The role of arbitrators in the settlement process

Hypothesis: Most arbitration rules do not require tribunals to encourage or facilitate settlement

In any dispute, parties are free to settle at any time. In order to avoid the time, cost and risk associated with pursuing or defending litigation or arbitration proceedings to their conclusion, it is generally in the best interests of both parties to consider all forms of alternative dispute resolution (ADR) mechanisms, with a view to achieving settlement.   

But what role, if any, does (or should) a tribunal play in this process? 

In England and Wales, it has long been understood that the courts should play a role in promoting and encouraging the early settlement of cases. Under the English Civil Procedure Rules, courts are required to actively manage cases to further the overriding objective of dealing with cases justly and at proportionate cost.  Active case management expressly includes “helping the parties to settle the whole or part of the case” (CPR r.1.4(f)).

By contrast, arbitrators in many jurisdictions have traditionally held the view that their primary duty is to determine cases and issue enforceable awards, believing that interfering with the parties’ right to freely negotiate between themselves would undermine the role of a tribunal as a neutral and impartial forum. Legal practitioners have grappled for some time with the question of whether an arbitrator’s role does, and in fact should, go beyond the mere determination of the merits of a case and if so, how involved they should be in the parties’ decision-making.

In this fifth and final article in a series of data sheets exploring arbitration topics as part of our Data Driven Disputes campaign, we posed the hypothesis that most arbitral institutions adhere to the traditional mindset of non-intervention, and accordingly do not contain provisions in their rules mandating that tribunals encourage or facilitate settlement.

Research and methodology

To investigate, we analysed the rules of 29 arbitral institutions around the world and spoke to some of those institutions about whether they were seeing any increase in parties settling and, if so,  whether there was any one factor to which they attributed that increase.

Conclusion: The vast majority of institutions do not require tribunals to encourage or facilitate settlement

Our findings showed that out of the 29 institutional rules that we analysed, only nine institutions contemplate the tribunal potentially having a role to play in relation to settlement.

Of those nine, only two sets of rules use mandatory language requiring tribunals to play an active role in encouraging settlement between the parties:

• The German Arbitration Institute (DIS) requires arbitrators, unless either party objects, to seek to encourage an amicable settlement of the dispute at every stage of the arbitration.¹ Ramona Schardt, Secretary General at the DIS, told us that this rule is being adopted in practice and has, as a result, a high rate of settlement of DIS cases.

One of the big advantages of DIS arbitrations is incredibly high settlement rate. […] We motivate parties to follow Article 26 (Encouraging Amicable Settlements) and Article 27 (Efficient Conduct of the Proceedings). This actually works in practice. […] We encourage arbitrators to settle as it means greater efficiency.

Ramona Schardt, Secretary General, German Arbitration Institute (DIS)

• The Australian Centre for International Commercial Arbitration (ACICA) similarly imposes an obligation on tribunals in relation to settlement, requiring them, at the first case management conference, to “raise for discussion with the parties the possibility of using other techniques to facilitate the settlement of the dispute”.²

The remaining seven institutions do not go as far, and simply confirm that tribunals have the power to facilitate settlement at their discretion, provided both parties agree; they do not require tribunals to encourage or facilitate settlement:

The rules of the remaining 20 institutions that we reviewed do not contain any provisions that contemplate a role for the tribunal in encouraging or facilitating settlement. This includes some of the best-known institutions, such as the LCIA, which, while offering mediation and other ADR services, has no specific provisions incentivising settlement. This is also the case for the Singapore International Arbitration Centre (SIAC). The Stockholm Chamber of Commerce and the Hong Kong International Arbitration Centre similarly do not expressly require or empower their tribunals to encourage or facilitate settlement. 

Comment

Our research proved our hypothesis correct – whilst two of the institutions that we considered  specifically require tribunals operating under their rules to take active steps to encourage or facilitate settlement, the vast majority merely empower tribunals to facilitate the settlement process should they consider it appropriate to do so, or do not contemplate a role for the tribunal in relation to settlement at all. 

So, what impact does the lack of a mandatory “settlement facilitation” provision have on the prospects of parties reaching settlement under particular rules? DIS told us that their (almost unique) interventionalist approach to settlement has prompted a high level of settlements (and hence early resolution of a dispute) over the last few years. 

In our experience, and anecdotally, tribunals do not tend to reach out to parties to enquire after / encourage them to explore their settlement options. Many arbitrators might fear that such a suggestion could appear to one or all parties as an unwillingness by the tribunal to fulfil their duties, and be concerned about the prospect of a challenge – either of them or their ultimate award. Of course, in some cases where the parties are firmly entrenched in their positions, it may also simply appear not to be a worthwhile endeavour.

Some institutions appeared confident that settlement was at least in part attributable to the intervention of tribunals, or those tribunals’ case management techniques, despite the lack of mandatory provisions:

We see ourselves in the business of dispute resolution and if participating in LMAA arbitration enables the parties to settle, then we think that's a good thing … LMAA arbitrators also offer services such as mediation and early neutral evaluation, to assist parties in settling.

David Steward, Immediate Past President of the LMAA

There are number of cases that are being settled even before transfer of the file. There are lots of cases where we have had the first case management conference for instance, and then the parties settled.

Jessica Puhr, Legal Counsel, VIAC

On the other hand, many of the institutions that we considered could not confidently say that any increase they had seen in the settlement of cases was specifically attributable to tribunal intervention. For example, DIAC told us that costs appeared to be a key driver for settlement:

Settlement is often contemplated by parties in low-value disputes where the anticipated costs and time are often considered to be disproportionate to the amount in dispute.

Robert Stephen, Registrar, DIAC

Conclusion

In order for arbitral institutions to hold themselves out as a more efficient and cost-effective alternative to litigation, it is important for parties to have confidence that, where appropriate, tribunals will find opportunities to encourage or facilitate settlement of their dispute. 

Currently, the vast majority of institutions are either light touch or silent on this topic, which arguably encourages, or at least legitimises, tribunals playing a passive role in the settlement of disputes. Tribunals and parties run the risk of “going through the motions” of a procedural timetable, racking up costs that might have been avoided if tribunals had intervened at an earlier stage to encourage the parties to explore the prospect of settlement. 

None of the institutions to whom we spoke had particularly observed a trend of increasing settlement, apart from DIS, which it attributed to its mandatory provision. So query if merely “empowering” tribunals to encourage or facilitate settlement goes far enough, if dispute resolution, at proportionate time and cost, is truly the objective of those involved in dispute resolution.  In the absence of mandatory provisions that impose a duty on tribunals to intervene where possible, arbitrators may be legitimately concerned with maintaining (and appearing to maintain) their objectivity and impartially, and overlook opportunities to help the parties get into a room. 

Even in the absence of a mandatory provision, institutions and tribunals could still be making better use of the following tools and procedures to facilitate settlement: 

• Institutions could be more proactive about offering parallel mediation services, allowing parties to explore amicable resolutions while arbitration is ongoing.
• Tribunals could be more proactive about encouraging parties to have preliminary issues determined early where possible, in order to narrow the scope of issues in dispute. See our earlier article in this series.
• Tribunals could also proactively suggest a stay of proceedings, granting parties the necessary time to negotiate settlements without the pressure of looming deadlines.
• Arbitral rules could incorporate specific provisions regarding “Calderbank”-type consequences for settlement offers, thereby incentivising reasonable settlement offers by ensuring cost implications for refusing them.
• Finally, the adoption of med-arb, where the arbitrator also acts as a mediator (or an arbitrator takes over following consultation with the mediator), can provide a seamless transition between mediation and arbitration, fostering an environment conducive to settlement.

Whichever tools are employed, if arbitration is truly going to compete with litigation in the time and cost-efficiency stakes, tribunals must be much more pro-active in encouraging and facilitating settlement.  In order to give them the freedom and security to do so, institutions should consider more strongly introducing into their rules “mandatory provisions” on settlement, or at least provide clear guidance to tribunals (in practice notes and similar documents) as to the scope of their powers in relation to settlement, and the expectations of the institution in that regard.  The institutions that do so may find that their rules seem far more appealing to risk-averse and cost-conscious parties in a world where the costs of formal dispute resolution processes continue to increase.

The CMS team would like to thank Lucy Jessop (Trainee), Niluka Perera (Trainee) and Henry Davine (former secondee Trainee) for their invaluable assistance with research and the drafting of this report.