Many more international arbitrations could be amicably settled if greater use were made of the "sealed (settlement) offer" ("Sealed Offer"). But this has not happened because parties could not be confident a Sealed Offer would remain confidential. However, thanks to a new initiative by the ICC, this confidentiality problem may now be resolved.

The Sealed Offer procedure may be illustrated by a simple example. Let us assume that the claimant ("C") begins an arbitration against a respondent ("R") claiming US$10 million. R privately assesses its liability at no more than US$2 million. As R wishes to see the claim settled, R offers $2.5 million to C subject to the condition that if the offer is rejected R reserves the right to submit its rejected offer to the relevant arbitral tribunal in such manner that the tribunal will only be informed of it after the tribunal has decided the merits and quantum of the case and is ready to determine how to allocate the costs of the arbitration. If C accepts the offer then that is, naturally, the end of the matter. If C rejects the offer and if C is ultimately awarded significantly more than $2.5 million by the tribunal, then C's rejection of the offer and continued pursuit of the arbitration would have been justified and the offer should have no cost consequences. On the other hand, if C recovers less than $2.5 million, R may legitimately claim that C should have accepted R's offer when it was made as this would have allowed the costs of arbitration which R has incurred since that date to have been avoided. Therefore, R may reasonably claim that C should be liable for all of R's arbitration costs since that date.

In an ICC arbitration these costs would include not just R's share of the arbitrator(s) fees and expenses and the administrative expenses of the ICC but also the costs incurred by R in presenting its case, such as lawyers' fees and expenses, which typically constitute by far the largest amount of arbitration costs. These recoverable costs could be very substantial if R's offer were made at the outset of an arbitration. Indeed, in some ICC arbitrations the recoverable costs of both parties may come to represent 30 or 40 per cent or more of the amount in dispute.

Under English procedure, after C had rejected R's offer, R would submit the rejected offer to the tribunal in a sealed envelope. Under English law, C and its lawyer would be bound not to disclose the contents of the offer to the tribunal and, similarly, an English tribunal would not open the sealed envelope until after the tribunal had decided the merits and quantum and come to decide how costs should be allocated.

But the great difficulty in international arbitration is that, as the rules on legal privilege and professional confidentiality vary from country to country and the Sealed Offer is unknown outside England and a few other countries, a party or its lawyer cannot be confident that its adversary, its lawyer and the individual members of the tribunal will respect the confidentiality of a Sealed Offer.

Accordingly, although, as in the case of litigation in England, recoverable costs in ICC arbitration can be very significant, as they include the costs incurred by parties in presenting their cases such as legal fees and expenses (whereas legal fees and expenses are not normally recoverable in litigation in e.g. France, Japan or the United States), the Sealed Offer has been little used in ICC arbitration until now.

However, the ICC has now developed a procedure to protect the confidentiality of Sealed Offers in ICC arbitrations. This is set out in paragraphs 193 to 196 of the ICC's Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration under the ICC Rules of Arbitration dated 1 March 2017. Under this procedure, the ICC Secretariat would serve as the custodian of a Sealed Offer which had been rejected and would not disclose it to an arbitral tribunal until after the merits and the quantum of the case had been decided and the tribunal was ready to determine who should bear the costs of the arbitration or in what proportion they should be borne by the parties.

This procedure, which may lead to a dramatic increase in the use of the Sealed Offer in ICC arbitration, is discussed in detail in an article entitled "The New Assistance ICC Provides to Protect the Confidentiality of a ‘Sealed Offer'" by the authors of this Newsflash, published in ICC Dispute Resolution Bulletin, Issue 1, 2017.

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