In the procedure of an arbitration case, it is not unusual for parties to reach a settlement agreement, during or outside the oral hearing, either through negotiations conducted under the auspices of the arbitral tribunal or at their own initiative, resolving their dispute in an amicable manner.
Arbitration cases in which a settlement agreement is reached are generally concluded by withdrawal of the case, a mediation document or a consent award. Conclusion of a dispute by way of mutual settlement achieves a balance in the parties’ interests and maintains the basis for future co-operation, and also avoids the risk of an unfavourable arbitration award and can produce a more efficient resolution to the dispute. For parties previously at loggerheads, this can be the best outcome.
Any single arbitration case usually only reflects a small portion of the business dealings and disputes between the parties, and the settlement agreement submitted to the arbitral tribunal often contains a string of resolution opinions regarding the relevant contract and disputes. The combination of the string of demands for resolving disputes, and the demands for the efficient rendering and enforceability of the award, generate a need for conversion of the settlement agreement into a consent award.
This is worth special and careful attention by both arbitral tribunal and arbitration institution. If counsel in an arbitration case can accurately grasp the matters that the arbitral tribunal, arbitration institution and even the judicial court place particular attention on, they can assist the parties in obtaining a solid consent award within the shortest time period.
Parties’ express intent. Most arbitration rules specify that an “applicationt” from the parties is the precondition for the arbitral tribunal to render a consent award on the basis of their settlement agreement. Such application must be mutual and express. In the case that the settlement agreement reached by the parties does not specify that they consent to/authorize/apply for the arbitral tribunal rendering/to render a consent award, the arbitral tribunal does not have the authority to do so. For the parties, due authorization of the persons carrying out the negotiations and the authorization to the arbitral tribunal in the settlement agreement are essential.
Agreements subject to conditions. In order to render an effective consent award, the arbitral tribunal must rely on a legally valid settlement agreement. A settlement agreement with undetermined effect, or an invalid agreement, cannot be transformed into a consent award. A settlement agreement that sets out the obligations of both parties will usually specify the conditions for its entry into effect. Accordingly, the parties should actively procure the fulfilment of the conditions and submit documents to the arbitral tribunal evidencing that the relevant settlement agreement has entered into effect.
Uninvolved third parties. In the course of settlement, many parties deal with a string of matters and submit the overall settlement agreement to the arbitral tribunal. However, with respect to certain matters that involve a third party, the arbitral tribunal, due to jurisdiction limits, is unable to render a finding on a legal relationship or fact agreed upon by the parties but not subject to the arbitration clause, or to transform such matter into an award. Accordingly, if they intend to solve such matters in an arbitral award, all the parties need to conclude a new arbitration agreement and apply for joining an additional party into the arbitration case.
Exceeding the scope of arbitrability. The string of negotiation also often results in confidentiality clauses, a reiterated arbitration clause or one that has an emphasis effect, a clause on good faith principle for future co-operation between the parties, etc. For the parties, such provisions are more than important, but they cannot be rendered into a consent award since they exceed the scope of the parties’ arbitration claims or clause, exceed the scope of the arbitration agreement in question, are non-arbitrable matters, or other such reasons. This signifies that some matters may not get enforced even after arbitral consent.
The greatest significance of the conversion of a settlement agreement into a consent award lies in the enforceability of an award. Accordingly, under mediation held by the arbitral tribunal, the parties need to be fully aware of the relevant consequences that different types of provisions will produce. The parties also need to carefully consider all the specified matters that fall outside the scope of the claims, thus either seeking to bind the other party by other means or amending agreed matters and applying for a rendering of award by the arbitral tribunal.
In practice, the parties may reach a large variety of negotiation agreements. Both counsel and the arbitral tribunal should carefully examine documents to determine whether a settlement agreement can be smoothly converted into an effective consent award and protect the rights and interests of the parties at the extreme.
Tian Yusu is a case manager of China International Economic and Trade Arbitration Commission