A recent trend in discussions in the international arbitration industry involves the arbitrator’s role in suggesting settlement to the parties or even mediating the dispute. In some civil law countries, the practice of having the adjudicator (such as a judge) suggest or even mediate the settlement of a case is a recognized practice; but not so in the U.S. Legal counsel in the U.S. have cited the concern that expressing the weaknesses of a client’s case to the “mediator,” who may also end up adjudicating the dispute, is a poor strategic decision and thus reduces the likelihood of mediation success. Further ethical issues with ex parte communications can be problematic in a case as well. However, the trend is certainly moving in the direction of allowing arbitrators to suggest and even mediate disputes. This article takes a look at those considerations.
Depending on the arbitral institution and the rules that govern the arbitration, it may be incumbent on the arbitrator to ask whether the parties have considered the possibility of mediation or settlement negotiations. An arbitrator’s suggestion of settlement may not be intended as a request to mediate the dispute. However, in some instances, there are “Arb-Med-Arb” hybrid approaches included in the rules that allow the arbitrator to mediate the case, and if the case does not resolve, to step back into the role as arbitrator.
Even where the arbitral rules or institution may not expressly allow for the arbitrator to serve as the mediator, the parties can indeed agree to the process with informed consent and appropriate disclosures. Over the last few years, there has been a growing effort to emphasize the effectiveness of mediation, especially in light of the Singapore Convention on Mediation. Thus, parties are starting to express interest in mediation at various times during the arbitration process.
In Edna Sussman’s recent comments to the audience at the GAR Live/AtlAS forum, she highlighted data that indicated both sides of a case are prone to make “settlement errors” where the parties were worse off later as compared to the settlement offers that had been made. Mrs. Sussman is an independent arbitrator with experience in domestic and international arbitrations. She explained that it can be a critical process for the parties to engage in settlement negotiations and mediation at various stages of the dispute. While serving as an arbitrator, Mrs. Sussman may ask the parties to discuss “mediation windows” to evaluate the best timing for mediation. Certainly, after she has been involved in the arbitration and understands the parties’ positions, Mrs. Sussman might be in an ideal position to suggest how the parties might want to settle their dispute and it might save the parties time and additional legal fees.
The attorneys at the recent AtlAS Tertulia sessions discussed the provocative idea of having the arbitrator take a more active role in settlement discussions between the parties. One mechanism discussed was the use of arbitrator “preliminary reviews,” by which the arbitral panel is requested to give their impressions of the case early before evidence has been presented, but after the initial pleadings and perhaps some submissions. These preliminary reviews are without prejudice for the arbitrator(s) to change positions, but such information can be very important in driving the parties to a settlement discussion.
However, preliminary reviews are quite different than having the adjudicator serve as a mediator in a dispute. One issue parties and arbitrators raise often is the prohibition on ex parte communications with adjudicators. Under the N.C. Rules for Court Ordered arbitrations, the parties and counsel are forbidden from having ex parte communications with the arbitrator (Arb. Rule 6(k)). However, in mediation, the parties are split into caucuses where they are meant to have confidential and ex parte communications with the mediator—if the parties believe that the mediator cannot keep confidences and must disclose everything to the other side in mediation, it would potentially eliminate the full and frank conversations that are often required for mediation to be successful.
Of course, lawyers are also concerned with the Rules of Professional Conduct prohibiting ex parte communications with a judge; an arbitrator would be serving in a role like a judge and needs to maintain impartiality and uphold the integrity of the arbitration process. Thus, appropriate disclosures must be made to parties and counsel to ensure understanding and consent of the process, if an arbitrator is to serve in the mediator role.
Another concern that parties might express is that if the mediation is not successful and the same neutral then returns to the arbitrator position to adjudicate the dispute, might the arbitrator’s mind have been “contaminated” with information that may not be introduced into evidence? Once one has obtained knowledge regarding a party’s claim, it is impossible to segregate that information from evidence that may later be produced in the actual hearing of the case. The arbitrator would have to disregard certain information that was not presented in evidence for his or her arbitral award—whether or not an arbitrator relied upon information outside the arbitration process may be cause for a challenge to an award.
In other countries, we know that the practice of a judge or arbitrator serving as mediator or suggesting settlement to the parties can be very effective. When the arbitrator serves as a mediator in a case, she or he can tell the parties which arguments are not convincing. A party who may have believed its position was strong would have the ability to test the theories in mediation with the actual adjudicator of the case, which would be critical in helping to inform the parties’ decision on settlement.
Ultimately, it is important to consider the client’s objectives in the dispute and whether the case is right for the same arbitrator to serve as the mediator. If you have questions about the arbitration and mediation procedure for your case, please feel free to contact me.
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 Rules-for-Court-Ordered-Arbitration-Codified-1-October-2021_0.pdf (nccourts.gov)