This article has been written by Shubham Jadia, a student of Indore Institute of Law
In the last decades, the law and practice of international arbitration worldwide has increasingly evolved towards greater uniformity. There remain though a few trouble spots for which harmonization appears more difficult to achieve. The role of the arbitrator as settlement facilitator appears to be one of these trouble spots. At the same time, the search for increased efficiency is one of the main concerns of contemporary justice, including arbitration. Hence, the topic of this article which examines the present state of the law and practice to determine whether a uniform standard may be emerging and what its content may be. On the basis of comparative research and field observation, the author notes that the cultural and legal background of an arbitrator may well influence the latter’s tendency to actively contribute to the amicable settlement of the dispute or not.
WHAT IS ARBITRATOR-FACILITATED SETTLEMENT AND WHY STUDY IT?
The topic of this lecture deals with the arbitrator promoting settlement within arbitration proceedings that are already pending. It does not deal with separate proceedings of mediation or conciliation and arbitration, nor does it deal with other mechanisms in which different individuals act as arbitrator and as mediator or conciliator. In other words, it is concerned with cases in which the same person acts as both arbitrator and settlement facilitator in one and the same proceeding.’ The arbitrator can facilitate settlement in different ways. He or she can simply ask a few well-targeted questions at the right time, which may shed light on the weaknesses of a party’s case and trigger settlement discussions between the parties. He or she can suggest to the parties to settle their dispute in direct negotiations. The arbitrator can also become more involved, and these are the situations of interest here. Indeed, the arbitrator can offer to provide his or her own assessment of the dispute, which will serve as a basis for the parties’ direct negotiations, or even offer to assist them in their settlement discussions. He or she can do so either on his or her own motion or at the request of one or both parties.
Why review the legal significance of these situations and the role of the arbitrator as settlement facilitator? There are three main reasons why this topic deserves attention. First, it goes to the efficiency of dispute resolution. We live in a time when many complain that justice, be it judicial or arbitral, is too slow, too expensive, and too cumbersome. Furthering the efficiency of dispute settlement can obviously contribute to improving the administration of justice. The arbitrator taking the role of a conciliator or settlement facilitator may be one of the ways to increase such efficiency.
Secondly, this topic goes to the very core of arbitration. What is arbitration? What is the arbitrator’s mission? Is it to resolve a dispute by a binding decision? Or is it simply to resolve a dispute? In the latter case, an arbitrator could promote settlement. In the former, he or she could not. These are fundamental issues that deal with the role of the judge or arbitrator in society. Thirdly, this is a topic on which there appears to be no established transnational consensus so far. Starting with the New York Convention, followed by the UNGITRAL Arbitration Rules and the UNCITRAL Model Law, together with a series of national laws and institutional rules as well as soft law texts such as the IBA Rules on the Taking of Evidence, there has been a powerful wave of harmonisation of the law and practice of international arbitration in the last decades.
THE STATE OF THE LAW AND PRACTICE
Before addressing the law and practice in international arbitration, it may be helpful to look to the state of the law in national courts. One may have doubts about the merits of referring to the practice of national courts when dealing with a topic pertaining to international arbitration and transnational notions. Regardless, experience and empirical research show that arbitration practitioners often approach the role of the arbitrator by referring to the rules applicable in their home courts.
In the Romano-Germanic tradition, it is part of a court’s mission to seek to settle the dispute before it. German courts, for instance, have a continuing duty throughout the proceedings to pay attention to settlement possibilities. In principle, they will call a pre-hearing settlement session with the parties in person (Giiteverkandlung), during which they ask questions and assess the merits of the case. Such a session can also be held at a later stage of the proceedings, including at the appellate stage. Moreover, the court may refer the parties to another judge for conciliation purposes or even to out-of-court alternative dispute resolution (ADR). The reason for this practice, which reflects a deeply rooted tradition, is to increase the efficiency of dispute resolution. Indeed, it is thought that resolution through a settlement is preferable to resolution through a judgment. The same approach prevails in certain parts of Switzerland and in Austria. The French Code of Civil Procedure contains an express provision stating that conciliation falls within the scope of a court’s attributions. Yet, French judges are reluctant to become involved in the settlement of their own cases unless the parties specifically agree to their involvement. Usually, judges do not attempt to conciliate cases they are adjudicating, but, rather, choose to refer those cases to other judges for settlement, apparently out of a fear that the conciliation attempt could somehow dilute their judicial power.
PROS AND CONS OF ARBITRATORS FACILITATING SETTLEMENT
The pros and cons are important because they ideally should shape the type of activity in which the arbitrator may engage in support of settlement, an issue to which we will return. The main advantage obviously lies in the increased efficiency of the dispute resolution process. It encompasses all the benefits that usually are attributed to setded, rather than decided, outcomes. These benefits arise from any amicable settlement, be it reached in direct negotiation, by way of separate mediation, or with the assistance of an arbitrator. Is there an added value in having settlement facilitated by the arbitral tribunal in charge of deciding the dispute? The answer is ‘yes’ for at least three reasons. First, the arbitrator already knows the case. A third party mediator or conciliator who acts before or in parallel to the arbitration must acquire such knowledge, with the unavoidable duplication of work, additional expenses and delays. Second and foremost, the arbitrator is the master of the timing of the proceedings, and is in the best position to choose the appropriate moment to offer the tribunal’s services for settlement purposes.Finally, a settlement agreement entered into in the course of a pending arbitration may form part of a consent award and become enforceable under the New York Convention.
What are the disadvantages of arbitrator-facilitated settlement? There are several. The main one is the threat to impartiality. The fear is that, in the event that the settlement fails and the arbitration continues, the arbitrator will lose hisor her objectivity on account of the information he or she became privy to during the conciliation proceedings that is not part of the record. This threat appears to be more perceived than real. Indeed, only one case was identified that removed arbitrators or set aside or refused to enforce an award on the ground that an arbitrator became involved in settlement, while there are many court cases that hold exactly the opposite — that the involvement of a judge in the settlement of his or her own cases is admissible.
Another drawback to the arbitrator facilitating settlement is the risk of a breach of due process if he or she meets privately with a party. On this occasion, a party may reveal facts to the tribunal that are unknown to the other party. As a consequence, the other party may be deprived of its due process right to rebut those facts. There are three possible remedies to avoid such a breach. The first one is that the arbitrator may not use such facts if the arbitration continues.The IBA Rules of Ethics for International Arbitrators support the view, providing that the arbitral tribunal may make settlement proposals ‘to both parties simultaneously, and preferably in the presence of each other’. The IBA Rules then point out that it is ‘undesirable that any arbitrator discuss settlement terms with a party in the absence of the other’, since this may result in the arbitrator’s disqualification.
A further drawback is the concern that the parties may not candidly express their positions in a conciliation conducted by someone who may later rule on the dispute. This is certainly a legitimate concern. While such a concern does not outright condemn any attempt by the arbitrator to conciliate, it implies that such an attempt will not rely on a search for the underlying interests but, rather, will tend to be evaluative.
Finally, in the context of the considerations that go against an arbitrator’s conciliation efforts, one must remember that certain categories of disputes may not lend themselves to settlement. Doping disputes in sports are one such category because of the public interest involved and the overriding principle of equal treatment of the athletes.
TOWARDS A TRANSNATIONAL STANDARD
Having determined where we stand by setting out the current law and practice, and the advantages and drawbacks, the next step is to examine where we are going from here and whether we are moving towards a transnational rule. There is no reason why the continuing process of harmonisation of international arbitration law should be stopped by the present issue. It is very likely that a transnational practice will develop over time on this topic, as it has for many other topics in the past.
To evaluate a legal evolution, it is often helpful to step back and look to the teachings of legal theorists and anthropologists on such matters. On the basis of the history of dispute settlement in all regions of the world, legal anthropologists observe a constant alternation between formal and informal dispute resolution methods. At the beginning, a method of dispute resolution is always informal. The human search for predictability then generates more and more rules relating to that method of dispute resolution. In the end, there are too many rules and the mechanism becomes too slow and cumbersome. It no longer meets the needs of its users, so the users turn to other methods of dispute resolution that are less formal, and the cycle starts anew.
This is what happened to court systems in general. It explains the evolution of the role of the judge and the increased use of ADR, whether performed by the judge, by court-annexed mechanisms or otherwise. Among the ADR methods used in reaction to excessive formalism of the courts, one may count arbitration, which was favoured for its flexibility or lack of formalism. However, arbitration has gradually evolved towards incorporating more rules, thus becomingproceduralised and judicialised. As a result, arbitration is now often seen as being slow and expensive. This is when the search for more informal mechanisms begins again. Thus, it is likely that, as in the context of courts, users will seek new, more informal ways of resolving disputes. Resorting to separate mediation proceedings may be one option. The arbitrator acting as conciliator may be another. At the same time, it is equally likely that the users will need some predictability about these methods of dispute resolution, and, hence, related rules will emerge.
A viable rule must take account of the pros and cons addressed above and accommodate the sensitivities expressed in the different laws and practices. It must necessarily merge different traditions or else it will not gain wide acceptance. On this basis, and building up on the preceding analysis, one could articulate a rule with the following content:
- The arbitrator may facilitate settlement, provided that a number of safeguards are put into place. He or she may offer to facilitate settlement at any time during the proceedings on his or her own initiative or at the parties’ request.
- The arbitrator may not begin to facilitate settlement unless he or she obtains the informed consent of the parties. Such informed consent will imply a waiver of the challenge of the arbitrator or of the award if the settlement fails. The requirement for consent is in conformity with the consensual nature of arbitration and the parties’ procedural autonomy. The consent must be given to the principle of the arbitrator acting as settlement facilitator and to the procedure to be followed.
- As a rule, the arbitrator will not meet separately with the parties, and his or her involvement will be evaluative rather than facilitative. The process should also be kept simple and short.
- The arbitrator should respect the parties’ freedom of decision and not force settlement.
- There may exist categories of disputes involving a strong public interest that do not lend themselves to settlement by an arbitrator. One of these categories may be doping and possibly other disciplinary matters in sports disputes, because conciliation would not be compatible with the general principle of equal treatment of athletes.
Consequently, if the parties wish a different settlement process that goes beyond these safeguards, then they should resort to separate mediation or other ADR mechanisms and not involve an arbitral tribunal.
However, the success of conciliation depends on the mental attitude of the parties, the skill of the conciliator and the proper environment, backed by infrastructure facilities for servicing the conciliation procedure.The mental attitude required for conciliation ranges, on the one end from the inclination of all the parties to arrive at a mutually agreed settlement, though there may be mental reservation in making the first move, to the absence of any objection to such settlement, so that the conciliator may have scope to induce the parties to attempt conciliation. On ultimate analytical observation, reciprocity is the hallmark of conciliation process. For healthy business relationship mutual understanding & to solve the dispute through settlement are the eventual qualities or eventual base. When party is having healthy business relationship, he is bound to succeed in conciliation. The need is therefore to develop a will to accommodate other party‟s genuine interest, a faith in the other‟s objects & capacity to reason to evolve cultivates the wish to sit together & reciprocate & to solve out the difference amicably. Therefore it is always preferable to resolve the dispute by conciliation.
- Wharton‟s LAW LEXICON 227( 14th edn,1937, Indian reprint-1993).
- Halsbury‟s Laws Of England 4 th Ed, Vol. 2, paragraph 502.
- Guru Nanak Foundation V. Rattan Singh & Sons, AIR 1981 SC 2075.
- Haresh Dayaram Thakur V. State of Maharashtra, AIR 2000 SC 2281: 2000 AIR SCW 2058
- Mysore Cements Ltd.v. Svedala Barmac Ltd., 2003 (1) Arb LR 651 (SC).
- Haresh Dayaram Thakur V. State of Maharashtra, AIR 2000 SC 2281: 2000 AIR SCW 2058
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