Efficiency is vital to the success and reputation of international arbitration. Companies and entrepreneurs choose arbitration in order to obtain a fast resolution of their dispute, so that they can continue to focus on what really matters to them: conducting their businesses. Among the plethora of effective case management techniques available in international arbitration to facilitate the fast resolution of disputes is the preliminary assessment of the parties’ claims by the tribunal.
While preliminary assessments are very much acknowledged as a standard option in the Germanophone legal tradition, be it in State courts or arbitral proceedings, this does not necessarily hold true for other jurisdictions. This post will first explain what preliminary assessments are and then turn to some non-exhaustive practical considerations for preliminary assessments that should be borne in mind when acting as counsel or as arbitrator in international arbitration.
So, what are preliminary assessments?
Preliminary assessments are a tool used in order to speed up the resolution of a dispute, or, at least, parts thereof. The tribunal and the parties come together for a meeting, physically or remotely, during which the tribunal does not take evidence (in particular does not hear witnesses or experts), but instead shares with the parties its non-binding preliminary views, on a without prejudice basis, on the claims (or parts thereof), based on the parties’ written submissions and the written evidence on record. Optionally, preliminary assessments may also involve a concrete suggestion for a settlement.
The very purpose of preliminary assessments is twofold:
First, a preliminary assessment serves to facilitate the amicable settlement of the dispute (or parts thereof) by showing the parties the risks and/or opportunities of their respective cases. While some arbitrators, often because of their respective legal habitat, may be hesitant to encourage settlement negotiations actively, it is beyond doubt that such efforts are desirable. For instance, the 2018 DIS Arbitration Rules provide in their Article 26 that “[u]nless any party objects thereto, the arbitral tribunal shall, at every stage of the arbitration, seek to encourage an amicable settlement of the dispute or of individual disputed issues.” Also, recently, the ICC adapted the wording of Appendix IV of its Arbitration Rules, which now lists settlement of disputes as one of the examples of case management techniques for controlling time and cost (lit. h). The previous reference to “informing the parties that they are free to settle” (2017 Arbitration Rules) has been changed to “encouraging the parties to consider settlement” (2021 Arbitration Rules). Indeed, a settlement is likely to reduce time and costs, especially if it is reached before the evidentiary hearing. In particular, the parties and the tribunal will not have to prepare for and conduct a hearing over several days, thereby sparing considerable time and expenses. Also, the tribunal will not have to draft a reasoned award, but merely render a termination order or – if requested – a consent award. However, when fixing the arbitrators’ fees, arbitral institutions will normally consider the tribunal’s role in the settlement, in addition to the stage of the proceedings. After all, preliminary assessments normally require considerable upfront efforts from the tribunal.
Second, even if the parties do not settle their dispute following a preliminary assessment, such assessment may still significantly streamline the arbitral proceedings if properly prepared and orchestrated by the tribunal. It forces the arbitrators to fully command the case file from an early stage of the proceedings. In connection with the preliminary assessment, the tribunal will identify the pertinent issues of the proceedings. Even if a settlement is not reached, this allows the parties to concentrate on the relevant issues in the further proceedings. They are enabled to sharpen their legal arguments and strategy and focus on the pertinent issues identified by the tribunal, be it in further submissions or an evidentiary hearing. Finally, preliminary assessments may even pave the way to better awards. The early-on interaction between tribunals and parties may help eliminate misunderstandings, also on the part of the arbitral tribunal, and narrow down the content of the award to the contentious issues.
On the contrary, preliminary assessments are not to be confused with early determinations or summary dismissals (see, e.g., Article 39 of the 2017 SCC Arbitration Rules or Article 22 of the 2021 ICC Arbitration Rules in conjunction with Section VIII-D of the Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration), which indeed effectively solve the dispute (or part of it).
So, what practical considerations of preliminary assessments should be borne in mind?
There is no one-fits-all solution or checklist for preliminary assessments, and the practical considerations will vary, depending on the individual circumstances of the case and the relevant perspective (arbitrator/counsel/party). Delivering preliminary assessments apt to promote amicable settlement or streamlining the proceedings is an art in itself and requires a certain finesse of the arbitrators, which is ultimately only achieved by experience. However, certain rules of thumb may help master the art of preliminary assessments.
When to consider the option of a preliminary assessment?
It is recommended that tribunals discuss the option of a preliminary assessment already at the outset of the proceedings, notably during the first case management conference. Ideally, the discussion should extend to the precise scope of the preliminary assessment to align the different interests and manage the parties’ expectations. In particular, it should be determined whether the preliminary assessment should cover the whole dispute or only parts thereof, whether it should include just a preliminary analysis and/or a concrete settlement proposal.
It is, however, important to remember that it must not necessarily be the tribunal that proposes the option of a preliminary assessment. The impetus may well also come from one of the parties/the parties’ counsel.
When to deliver a preliminary assessment?
Choosing the right point in time is crucial to harvest the most efficiency gains. Generally speaking, a preliminary assessment makes more sense once the parties have had a chance to develop their case to some extent in writing and prior to the evidentiary hearing. As a rule of thumb, a preliminary assessment after the first round of substantive submissions, e.g., after the Statement of Claim and Statement of Defence, may be appropriate. It creates an incentive for settlement at a stage of the arbitration when the point of no return, i.e., the point when the parties feel that they have invested too much in the proceedings to settle, has most often not been reached yet. Further, it allows the parties to get a better, more objective view of their respective cases, and improve their arguments in subsequent submissions. However, individual cases may demand a more custom-made approach.
How to provide a preliminary assessment?
As regards the format, preliminary assessments are normally provided by tribunals orally during a preliminary assessment conference, be it virtual or in-person. In addition to the parties’ counsel, other parties’ representatives, ideally with negotiating mandate, should also attend the hearing. Even if the tribunal does not include a concrete settlement proposal, the parties’ representatives may indeed benefit from hearing the tribunal’s considerations unfiltered because it allows them to make a better risk assessment of their case. Furthermore, it is important to consider whether the parties should have the opportunity to comment upon the preliminary assessment orally or pose substantive questions to the tribunal.
The question of how to provide a preliminary assessment is also particularly sensitive from the perspective of arbitrators. If agreed by all participants, tribunals should record the parties’ express consent to hear the tribunal’s preliminary, non-prejudicial assessment of the matter in writing, for instance, in a procedural order (e.g., “After consultation with and with consent of the Parties, the Tribunal will deliver to the Parties its preliminary assessment of the factual and legal situation at an oral hearing.”). In addition, it is advisable that tribunals request the parties to sign a waiver declaration which refers to such previous consent and confirms that the parties will not challenge the arbitrator(s) or seek the set-aside or refusal of recognition and enforcement of a future award based on the preliminary assessment. Tribunals should always be mindful to consider these precautions. Seeking the parties’ express consent may dispel doubts regarding the tribunal’s power to employ this case management technique. Furthermore, the waiver declaration may safeguard the arbitrators against doubts as to their impartiality and independence. While the enforceability of waiver declarations is in dispute, it sends a strong signal that a preliminary assessment shall not become the basis for guerrilla tactics.
When delivering preliminary assessments, tribunals should proceed with circumspection and caution. In particular:
- At all times, it should be clear that the assessment is indeed preliminary and solely based upon the parties’ submissions filed so far, and without prejudice to the tribunal’s ultimate decision/award.
- Tribunals should carefully choose the words of the preliminary assessment in the light of its purpose: For example, if the aim is to encourage a settlement, the wording should be chosen in a way to advance such goal, e., emphasizing the risks of both/all parties and the economic aspects of the case. If, however, the aim is “just” to streamline the proceedings, the tribunal may wish to focus in greater detail on an analysis of the factual and legal arguments of the case.
- Tribunals should emphasize that a preliminary assessment is the result of thorough deliberations and clarify if the preliminary assessment or parts thereof only reflect the majority view.
- If the tribunal was requested to provide a concrete settlement proposal, it should make sure to carefully explain the suggested amounts/figures, also by linking them to the risks that the parties bear if continuing the arbitration.
- Tribunals should ensure that all activities related to the preliminary assessment take place in the presence of all parties. Preliminary assessments, even though aimed at facilitating a settlement of the dispute, should not turn arbitration into a mediation or a caucus situation.
The steps following the preliminary assessment are either already included in the initial procedural timetable or are agreed upon during the preliminary assessment conference. To maximize the effect of the preliminary assessment, it is recommended to give the parties a cooling-off period during which they may reflect upon what they have learned and potentially engage in settlement talks without forfeiting the efforts and progress already made in the arbitration. After all, the arbitration can be resumed, and further steps may be discussed at any time.
The success of international arbitration is linked to its ability to continuously provide its users with innovative and smart means of fast, but nonetheless high-quality dispute resolution. It would be highly desirable if preliminary assessments were more widely considered a standard case management technique. After all, if taken seriously, preliminary assessments are more likely than not to result in a win-win situation for both tribunals and parties alike.
Viktoria Schneider is an Associate at the international dispute resolution boutique HANEFELD and is based in the firm’s Hamburg office. She acts as counsel in arbitration and state court proceedings as well as secretary to arbitral tribunals in complex and high-value cases (pertaining, in particular, to corporate law, post-M&A, international trade and distribution law, international commercial and sales law, energy and infrastructure) and has a sound expertise of public international and EU law.