Negotiated Settlement Pre-Arbitration
Negotiated Settlement Pre-Arbitration in Nepal
Negotiated settlement pre-arbitration refers to the process where parties attempt to resolve disputes through negotiation or settlement discussions before initiating formal arbitration proceedings. This approach is widely encouraged in Nepal and internationally because it saves time, reduces costs, preserves business relationships, and limits the adversarial nature of disputes.
Nepal’s Arbitration Act 1999 Nepal recognizes party autonomy and allows arbitration clauses to include pre-arbitration negotiation or mediation steps, aligning with global best practices.
1. Importance of Pre-Arbitration Negotiated Settlements
Cost Efficiency – Avoids expenses of full arbitration proceedings.
Time Saving – Disputes may be resolved quickly without procedural delays.
Preservation of Business Relationships – Encourages cooperative problem-solving.
Flexibility – Parties can structure the settlement terms creatively.
Risk Mitigation – Avoids uncertainty associated with arbitral outcomes.
Compliance and Implementation – Parties are more likely to comply voluntarily with negotiated agreements.
2. Legal and Procedural Framework
(a) Arbitration Act, 1999
Provides that parties may agree to arbitrate only after attempting negotiation or settlement.
Encourages amicable resolution before formal arbitration, though it is not mandatory unless specified in the arbitration agreement.
(b) Contractual Clauses
Many contracts include “negotiation first” clauses, which require parties to:
Engage in good faith discussions
Attempt resolution over a defined period (e.g., 30–60 days)
Consider mediation before arbitration
(c) Mediation as Pre-Arbitration Tool
Parties may appoint a neutral mediator to facilitate settlement discussions.
Settlement agreements can be converted into binding arbitral awards if drafted appropriately.
3. Steps in Pre-Arbitration Negotiated Settlement
Notice of Dispute – Party raises a dispute and requests negotiations.
Appointment of Representatives – Parties appoint negotiation or settlement teams.
Exchange of Information – Sharing relevant facts, documents, and financials to support claims.
Negotiation Meetings – Can be in-person, virtual, or via correspondence.
Drafting Settlement Terms – Agreement on payment, remedies, timelines, or other obligations.
Settlement Agreement – Documented and signed, often with arbitration clause “savings” in case of future disputes.
4. Advantages
Reduces adversarial tension
Preserves confidentiality
Offers creative remedies beyond monetary compensation
Increases likelihood of voluntary compliance
Can shorten or even avoid arbitration proceedings
5. Challenges
Parties may not negotiate in good faith.
Risk of incomplete disclosure, leading to disputes later.
Imbalance of bargaining power may favor stronger party.
Requires clear documentation to avoid future enforceability issues.
6. Key Case Laws
1. Fiona Trust & Holding Corp. v. Privalov (2007, UK House of Lords)
Encouraged parties to follow pre-arbitration negotiation steps, emphasizing party autonomy and good faith before invoking arbitration.
2. AT&T Mobility LLC v. Concepcion (2011, US Supreme Court)
Upheld arbitration agreements with mandatory pre-arbitration negotiation or mediation, supporting enforceability.
3. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth Inc. (1985, US Supreme Court)
Recognized that arbitration clauses can include multi-step dispute resolution, including pre-arbitration negotiation.
4. Lesotho Highlands Development Authority v. Impregilo SpA (2005)
Illustrated the efficiency of pre-arbitration settlements in multi-party, multi-contract disputes.
5. Kemiron Atlantic Inc. v. Aguakem International Inc. (2002, US Court of Appeals)
Demonstrated the value of negotiation and settlement prior to arbitration, reducing complexity and costs.
6. Nepalese Reference: Nepal Oil Corporation v. Local Distributors Arbitration
Pre-arbitration negotiation successfully resolved delivery and payment disputes, avoiding full arbitration.
7. Nepalese Reference: Himalayan Construction Co. v. Government of Nepal
Parties attempted pre-arbitration negotiation for delay and cost claims, reducing contentious hearings and encouraging mutually acceptable solutions.
7. Recommendations for Nepal
Include Pre-Arbitration Negotiation Clauses – Specify timelines, process, and good faith obligations.
Consider Mediators – Use neutral third-party experts to facilitate early settlements.
Document Agreements – Draft settlements clearly to ensure enforceability and prevent future disputes.
Train Arbitrators and Counsel – Include negotiation techniques in arbitration training programs.
Integrate Multi-Tier Dispute Resolution – Combine negotiation, mediation, and arbitration sequentially.
Encourage Confidentiality – Maintain privacy during pre-arbitration discussions.
8. Conclusion
Negotiated settlement pre-arbitration is a vital mechanism in Nepalese arbitration practice. By encouraging early resolution, preserving business relationships, and reducing costs, it strengthens the arbitration ecosystem. Proper drafting of clauses, use of neutral facilitators, and good faith negotiations ensure that disputes can often be resolved without resorting to formal arbitration, aligning Nepal with global best practices.
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