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M. Arpan Banerjee

Student, Master in Economic Law - Sciences Po Law School

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Settlement Agreement

I. Definition


Settlement agreements are not specifically defined in the context of international arbitration. However, they may be described as legally binding agreements between two or more parties which seek to resolve disputes in a mutually acceptable manner. Settlement agreements may be negotiated by the parties themselves,1 or can be facilitated by formal procedures such as mediation.2

II. Consent awards


Parties to an ongoing arbitration may consider opting for a consent award in lieu of a simple settlement agreement.3 A consent award requires the tribunal to “record the settlement in the form of an arbitral award on agreed terms” at the behest of the parties.4 This approach is preferable because consent awards may be enforceable as arbitral awards under the New York Convention.5 On the other hand, simple settlement agreements would require parties to proceed under local contract law and sue for breach of contract in the event of non-compliance with the settlement agreement.6 Consent awards are also preferable because they provide a “definite and identifiable result” to the arbitration which is sanctioned by the authority of the arbitral tribunal.7


However, tribunals have the right to refuse to approve of a settlement in the form of a consent award. In practice, this is rarely the case, unless the settlement agreement is a product of fraud or violates applicable law.8

III. Settlement agreements in the ICSID and UNCITRAL Arbitration rules


Both the ICSID and UNCITRAL Arbitration Rules contemplate parties settling a dispute before the arbitral award is issued. In such cases, parties may request the tribunal to discontinue proceedings and record the settlement in the form of an arbitral award.9

IV. Disputes over settlement agreements


There is a lack of consensus regarding how disputes arising out of settlement agreements may be resolved. Notwithstanding the settlement agreement itself containing a specific dispute resolution clause, the question arises whether such disputes are resolved in accordance with the arbitration agreement in the initial contract between the parties or taken to national courts. One approach suggests that the arbitration clause in the initial contract presumptively applies.10 Alternatively, courts have also ruled that where settlement agreements fully resolve all disputes between parties, the arbitration agreement in the underlying contract shall not apply.11

V. Concerns regarding settlement agreements in ISDS


The use of settlement agreements in investment disputes has been criticized as adverse to accountability and good governance.12 States may settle concerns raised by both environmental authorities and citizens, who could have otherwise raised issues through third-party amicus curiae submissions during the arbitration. This is especially concerning when human rights counterclaims are settled. However, in such situations, tribunals have the discretion to deny issuing a consent award if they believe that the award would be to the detrimental to the rights of third parties or public interest which were not represented during the arbitration.13 The fact that settlements are often negotiated behind closed doors without public knowledge or participation exacerbates concerns regarding accountability,14 and points towards the need for transparency in investment arbitration proceedings.


Born, G., International Commercial Arbitration, 2nd ed., 2014, Chapters 9 & 23.

Blackaby, N., Partasides, C., Redfern, A. and Hunter, M., Redfern and Hunter on International Arbitration, 6th ed., 2015, Chapter 9.

van den Berg, A.J., The New York Arbitration Convention of 1958, Towards a Uniform Judicial Interpretation, 1981.

Gaillard, E. and Savage, J., Fouchard Gaillard Goldman on International Commercial Arbitration, 1999, Part 4.

Hafner-Burton, E.M., Puig, S. and Victor, D.G., Against Secrecy: The Social Cost of International Dispute Settlement, 42 Yale Journal of International Law, 2017.

Pàez-Salgado, D., Effects of Settlements in Investor-State Arbitration, Kluwer Arbitration Blog, 2015.

Johnson, L. and Guven, B.S., The Settlement of Investment Disputes: A Discussion of Democratic Accountability and Public Interest, International Institute for Sustainable Development, 2017.

Case study: Vattenfall v. Germany I, ISDS Platform, 2015.

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