Revisiting the Arb-Med-Arb Proceedings: Lessons from Swiss Court Rooms

In his 'Notes for a Law Lecture', Abraham Lincoln stated, "Discourage litigation. Persuade your neighbors to compromise whenever you can." While this quote dates back to the 1850s, it echoes recent dispute settlement trends.

Although complex disputes are typically resolved through litigation or arbitration, parties have increasingly sought to settle their disputes through less adversarial means or methods, combining arbitration and alternative dispute resolution (ADR). The Queen Mary University of London 2021 International Arbitration Survey, conducted among arbitration practitioners, confirmed this trend, as users found that 90% of interviewees indicated that arbitration was their preferred forum for resolving cross-border disputes, but 59% of them favored arbitration in conjunction with ADR, including mediation.

Various methods have emerged, including hybrid versions of common ADR means, such as "arbitration-mediation-arbitration" (Arb-Med-Arb) proceedings. Leading institutions, including the Singapore International Arbitration Centre (SIAC) and the Singapore International Mediation Centre ("SIMC"), now promote Arb-Med-Arb proceedings to settle disputes.

This trend has been foreshadowed by some Swiss courts for decades. In some German-speaking cantons, notably Zurich and Bern, the courts conduct a so-called Referentenaudienz, or Settlement Hearing, to resolve disputes early in the proceedings without a full trial. In this article, the authors will compare the Arb-Med-Arb protocol and the Swiss practice to conduct Settlement Hearings and elaborate on what arbitration practitioners may learn from the Swiss court rooms.

The Arb-Med-Arb Protocol

Arb-Med-Arb proceedings are initiated as arbitration. However, at an early stage, the arbitral process is stayed in favor of a window for mediation. In the absence of an Arb-Med-Arb clause, parties are also free to stay the arbitration proceedings to mediate. However, once the parties are already in dispute, it may prove difficult to jointly agree on mediation. Parties wishing for Arb-Med-Arb proceedings would, therefore, be well advised to introduce an Arb-Med-Arb clause in their contracts before a dispute emerges.

Leading institutions have embraced the trend and offer different hybrid methods of dispute resolution, as well as template clauses. Amongst them, SIAC and SIMC stand out. In 2014,  SIAC and SIMC introduced a set of rules on Arb-Med-Arb proceedings (Protocol) and a template clause. Under the Protocol, a party initiates the proceedings by filing its notice of arbitration with SIAC. Following the response to the notice of arbitration, the arbitral proceedings are stayed, and the case is submitted for mediation to the SIMC. In contrast to the traditional understanding of the arb-med process in Asia, where the same person typically handles both arbitration and mediation, the Protocol takes a different stance. It assigns separate and independent appointments for arbitrators and mediators, with  SIAC appointing the arbitrator(s) and SIMC appointing the mediator(s).

Where the parties successfully conduct the mediation and settle their dispute, the terms of their settlement agreement are recorded in a consent award. By contrast, if the parties cannot find an amicable solution to their dispute, the arbitration proceedings fully resume.

Notwithstanding the above, Arb-Med-Arb proceedings come with their challenges. One question that has spilled a lot of ink is whether the arbitrator and mediator acting during the Arb-Med-Arb proceedings ought to be the same person. Having the same person can lead to efficiencies and cost savings, but it also has its drawbacks. During the mediation window, the mediator may receive confidential information from a party, which the other party would not be privy to and has no opportunity to challenge. If mediation fails and the mediator starts acting under their capacity as an arbitrator, they might be influenced by information they would not have received if the mediator had been a different person. This is why, under the Protocol for instance, the mediator is independent from the arbitrator, unless the parties agree otherwise.

Settlement Hearings in Swiss Courts

In principle, Swiss state court litigation is governed by uniform procedural rules under the Swiss Civil Procedure Code (CPC). The CPC allows for local practices of the cantons, which leads to the possibility of conducting a Settlement Hearing in some courts. In use for decades, this practice is particularly applied by so-called commercial courts, i.e., courts focused on commercial disputes between companies, such as the Commercial Court of the Canton of Zurich (Commercial Court).

The proceedings are initiated by the plaintiff filing a full-fledged statement of claim. The court then proceeds with the exchange of the first round of written briefs on the substance. After the first round of written submissions has been concluded, the court invites the parties to an oral Settlement Hearing in the court. The Settlement Hearing lasts for several hours to a full day. There are no separate submissions in relation to the Settlement Hearing and no formal oral submissions by the parties. Rather, it is very informal in nature and the court does not take minutes on the positions that parties share during the settlement discussions.

Only a selection of the full adjudicating body of five judges attends the Settlement Hearing, typically comprising a judge from the Commercial Court and a judge with specific industry expertise. When the parties are represented by lawyers, they often attend the Settlement Hearing as well. However, the parties are free to abstain from involving lawyers.

Usually, the Settlement Hearing consists of three phases, but the court enjoys broad discretion. In the first phase, the judges ask whether the parties wish to hear their preliminary assessment of the case based on the first round of written submissions. If so, the judges share their assessment of the facts and the law. In many cases, the judges specifically comment on the chances of success of the claim(s). While this assessment only reflects the view of two judges and not the entire adjudicating body, it allows the parties to gain an early understanding of the strengths and weaknesses of their respective positions. In the second phase, the same two judges orally outline the pillars of a potential settlement framework that they deem reasonable based on their preliminary assessment. In the third phase, the judges facilitate discussions between the parties and tailor the settlement proposal to the parties' needs. The judges may also speak to each party individually while the other party is not in the court room.

Once the parties agree on the terms of the settlement, the judges assist in drafting the written settlement agreement. If an entity still must obtain consent or needs more time to think the deal through, the settlement agreement may sometimes provide for subsequent confirmation (Genehmigungsvorbehalt) or a deadline by when the parties can reject the deal (Widerrufsvorbehalt).

If the parties are unable to settle their dispute, the court proceedings continue. The court will invite the parties to submit their written briefs for the second round of submissions, which will usually be followed by a formal hearing on the substance. In these proceedings, the two judges who attended the Settlement Hearing will continue to act as judges, but they are precluded from relying on the information obtained during the Settlement Hearing.

The practice of Settlement Hearings has been widely successful. Although no official statistics have been published, experienced practitioners estimate the settlement rate to be between 60% and 75%.The high success rate underscores the effectiveness of the process in resolving disputes at an early stage, saving both time and costs for the subsequent litigation. In addition, it contributes to reducing the courts' backlog.

Main Differences between the Swiss Settlement Hearing and the Arb-Med-Arb Protocol

While both the Settlement Hearing and mediation under the Arb-Med-Arb Protocol serve to facilitate dispute resolution, they differ in several key aspects.

One of the most notable distinctions lies in the role of the adjudicators. In the Settlement Hearing, the judges who conduct the settlement discussions continue to serve as adjudicators if the parties fail to settle their dispute. This raises concerns regarding confidentiality and impartiality, as these judges gain (informal) insights into the parties' positions and their willingness to concede on certain points. Additionally, because the judges formally belong to the court, they may psychologically exert more pressure on the parties compared to a mediator.

By contrast, the Arb-Med-Arb Protocol ensures a strict separation between the roles of the arbitrator and the mediator. For instance, under the Protocol, SIAC appoints the arbitrator, while SIMC appoints the mediator, preventing any crossover of roles. This separation is designed to safeguard procedural fairness and avoid any risk of an arbitrator being influenced by confidential information disclosed during the mediation phase.

Another key difference is the approach to settlement discussions. The Swiss Settlement Hearing is largely driven by the judges' preliminary case assessment, giving the parties an early indication of their chances of success. This assessment often serves as a powerful tool in guiding the settlement negotiations. However, mediation under the Arb-Med-Arb Protocol is more focused on the parties' underlying interests and encourages solutions beyond strict legal arguments.

Finally, enforceability remains a crucial factor when comparing the two systems. In Swiss courts, settlement agreements are generally considered binding contracts and can be enforced as a "normal" contract. However, they do not enjoy any privileges under international conventions. The situation is different in the context of mediation. While the Singapore Mediation Convention provides a framework for international enforcement of mediated settlements, its limited number of signatories may present challenges in many jurisdictions. By contrast, the Arb-Med-Arb Protocol offers a particularly compelling advantage: settlements reached through mediation can be converted into consent awards, which are enforceable under the New York Convention.

Even in cases where a settlement is not reached, the Settlement Hearing may offer a distinct advantage that mediation is unable to provide. The Settlement Hearing, particularly the case assessment, provides parties with a clearer understanding of their key strengths and weaknesses, allowing them to refine their litigation strategy. Weak or untenable arguments can be eliminated early, leading to more efficient litigation.

What can the Arb-Med-Arb Protocol learn from the Swiss Settlement Hearing?

Despite their structural differences, the Swiss Settlement Hearing and the Arb-Med-Arb Protocol share a fundamental similarity: both afford parties a chance to settle the dispute under the guidance of a neutral third party. This creates opportunities for each system to draw inspiration from the other.

One potential lesson for the Arb-Med-Arb Protocol is the value of an early case assessment. In Swiss courts, the judges' preliminary case assessment provides parties with a clearer perspective on their positions, which helps frame their negotiation strategy. A similar case assessment in Arb-Med-Arb proceedings – perhaps a right of the mediator to issue an optional non-binding case assessment – could increase the perceived value of the mediation phase.

Another important aspect is the psychological and cultural impact of structured settlement procedures. In Switzerland, the longstanding practice of Settlement Hearings has contributed to a legal culture in which both, judges and parties actively engage in finding a solution. While arbitration practitioners may not have the same background, increasing familiarity with mediation – especially in regions like Asia, where mediation is gaining traction – could encourage greater acceptance and integration of Arb-Med-Arb procedures in international dispute resolution. In other words, if counsel and parties frequently see the beneficial outcomes from Arb-Med-Arb proceedings, they may opt for the Protocol more often in the future.

Lastly, the automatic application of Settlement Hearings in commercial disputes in Switzerland is likely another factor contributing to their success. However, implementing a similar mandatory step in arbitration poses challenges due to the principle of party autonomy, which allows parties to structure proceedings as they see fit. Nevertheless, integrating such a mechanism into more standardized arbitration frameworks – such as an investor-state dispute settlement (ISDS) or sports arbitration – could be a viable approach.

Conclusion: The Success of Swiss Settlement Hearings could foster the Success of the Arb-Med-Arb Protocol

The Settlement Hearing is a valuable tool for parties involved in Swiss court litigation, particularly in the Commercial Courts of Zurich or Bern. The high settlement rates testify to its success, and even when a settlement is not reached, the process provides valuable insights that can guide the parties' strategies in further proceedings.

The Settlement Hearing offers insights that could enhance the Arb-Med-Arb Protocol. First, an early case assessment by judges helps parties refine their arguments and can facilitate a settlement. Second, the more counsel and parties see the beneficial outcomes of mediation, they may be increasingly willing to include the Protocol in the future. Finally, the automatic application of Settlement Hearings in Swiss commercial disputes contributes to their effectiveness. While arbitration relies on party autonomy, integrating mandatory mediation into more standardized arbitration frameworks – such as ISDS or sports arbitration – could promote earlier settlements.