Contrary to what is often believed, most international arbitration cases are resolved through direct settlement between the Parties, or are withdrawn, with relatively few proceeding to a final oral hearing.
According to Dispute Resolution Data, which analyzed 3,642 international commercial arbitration cases since 2005, 58.8% of international commercial arbitration cases that were initiated were either settled or withdrawn:[1]
Moreover, out of these 3,642 international commercial arbitration cases that were commenced, a mere 13% proceeded to a final hearing:[2]
While this is a testament to the fact that merely engaging in international arbitration proceedings frequently leads parties to resolve their dispute amicably, there are other alternative dispute resolution (“ADR”) mechanisms that can also assist parties in resolving their dispute. Mediation is the most common ADR mechanism used by parties prior to arbitration, and less frequently after its commencement.
Settling an International Dispute Prior to Arbitration
Nearly all international arbitral institutions offer additional ADR services to assist the parties in settling their disputes without arbitration. For instance, the International Chamber of Commerce (the “ICC”) first published in 2001 its Amicable Dispute Resolution Rules that were replaced by the ICC Mediation Rules on 1 January 2014. The Mediation Rules are administered by the ICC International Centre for ADR which is a separate administrative body within the ICC (see Article 1 of the Mediation Rules).
Nearly all international arbitral institutions offer additional ADR services to assist the parties in settling their disputes without arbitration. For instance, the ICC first published in 2001 its Amicable Dispute Resolution Rules that were replaced by the ICC Mediation Rules on 1 January 2014. The Mediation Rules are administered by the ICC International Centre for ADR which is a separate administrative body within the ICC (see Article 1 of the Mediation Rules).
Pursuant to Article 1(3) of the Mediation Rules, the term mediation covers “such settlement procedure or procedures and the term ‘Mediator’ shall be deemed to cover the neutral who conducts such settlement procedure or procedures. Whatever settlement procedure is used, the term ‘Proceedings’ as used in the Rules refers to the process beginning with its commencement and ending with its termination pursuant to the Rules.”
The ICC has also published Mediation Guidance Notes to offer guidance to parties when choosing and organizing mediation.[3]
In 2019, the ICC registered 35 new requests filed under the ICC Mediation Rules. At the time, apart from one request for conciliation, parties consistently opted for mediation. Cases involved 97 parties. European parties were predominant (representing 51% of all parties).[4]
A year later, during the COVID pandemic, the ICC registered record requests for its ADR services: 77 new cases, including 45 mediations. The ICC International Centre for ADR Manager Alya Ladjimi declared that “[w]e are delighted with these record statistics for our services which signal a growing confidence in mediation as an effective means of overcoming hurdles arising in commercial arrangements in the Covid-19 age”.[5]
In addition to ADR services, the ICC also proposes standard dispute resolution clauses that can be included by the parties in their contracts prior to a dispute arising. Such clauses generally require that, prior to commencing arbitration, a party provides the counterparty with a notice of dispute. The parties must then undertake efforts to resolve the dispute amicably. If such efforts are unsuccessful, the dispute resolution clause may require a further step such as mediation. These clauses are defined as escalation dispute resolution clauses, encouraging parties to engage in a series of ADR mechanisms before resorting to arbitration.
The ICC standard mediation clauses are listed below:
Clause A: Option to Use the ICC Mediation Rules:
The parties may at any time, without prejudice to any other proceedings, seek to settle any dispute arising out of or in connection with the present contract in accordance with the ICC Mediation Rules.
Clause B: Obligation to Consider the ICC Mediation Rules:
In the event of any dispute arising out of or in connection with the present contract, the parties agree in the first instance to discuss and consider referring the dispute to the ICC Mediation Rules.
(x) In the event of any dispute arising out of or in connection with the present contract, the parties shall first refer the dispute to proceedings under the ICC Mediation Rules. The commencement of proceedings under the ICC Mediation Rules shall not prevent any party from commencing arbitration in accordance with sub-clause y below.
(y) All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.
In the event of any dispute arising out of or in connection with the present contract, the parties shall first refer the dispute to proceedings under the ICC Mediation Rules. If the dispute has not been settled pursuant to the said Rules within [45] days following the filing of a Request for Mediation or within such other period as the parties may agree in writing, such dispute shall thereafter be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules of Arbitration.
It is common for ICC standard dispute resolution clauses to provide for more than one method of settling disputes. A second or third step may be taken in attempt to find an amicable settlement prior commencing arbitration,[6] such as the use of a dispute adjudication board, which is common in construction contracts.
It shall be noted that the efficiency of non-arbitration ADR methods depends on the parties’ willingness to participate. They are not obliged to participate in the process and are not bound by the mediator’s decision. Indeed, the mediator merely gives recommendations, rather than rendering a final and binding judgement. In this regard, Article 10. 2 of the ICC Mediation Rules is drafted as follows:
Unless all of the parties have agreed otherwise in writing or unless prohibited by applicable law, the parties may commence or continue any judicial, arbitral or similar proceedings in respect of the dispute, notwithstanding the Proceedings under the Rules.
Settling a Dispute after the Commencement of Arbitration
As shown in the statistics above, the majority of international arbitrations that are commenced are either settled or withdrawn. During arbitration proceedings, parties and their counsel can discuss settlement or use other ADR mechanisms to settle the entirety of their claims.
Similarly, arbitral tribunals may encourage parties to consider using ADR methods at various stages of the proceedings, particularly after jurisdictional decisions or before final hearings.
However, there are risks when an arbitrator becomes involved in promoting settlement. The most important risk is the perceived lack of impartiality. If settlement fails and the arbitration continues, the arbitrator may lose objectivity because of information it learned during settlement discussions. Arbitrators are paid by parties to dedicate their attention on the adjudication of the dispute resulting in a detailed and reasoned outcome. Promotion of settlement is generally seen as role limited to mediators. [7] The mediator can meet with the parties separately, creating a risk of partiality if the mediator learns confidential information in the course of these conversations or expresses provisional perspectives on the outcome of the case.
The ICC Mediation Rules address this concern in Article 10.3:
Unless all of the parties agree otherwise in writing, a Mediator shall not act nor shall have acted in any judicial, arbitral or similar proceedings relating to the dispute which is or was the subject of the Proceedings under the Rules, whether as a judge, an arbitrator, an expert or a representative or advisor of a party.
Another risk is that the parties may feel forced into entering settlement discussions, should an arbitrator promote settlement. However, users of international arbitration have become concerned with its costs, delays, and apparent inefficiencies.[8] To address these concerns, arbitrators may need to play a more important role in promoting settlement.
The issue is to what extent arbitrators should promote settlement discussions among the parties. In this regard, institutions provide guidance to arbitrators on how to discuss settlement with the parties.
Appendix IV of the ICC Arbitration Rules provides for case management techniques that can be used by tribunals to promote the settlement of disputes. Arbitrators may only become involved in settlement discussions with the consent and express agreement of the parties:[9]
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.
Consequently, with the consent of the parties, arbitrators may use the above-mentioned tools in order to promote the cost-effective, efficient, and fair resolution of disputes. The parties may also combine mediation and arbitration in their arbitration clauses to increase their chances to settle their disputes amicably.
Regardless of the approach taken, however, statistics show that the majority of international commercial arbitrations that are initiated do settle, or are withdrawn.
[1] See Dispute Resolution Data, available at: https://www.disputeresolutiondata.com/what_happens_when_cases_do_not_settle_before_a_hearing (last accessed 14 May 2021).
[2] Article 1.3. of the ICC Mediation Rules.
[3] 2014 Mediation Guidance Note.
[4] ICC Dispute Resolution 2019 Statistics, p. 19.
[5] ICC International Centre for ADR Manager Alya Ladjimi’s Declaration.
[6] See Escalation Clauses in the ICC Mediation Rules – Aceris Law dated 19 June 2016.
[7] Thomas J. Stipanowich & Zachary P. Ulrich, Commercial Arbitration and Settlement: Empirical Insights into the Roles Arbitrators Play, 6 PENN. ST. Y.B. ARB. MEDIATION 1, p. 1 (2014).
[8] 2021 International Arbitration Survey: Adapting arbitration to a changing world, Queen Mary University, London in partnership with White & Case, pp. 5-6 and 13.
[9] Appendix IV, para h of the ICC Arbitration Rules (emphases added).
