Synopsis: The traditional viewpoint in most jurisdictions is that the arbitral tribunal has no role when it comes to facilitating settlements. This, however, is subject to change. This article explains why facilitating settlement is a best practice and provides guidance on how to implement this approach in international arbitrations.
Introduction
(International) arbitration is a last resort method to resolve a dispute in a final, fair, and binding way. It is a step that is only taken when all other options to settle a dispute have failed. As with any litigation, however, parties often still try to reach a settlement even during the course of an arbitration procedure. Such settlement discussions usually happen in the parties’ domain without any involvement of an arbitral tribunal.
Most jurisdictions consider that the role of the arbitral tribunal is solely to decide the case and render an enforceable award – that is the mandate that is given to the tribunal, nothing more, nothing less. This traditional viewpoint is motivated by the concern that an arbitral tribunal’s neutrality, or at least the parties’ perception of it, might be impacted by facilitating settlements during the arbitration procedure. This view on the role of a tribunal is subject to change. This is especially true for arbitrations that are seated in countries like Germany, the Netherlands, and France. In these countries, parties and arbitrators have become familiar with court practices to facilitate settlements during hearings.
This European (court) practice of facilitating settlements, as found in Germany, the Netherlands, and France, is beginning to find its way into international arbitration practices as well. The International Chamber of Commerce (“ICC”) issued a report on this topic in 2023 titled “Facilitating Settlement in International Arbitration,”[1] and the Centre for Effective Dispute Resolution (“CEDR”), an independent British commercial alternative dispute resolution (“ADR”) provider, has published a helpful soft-law instrument in 2021[2] to provide guidance to arbitrators who are considering deploying settlement techniques during an arbitration. As a Dutch commercial judge that has facilitated settlements during the course of litigation, I am in a position to delineate first-hand accountings of how such facilitation techniques can be utilized, which I do so below. This article then subsequently sets forth best practices for how to apply this settlement facilitation approach to international arbitration.
Facilitating Settlements – Best Practice in European Courts
In several European countries, including Germany, the Netherlands, and France, the respective legislatures have given the local courts a mandate to facilitate settlement discussions with parties about their commercial dispute during a court hearing.
Utilizing such mandate in my capacity as a Dutch commercial judge, whilst at a hearing, I would first discuss the merits of the case. Upon completion of doing so, the parties involved would be asked whether they would be open to settlement discussions and how I could help them reach a settlement. A variety of responses were given that can be summarized as follows.
In some cases, counsel for the respective parties was adamant that settlement was not an option: either they already had undertaken some settlement attempts or the issue in dispute was an issue on which they just wanted to get a decision.
In the majority of cases, the parties were in fact open to having settlement discussions, thereby leading to a suspension of the hearing for a (short) while, and the parties would leave the court room to negotiate. In some instances, this simple method of asking whether the parties were amenable to settlement negotiations, and pausing the hearing, was all that was necessary for the parties to settle their case.
In other cases, parties would not reach a settlement at the first stage. In some of these cases, counsel requested a preliminary view on certain issues that kept the parties divided to help them to settle their dispute. In most cases, a preliminary view would be granted on at least some of the relevant issues at stake, which for some cases was just what the parties needed so they could make a more informed risk assessment of their case and settle their dispute. For others, sharing my views was insufficient to facilitate a settlement, thereby requiring me to render a judgment to end the dispute.
In the last category of cases, parties did not want to hear preliminary views but were open to talk about settlement with me. In such cases I would utilize mediation techniques, as sanctioned by the Dutch legislature, to assist parties reach a settlement.
Why the Best Practice of Settlement is Finding its Way into International Arbitration
In my experience, facilitating settlements at a hearing yields results. Approximately 20%-25% of both my court and arbitration cases settled at the hearing or shortly thereafter. Reports about the German settlement practices indicate similar, or even higher, percentages.
Regardless of the success rate of facilitating settlements, this practice benefits litigants for a variety of reasons:
- Arbitrators can help parties to make a better risk assessment of their case, especially when preliminary views are given on certain issues.
- As a third neutral party, an arbitrator can deploy mediation techniques to guide parties in their settlement discussions. Even if earlier mediations have been unsuccessful, an arbitrator may get parties out of an impasse as they may have reached a point where they want to end a dispute on their own terms.
- A settlement in the course of an arbitration provides security and predictability to the parties, as the settlement contract may be turned into a consent award or award on agreed terms.
- If an ongoing business relationship is at stake, parties will in many cases prefer an amicable settlement over an adversarial outcome.
- In some cases, an award will not fully resolve a dispute. For example, in certain corporate disputes, assets need to be transferred or a company needs to be dissolved. The tribunal can help parties to reach an agreement on all the practicalities as part of the settlement agreement.
How to Facilitate Settlement Discussions
The following are some practical guidelines and best practices for both arbitrators and litigants to consider when facilitating settlements in international arbitrations:
- Discuss the topic of facilitating settlements during your first case management conference. This enables the tribunal to learn the parties’ view points on the subject and determine whether the tribunal may be able to facilitate such a settlement at a later stage in the case.
- Include at a minimum a provision in the procedural order that in the event the tribunal will facilitate settlements during the course of the procedure, such assistance will not give rise to a challenge of the arbitral tribunal and its members or of any award if such settlement fails. For more elaborate provisions, one could incorporate the CEDR Rules 2021 in the provisional order.[3]
- A tribunal only shares preliminary views when both parties are willing to listen. A tribunal will also only give its views on issues where it feels informed enough to give a preliminary view.
- A tribunal only facilitates discussions with all parties present. If parties want to talk numbers/positions without the tribunal being present, the hearing can be adjourned so that the parties can have discussions in break-out rooms.
- Nothing said or done by any party or its counsel in the course of any settlement discussions shall be used against a party in the event that the arbitration resumes (save as regards the allocation of costs when applicable).
It will ultimately depend on the case and the parties whether a tribunal will facilitate settlement discussions with parties. The overarching concept here is and remains party autonomy. But the concept of facilitating settlements shouldn’t be dismissed too easily. Each case deserves at least a careful consideration of this approach. This starts at the CMC. It is time to start having these discussions with tribunals and/or (opposing) counsel and be open to this European best practice.
Endnotes
[1] ICC Commission on Arbitration and ADR, Report “Facilitating Settlement in International Arbitration (July 2023), https://iccwbo.org/wp-content/uploads/sites/3/2023/09/2023_Facilitating-Settlement-in-International-Arbitration-900-1.pdf.
[2] CEDR Rules for the Facilitation of Settlement in International Arbitration (2021) https://www.cedr.com/wp-content/uploads/2021/03/Rules-Settlement-Arbitration.pdf.
[3] See id., p.2 (the following is sample wording provided by the CEDR for inclusion in a contract clause or procedural order: “[In the conduct of any arbitration under this [Agreement],] the Arbitral Tribunal shall apply the CEDR Rules for the Facilitation of Settlement in International Arbitration”).
