The Settlement Window
You are chairing a three-member tribunal in a dispute between two companies over a failed joint venture. The hearing has concluded and the tribunal has exchanged drafts of the award. The majority is for the claimant on the principal issue, awarding 2.1 million; the third arbitrator dissents and has written a forceful dissent. Before the award is signed, the parties inform the tribunal that they have reached a settlement in principle and ask the tribunal to hold the award for 30 days to allow the settlement to be documented. On day 12 the claimant's counsel emails you privately, copying neither the respondent nor the other arbitrators, saying that the settlement has collapsed because the respondent is negotiating in bad faith, and asking whether the tribunal can 'let slip' that the award is ready so as to pressure the respondent. The respondent has not been told of this email. The tribunal's fee agreement provides for payment on delivery of the award.
1. How should you handle the ex parte email, and what must you do with its contents?
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The email is an improper ex parte communication and must be handled immediately and transparently. The arbitrator should not respond to its substance, and should not act on the request in it.
The correct step is to send a single communication to both parties and all arbitrators, stating that the tribunal has received an ex parte communication from the claimant's counsel, that the tribunal will not act on it, and inviting the claimant to place any submission it wishes to make on the record, copied to the respondent. The tribunal should not disclose the email verbatim without giving the claimant a chance to frame its own position, but it must disclose the fact of the communication and its gist, because the respondent is entitled to know that an approach was made and to respond to it.
The tribunal should then remind both parties of the rule that all communications with the tribunal must be copied to the other side, and should record the reminder in a procedural order. The private request to 'let slip' that the award is ready is an attempt to use the tribunal as leverage in a commercial negotiation. The tribunal must not participate in it, and should say so in the communication to the parties, without expressing a view on the merits of the settlement or on the respondent's conduct.
2. Can the tribunal comply with the request to signal that the award is ready? What are the ethical and procedural objections?
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No. The tribunal cannot comply. The request asks the tribunal to deploy the existence of a draft award as a negotiating threat, which is incompatible with impartiality and with the proper use of the tribunal's authority.
First, the award is not yet made. It is a draft, subject to revision, and the tribunal has agreed to hold it for 30 days at the parties' request. Representing it as ready and imminent would be misleading, and misleading a party to gain a settlement advantage is a serious ethical breach.
Second, the tribunal would be acting at the request of one party, in private, against the other. That is the definition of a partial act, and it would taint the award if the settlement fails and the award is issued.
Third, the tribunal's role is to decide, not to pressure. Settlement is for the parties; the tribunal may encourage it neutrally but must not engineer it by threatening an adverse award.
Fourth, the fee agreement is irrelevant. The fact that fees are payable on delivery gives the tribunal an interest in delivery, but that interest cannot justify conduct that compromises independence. If anything, the tribunal should disclose the fee arrangement in its communication so that the parties can see there is no hidden incentive being acted on.
3. The 30 days expire without a documented settlement. What should the tribunal do, and what should the award say about the settlement discussions?
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The tribunal should resume and issue the award promptly. The parties asked for a 30-day hold; the hold has run; no settlement has been documented; the tribunal's duty is to determine the dispute. It should notify the parties that it will proceed unless both agree in writing to a further extension, and should set a short deadline for any final submissions on the settlement or on costs.
The award should say as little as possible about the settlement discussions. They are without prejudice and privileged, and the tribunal should not recite the content of the negotiations or the claimant's allegation of bad faith. The award should record only the procedural fact that the parties requested a hold, that it expired, and that the tribunal resumed. If either party asks the tribunal to make a finding about the other's conduct in the settlement, the tribunal should decline: that conduct is not part of the dispute referred to it, and a finding on it would exceed the reference.
On costs, the tribunal may consider whether the 30-day hold and the failed settlement have cost consequences, but it should decide costs on the ordinary principles in the applicable rules, not as a penalty for negotiating badly. The dissent should be included or summarised in accordance with the applicable rules, and the award should be signed and served in the ordinary way. The tribunal should also record that it did not act on the ex parte request, so that the record is complete if the award is later challenged.