denying enforcement in a certain country should also be taken into consideration.
The commencement of arbitration proceedings does not eliminate the possibility of a settlement between the parties in dispute. While there is a difference in approach in different jurisdictions, the arbitrator's role in encouraging such settlement negotiations is increasingly accepted in international arbitration. Notwithstanding, reservations, especially governing the risk of such involvement of arbitrators in their independence and impartiality if and once arbitration proceedings are resumed, are not yet fully eliminated.
Although there is guidance provided through legal instruments, such as the CEDR Rules and IBA Guidelines on Conflict, the arbitrators need to act cautiously before facilitating settlement between the parties. In each instance, the circumstances of the case will play an important role in determining if such an intervention is beneficial or not. Express, and if possible, written, consent of the parties, bearing an open but not an empty mind, and disregarding information provided during settlement negotiations when resuming the arbitration proceedings are among the measures that must be adopted.
1 Christopher Koch / Erik Schäfer, Can It Be Sinful For An Arbitrator Actively To Promote Settlement?, The Arbitration and Dispute Resolution Law Journal, ADRLF 147-254, Part 3, September 1999, http://www.landoltandkoch.com/wp-content/uploads/2010/12/Can-it-be-sinful-for-an-arbitrator-to-actively-promote-settlement_.pdf (accessed on 26 February 2016), p. 154.
2 See Andrey Panoy / Sherina Petit, Amicable Settlement in International Arbitration, The European, Middle Eastern and African Arbitration Review 2015, http://globalarbitrationreview.com/reviews/67/sections/232/chapters/2680/amicable-settlement-international-arbitration/ for details of this survey; and International Arbitration: Corporate attitudes and practices 2008 by PricewaterhouseCoopers and the School of International Arbitration http://www.pwc.co.uk/assets/pdf/pwc-international-arbitration-2008.pdf for the presentation itself (both links accessed on 26 February 2016), executive summary, p. 2.
3 Hilmar Raeschke–Kessler, The Arbitrator As Settlement Facilitator, Arbitration International, Vol. 21, No. 4, http://arbitragem.pt/conselhos/deontologia/doutrina/internacional/the-arbitrator-as-settlement-facilitator--hilmar-raeschke-kessler.pdf (accessed on 26 February 2016), p. 523.
4 See CEDR Rules Art. 5.
5 See Panoy / Petit, op. cit. for detailed analysis on hybrid procedures.
6 Koch / Schäfer, op. cit., p. 154 to 158.
7 Koch / Schäfer, op. cit., p. 158 ff. The Supreme Court cases cited here show the tendency to not disqualify the judges for having expressed their reactions and evaluations in the pre-trial conference. See also Bernd Ehle The Arbitrator As A Settlement Facilitator, Walking A Thin Line - What an Arbitrator Can Do, Must Do or Must Not Do, Recent Developments and Trends, Colloquium CEPANI40, 29 September 2010, Bruylant, 2010, http://www.lalive.ch/data/publications/Cepani_12_THILIN_Ehle.pdf (accessed on 26 February 2016), p. 84.
8 See Bernd Ehle, op. cit., p. 80 ff., Koch / Schäfer, op. cit., p. 157, 158, and Panoy / Petit, op. cit.
9 Otherwise, pursuant to article V the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (for full text please see http://www.newyorkconvention.org/english (accessed on 26 February 2016)) it may be possible for the award not to be enforced due to exceeding authority.
10 For the full text, please see https://www.swissarbitration.org/sa/download/SRIA_english_2012.pdf (accessed on 26 February 2016).
11 For the English text, please see http://www.dis-arb.de/en/16/rules/dis-arbitration-rules-98-id10 (accessed on 26 February 2016).
12 For the full text, please see http://www.lcia.org/Dispute_Resolution_Services/lcia-arbitration-rules-2014.aspx (accessed on 26 February 2016).
13 For the full text, please see http://istac.org.tr/wp-content/uploads/2016/02/ISTAC-Arbitration-and-Mediation-Rules-f.pdf (accessed on 26 February 2016). For details on the ISTAC Rules, see Ercüment Erdem, Istanbul Arbitration Center Rules Of Arbitration, January 2016, http://www.erdem-erdem.com/en/articles/istanbul-arbitration-center-rules-of-arbitration/ (accessed on 26 February 2016).
14 For the full text, please see http://www.siac.org.sg/our-rules/rules/siac-rules-2013 (accessed on 26 February 2016).
15 For the full text please see http://www.iccwbo.org/products-and-services/arbitration-and-adr/arbitration/icc-rules-of-arbitration/ (accessed on 26 February 2016).
16 For the detailed process of CEDR's work and access to the full text of CEDR Rules, please see http://www.cedr.com/about_us/arbitration_commission/ (accessed on 26 February 2016).
17 For access to the full text of the IBA Guidelines on Conflicts please see http://www.ibanet.org/Publications/publications_IBA_guides_and_free_materials.aspx (accessed on 26 February 2016).
18 See Panoy / Petit, op. cit., Koch / Schäfer, op. cit., Raeschke–Kessler, op. cit.