Nadia Darwazeh and Dr Henning Schaloske look at the benefits of settlement facilitation
As in-house counsel overseeing disputes, one of the key questions is always: how do I resolve the dispute as quickly and cost-efficiently as possible? Whereas 30 years ago arbitration, with its flexible procedure, was held up as quicker and shorter than going to court, that is not always the case today. The principal reason for this change is that arbitration has become more complex and sometimes more akin to court proceedings. To ensure the continued attractiveness of international arbitration, arbitral institutions, practitioners and in-house counsel alike have carefully considered over the years how to make it more time and cost efficient. One of the first attempts to identify cost and time-saving measures was the ICC Arbitration Commission Report on Techniques for Controlling Time and Costs in Arbitration in 2007. Since then, most if not all major international arbitral rules have been revised to put in place mechanisms, such as the appointment of a sole arbitrator for smaller disputes, expedited and emergency arbitrator proceedings, to ensure that arbitrations are faster and cheaper.
More recently, a further mechanism for saving time and costs has entered the international arena, namely settlement facilitation in international arbitration. This mechanism is well known to lawyers trained in Germany or Switzerland, where it forms part of the judicial system, as well as to lawyers in mainland China, although in a somewhat different form. However, it is unknown to most other lawyers across the globe, whether of civil or common law tradition. The beauty of international arbitration is that the proceedings are flexible and can be shaped by the parties, who can draw on practices from different jurisdictions. Settlement facilitation is a tool worth knowing and seriously considering, particularly if you are interested in cutting an arbitration short.
So what exactly is settlement facilitation? There is neither a single common meaning, nor a definition contained in the arbitration rules of major institutions of the major arbitral institutions. Broadly speaking, it is a process where arbitrators take certain measures during the arbitration proceedings to encourage parties to settle their dispute in part or in whole.
The means of settlement facilitation can be indirect or direct and may involve a number of measures including the following:
- An indirect measure is one where, at the outset of the proceedings, the tribunal may request the parties to agree on the facts and issues to be decided, which in turn encourages the parties’ disagreement to be narrowed down. The tribunal may do so, for example, in the context of the terms of reference and/or the case management conference.
- Another indirect measure is one, assuming experts have been appointed, where the tribunal may request that the experts meet and narrow down the issues on which they disagree. This would typically occur later on in the proceedings once the experts have exchanged their reports. If the dispute is very technical in nature or turns on a legal issue, such an expert meeting may indeed encourage the parties to settle if it results in the issues being narrowed down substantially.
- A direct measure, which is perhaps the single most effective means of settlement facilitation, is where a tribunal suggests to the parties that it provide its preliminary views on the case. If the Tribunal wants to provide meaningful preliminary views, it will only be able to do so once the parties have exchanged their first full submission. The idea behind a tribunal providing its preliminary views, which are without prejudice, is to help the parties identify which claims the tribunal considers to be strong or weak. Such preliminary views will more often than not incite the parties to engage in settlement discussions. The key prerequisite is for a tribunal to have obtained at the outset written consent from the parties to provide such preliminary views – which are not binding on the tribunal should the proceedings resume – and to ensure that the applicable law does not prevent it from doing so. The tribunal could raise this option during the case management conference or at a later stage, perhaps after the exchange of the first full submissions, once it has determined whether the case is suitable for this procedure.
- Encourage the parties to engage in mediation, with the participation of a third-party mediator. A few authors have suggested that the tribunal may also facilitate settlement by engaging itself in the settlement discussions or acting as a mediator between the parties. While this practice of an arbitrator switching hats and acting as a mediator is practised in mainland China, it raises a whole series of issues, notably regarding due process and the impartiality of the arbitrator. Indeed, for a mediator to be effective, they will often have to engage in caucusing, ie, discuss certain aspects of the case ex-parte, with one party only. If the mediation is successful, this is not problematic. If, however, the arbitration resumes, it raises serious questions about the other party’s right to be heard and due process. Also, if the arbitrator has taken certain positions during the mediation, the parties are unlikely to perceive the arbitrator as being impartial. It is therefore preferable that any mediation be carried out by a third-party trained mediator, rather than by the tribunal.
Settlement facilitation has gained traction in the arbitration community and arbitral institutions now expressly refer to this practice, such as for example in appendix IV of the 2017 ICC Arbitration Rules (Case Management Techniques, (b) and (h)), articles 26, 27(4) and annex 3 of the 2018 DIS Rules, article 5 of the 2009 CEDR Rules, article 47 of the 2015 CIETAC Arbitration Rules and article 39 of the 2008 Beijing Arbitration Commission Rules. Furthermore, a number of arbitration institutions provide for Arb-Med techniques, for example, the 2014 SIAC-SIMC Arb-Med-Arb Protocol, article 41 of the 2015 SHIAC Arbitration Rules, the 2018 NZIAC Arb-Med Rules, articles 43 and 67 of the 2019 BAC Rules, and para 233 of the 2019 Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration under the ICC Rules of Arbitration. During the last year, conferences and trainings on the topic have been held in a number of jurisdictions ranging from Dubai to Miami and from Paris to Singapore. There is no doubt that settlement facilitation is en vogue.
What steps can you take, as in-house counsel, to keep your options open to use settlement facilitation at some point during the proceedings? Here are a few pointers:
- The single most important step that you should take is to choose a tribunal that is familiar and experienced with settlement facilitation. In the case of a three-member tribunal, the choice of a president with such a skillset is of utmost importance. Indeed, unless the arbitrators feel comfortable carrying out settlement facilitation and in particular providing preliminary views on the case, they are unlikely to do so. A study carried out in 2007 by Professor Gabrielle Kaufmann-Kohler is telling in this regard. It looked at ICC consent awards over a three-year period, ie, arbitral awards recording the settlement agreement between the parties. The study concluded that in those cases in which the arbitral tribunal played a role in the parties settling their disputes, the majority of the tribunals included a president from the German-Swiss legal tradition and also included a party appointed from those jurisdictions.
- Selecting arbitrators that are available and will make time to focus on the case early on. Indeed, for settlement facilitation to work effectively and result in time and cost savings, arbitrators need to focus on the case early on and fully understand the issues in dispute to be able to suggest settlement facilitation measures. If arbitrators wait until the hearing to truly familiarise themselves with the case, a number of opportunities for settlement facilitation will already have been lost.
- Raising with the opposing party and the tribunal at the outset of the proceedings the question of settlement facilitation – is the other side and the tribunal open to the idea? What kind of measures can the parties agree upon and what is the timing? If the parties agree that obtaining preliminary views from the tribunal is desirable, they could include this step in the procedural timetable, after the first exchange of full submissions. By the same token, if the parties are eager to consider mediating the dispute, they may wish to include a mediation window in the procedural timetable.