Enforcing Settlement Agreements in Arbitration Proceedings

Limassol, 18 November 2014

Speaker: Athina Papaefstratiou Fouchard

Settlements in arbitration: ICC statistics

• Around 45% of all cases are withdrawn before an award is issued.

• Around 20% of all cases are withdrawn before the first submissions of the parties are filed.

• Around 10% of all awards are consent awards

Why are settlements particularly common in arbitral proceedings?

• The parties may suspend the process at any time thus facilitating discussions. • Arbitrators may invite the parties to enter negotiations /

may indicate the weaknesses of the parties’ respective positions to facilitate negotiations. • An arbitral award is res judicata, equivalent to a decision

of the last degree of jurisdiction in every country which has ratified the New York Arbitration Convention. Therefore, parties to an arbitration fear that if an award is issued against them, it will be difficult to resist enforcement.

Two options for parties settling their disputes in arbitration:

1. Conclude a settlement agreement and allow the tribunal to be discharged and the arbitration terminated.

1. Request that the tribunal issue an award, which incorporates their agreement (“award by consent”, or “consent award”).

“Consent Award”: Institutional rules (1)

• ICC Arbitration Rule 32: “If the parties reach a settlement after the file has been transmitted to the arbitral tribunal in accordance with Article 16, the settlement shall be recorded in the form of an award made by consent of the parties, if so requested by the parties and if the arbitral tribunal agrees to do so.”

Institutional rules (2)

• LCIA Arbitration Rule 26(8): “In the event of a settlement of the parties’ dispute, the Arbitral Tribunal may render an award recording the settlement if the parties so request in writing (a ‘Consent Award’), provided always that such award contains an express statement that it is an award made by the parties’ consent. A Consent Award need not contain reasons. If the parties do not require a consent award, then on written confirmation by the parties to the LCIA Court that a settlement has been reached, the Arbitral Tribunal shall be discharged and the arbitration proceedings concluded, subject to the payment by the parties of any outstanding costs of the arbitrations under Article 28.”

Institutional rules (3)

• Cyprus Arbitration & Mediation Centre, Rule 36(1): “If, before the award is made, the parties agree on a settlement of the dispute, the arbitral tribunal shall either issue an order for the termination of the arbitral proceedings or, if requested by the parties and accepted by the arbitral tribunal, record the settlement in the form of an arbitral award on agreed terms. The arbitral tribunal is not obliged to give reasons for such an award.”

Settlement Agreements Quiz

True or False?

Question No 1:

“A consent award is an award. Therefore, (i) the issues covered by it are res judicata between the parties and (ii) it enjoys the facilitated enforcement mechanism of the New York Convention.”

TRUE or FALSE?

Semantics

• formal written instrument • made and signed by the arbitrators, • which finally disposes of the parties’ claims

and terminates the arbitration.

BUT:

• lacking adjudicative character.

NY Convention / Comparative law

• The generally accepted view is that consent awards come within the purview of the NYC, provided that the lex arbitri, the law of the seat of arbitration, recognises them as such.

• Model Law, Article 30(2): A consent award “has the same status and effect as any other award on the merits of the case”.

• Exceptions:• Colombia• The Netherlands• France?

Question No 2:

“A settlement agreement has the same legal status as any other contract between the parties, and its enforcement presents the same challenges”.

TRUE or FALSE?

Comparative law: national laws

• Most national laws: An out-of-court settlement does not have res judicata status between the parties and is not, in itself, enforceable.

• Exception: France: An out-of-court settlement is res judicata (Article 2052 of the Civil Code). Simplified enforcement procedure.

• Countries where settlements have the same effect as arbitral awards, but only to the extent they are concluded in the context of conciliation or mediation (E.g. Bermuda, India, Croatia)

Harmonization initiatives, and their limits

• 2008 European Mediation Directive• 2002 UNCITRAL Model Law on International

Commercial Conciliation, Article 14

Question No 3:

“A consent award may not always be available to the parties who reach a settlement agreement” .

TRUE or FALSE?

When the the parties have reached a settlement before submitting the dispute to arbitration

• ICC Arbitration Rule 32: “If the parties reach a settlement after the file has been transmitted to the arbitral tribunal…”

• Model Law, Article 30: “If, during arbitral proceedings, the parties settle the dispute, the arbitral tribunal shall terminate the proceedings and, if requested by the parties and not objected to by the arbitral tribunal, record the settlement in the form, of an arbitral award on agreed terms.”

• On the other hand, few States expressly allow parties who reached a settlement in conciliation or mediation proceedings to appoint an arbitrator in order to record such settlement in an arbitral award: E.g. India, Hungary, Korea

Arbitrators’ right or obligation?

• ICC Rule 32: “… if so requested by the parties and if the arbitral tribunal agrees to do so”.

• Cyprus Arbitration & Mediation Centre, Rule 36(1): “if requested by the parties and accepted by the arbitral tribunal…”

• Exception: WIPO Arbitration Rule 67.

In practice?

• Arbitrators will only decline to make a consent award in very exceptional circumstances, where there is a compelling reason to do so (illegality/fraud).

Question No 4:

“Provided a consent award is available, the parties should always opt for it, given the easier enforcement”.

TRUE or FALSE?

Additional relevant considerations

• Confidentiality

• Costs / timing

• Type of obligation:

• Simple agreement for payment

• 3rd parties’ obligations/rights

Thank you