Settlement in arbitration: should arbitrators play a greater role?

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Settlement in arbitration: should arbitrators play a greater role?

Settlement in arbitration: should arbitrators play a greater role?

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July 16, 2024

Introduction

Settlement plays a fundamental role in commercial litigation: as every litigator can attest, a significant majority of claims settle. Between October 2022 and September 2023, 68% of the 123 cases listed for a full trial in the Commercial Court settled before trial. The figure is even higher (78%) in each of the London Circuit Commercial Court and the Admiralty Court.¹ One feature of modern High Court litigation which may have contributed to these figures is the courts' duty to actively manage cases to further the overriding objective, which includes helping the parties settle all or part of the case, and recent authority has confirmed that the courts can in appropriate cases even compel parties to engage in alternative dispute resolution (ADR).² In contrast, there is no equivalent onus on arbitrators in English-seated arbitration to encourage or facilitate settlement. The obvious question is: should there be, and if so, what should the scope of that role be?

Promoting settlement in arbitration

A key motivation for introducing the promotion of settlement in High Court litigation was to improve the efficiency of the court system by both reducing the volume of cases going through the courts and ensuring those which were commenced were disposed of efficiently.³ It is just as important to ensure that arbitration can resolve disputes promptly and efficiently, albeit for different reasons. From the perspective of the parties, not only will settlement (whether through party negotiation or ADR)⁴ result in disputes being resolved more quickly and at reduced cost, there is also a greater likelihood that parties are able to maintain a working relationship going forward, which is particularly valuable for commercial parties. In the case of arbitrators and arbitral institutions, there may be concerns for "business" reasons that settlement (particularly at an early stage) effectively takes the dispute out of the arbitral process and prevents parties from making full use of their arbitrator, and so does not help to promote the particular institution or arbitrator as a means of resolving disputes. However, there is much to be gained from promoting settlement in arbitration. Earning a reputation for enabling prompt resolution of disputes regardless of how this is achieved may well encourage parties to select that arbitral institution or arbitrator in future. In practice, many arbitral institutions now also offer mediation or other forms of ADR, so parties which opt for those services may well continue to make use of the arbitral institution's services, albeit in a different capacity.

There is evidently appetite for settlement considerations to feature more prominently in arbitration. Queen Mary University of London's most recent International Arbitration Survey⁵ noted that a majority (59%) of survey participants preferred resolving cross-border disputes through a combination of ADR and arbitration, compared with 31% in favour of arbitration as a standalone option. Those who voted for both methods generally took the view that ADR might offer a quicker and more cost-effective means of resolving the dispute in the first instance. This compares with figures of 49% (ADR and arbitration) and 48% (arbitration only) in the 2018 edition of the survey.⁶ In response to an ICC Commission Task Force Pilot Survey, almost 70% of 533 participants and users of the ICC's services considered that arbitrators should inform parties about ADR options at the first case management conference.⁷ Meanwhile, the LCIA recently reported that 24 applications were made for early determination by parties in 2023, compared with 15 in 2022, amounting to a 60% increase.⁸ That parties are making increasing use of early determination procedures in arbitration suggests there is a willingness to consider quicker routes to resolution. Evidently, though not all disputes will be appropriate for settlement, nor are parties always prepared to settle, presenting settlement to parties as an option from the outset is regarded as increasingly desirable.

The role of the arbitrator

There are clear reasons to place an onus on the arbitrator to encourage settlement. As an objective observer who maintains regular contact with the parties and detailed oversight of the legal issues in dispute, an arbitrator is well-equipped to understand the parties' positions. That allows them to recognise whether there may be scope for negotiating a settlement and to propose settlement-friendly procedures which have a minimal impact on the procedural timetable. Contrast this with the position of the arbitral institution: despite having some oversight over the conduct of the arbitration, it is unlikely to be sufficiently close to the parties or the legal issues to determine what measures may be most suitable and when to propose them.

Is there another alternative? For example, is it possible in theory to prescribe certain mandatory steps to promote settlement in a set of arbitral rules which must be followed in every case, instead of relying on the arbitrator's discretion? While this has the advantage of promoting certainty, it crucially deprives the parties and tribunal of the flexibility to implement procedures which are most suitable in each case and is contrary to the pragmatic approach taken by the leading arbitral institutions. In some arbitrations, the parties may require little assistance or encouragement beyond a reminder that settlement remains an option. In other cases, parties may take fundamentally incompatible positions on key issues and some progress is needed before settlement can sensibly be proposed. While it remains important that the arbitral rules provide some guidance as to how the arbitrator can promote settlement as part of their management of the proceedings, there are clearly limits as to how prescriptive those rules can be.

A comparison with other jurisdictions

The approach to promoting settlement in arbitration differs significantly between arbitral institutions. The table below compares the rules of the five most preferred institutions: the LCIA, SIAC, HKIAC, ICC and CIETAC.⁹ It can be observed that:

The LCIA and SIAC Rules take a conservative view. Both sets of rules are silent as to any measures which may be taken to encourage or facilitate settlement and merely prescribe administrative steps to be taken by the tribunal to conclude the arbitration in the event a settlement is reached; and
The HKIAC Rules expressly empower the tribunal and HKIAC to suspend the arbitration where the parties wish to settle their disputes by other means.

The ICC and CIETAC Rules take a more proactive stance:

Article 22(2) of the ICC Rules enables the tribunal in consultation with the parties to adopt one or more measures to actively case manage the proceedings. A non-exhaustive list of suggested techniques is set out at Appendix IV to the Rules, which includes encouraging the parties to consider settling through negotiation or a form of ADR and, in appropriate circumstances, helping to facilitate the settlement. The Appendix cross-refers to an ICC Commission report¹⁰ containing additional light-touch techniques such as informing the parties that they are free to settle the dispute at any time and allowing the parties to request a suspension of the proceedings to facilitate settlement.
The CIETAC Arbitration Rules are arguably the most permissive providing that, where the parties agree, the tribunal (or even CIETAC itself) can conciliate the dispute.


LCIA (2020)	SIAC (2016)	HKIAC (2024)	ICC (2021)	CIETAC (2024)
No provision(s) as to encouraging or promoting settlement.	No provision(s) as to encouraging or promoting settlement.	Article 13.11: Where the parties agree to pursue other means of settling their dispute after the arbitration commences, HKIAC, the arbitral tribunal or emergency arbitrator may, at the request of any party, suspend the arbitration on such terms as it considers appropriate. The arbitration shall resume at the request of any party to HKIAC, the arbitral tribunal or emergency arbitrator.	Appendix IV (h): (h) Settlement of disputes: (i) encouraging the parties to consider settlement of all or part of the dispute either by negotiation or through any form of amicable dispute resolution methods such as, for example, mediation under the ICC Mediation Rules; (ii) 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. Additional techniques are described in the ICC publication entitled "Controlling Time and Costs in Arbitration".	Article 47: 1. Where 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. The parties may also settle their dispute by themselves. […] 8. Where the parties wish to conciliate their dispute but do not wish to have conciliation conducted by the arbitral tribunal, CIETAC may, with the consents of both parties, assist the parties to conciliate the dispute in a manner and procedure it considers appropriate.

The Centre for Effective Dispute Resolution and more recently the International Bar Association have also issued arbitration guidance and/or rules which suggests they do not take issue with the tribunal taking a more proactive role in settlement subject to certain safeguards. For example, they propose that the arbitrator should resign if they feel they are no longer able to remain impartial in the arbitration.¹¹

Mindful perhaps that parties to ICC arbitrations often themselves come from very different legal backgrounds and so may not be prepared to accept a uniform level of involvement by the arbitrator, the ICC has separately¹² put forward a variety of other suggestions as to how settlement can be promoted in ICC arbitrations. Some of these are more light-touch, while others are more direct and proactive. The measures can be implemented on their own or combined with other techniques depending on what is most appropriate in each case, and include:

Case management conferences (CMCs): Raising settlement at the first CMC as well as subsequent procedural meetings to be held following key stages in the arbitration, and asking parties to confirm at each such meeting whether there has been any movement in their positions.
Mediation: Proposing that a mediation window be built into the procedural timetable.
Bifurcation: Bifurcating issues in the case, such as liability and quantum, or determining certain preliminary issues in the first instance, to increase the likelihood of parties settling following one or more partial awards.
Sealed offers: Introducing a process for transmitting settlement offers which are not accepted to the tribunal following determination of liability and quantum, such that they may be taken into account when allocating costs.
Preliminary views: Giving a non-binding and preliminary assessment of the merits in respect of one or more issues in the case. The ICC notes on the one hand that this is commonly deployed in Germany and other German-speaking jurisdictions, and reflects the practice of their courts. Nevertheless, recognising that this is a more controversial measure with which not all parties will be comfortable, the ICC has recommended safeguards such as obtaining express party agreement in advance and informing the parties that any views expressed are preliminary and non-binding.
Settlement conference: Chairing a settlement conference between the parties, which may take into account the tribunal's preliminary views on the merits if such views were provided, and which should also require party consent.

Despite the significant variation in approach between the arbitral institutions, all of the provisions are notably framed in discretionary terms: the tribunal and parties are not required to adopt the suggested measures in all cases and equally parties cannot be compelled to engage in negotiation or another form of ADR, unlike the current position in the English courts. For example, in the case of ICC arbitrations, arbitrators do not always make use of the measures proposed in the rules.

The preferred approach?

While there appears to be a consensus that arbitrators in English-seated arbitration should play a greater role in promoting party settlement, how far that role should extend is less clear. On the one hand, direct involvement in settlement in the manner envisaged by CIETAC risks calling into question the arbitrator's impartiality – or, at the very least, their perceived impartiality – and giving rise to a conflict of interest. It is not difficult to imagine a situation in which an arbitrator who has become privy to certain information revealed in the course of negotiations may be perceived as no longer capable of maintaining an open mind when asked to produce an award in the event the parties fail to settle. A rule that the arbitrator should resign in the event they feel conflicted does not address the scenario in which the arbitrator is confident as to their own neutrality, but the parties are not. Conversely, parties may be disincentivised from being full and frank in settlement negotiations if there is a possibility that those discussions may be revealed to the tribunal. Though the concern can to some extent be reduced – for example, by providing that the arbitrator cannot engage in one-to-one discussions with either party – it is unlikely to be eradicated in full.

It appears therefore that the safer view is to adopt more indirect methods of encouraging the parties to consider settlement. There is some indication that light-touch methods may well be sufficient: in recent years, the proportion of HKIAC arbitrations which were concluded by party settlement (as opposed to by a final award) were 43.9% (in 2021), 45% (in 2022) and 57% (in 2023), respectively.¹³ This is despite the HKIAC Rules merely providing for a suspension of the arbitration in order for parties to consider settlement. Likewise, it should be possible for greater party settlement to be achieved through a combination of (i) arbitrators being more proactive in proposing settlement as an agenda item for the first procedural conference (and potentially a further midstream conference) and (ii) institutions such as LCIA making it clear that tribunals are empowered to put forward such proposals by means of appropriate updates to their Rules. In each case, parties would be free to agree or disagree with the proposal and tribunals should be discouraged from raising settlement just before the hearing. Among other things, this would appear to strike a suitable balance between promoting settlement and at the same time ensuring that parties which are not prepared to settle do not feel pressured into doing so.