Setting arbitrators' fees: an international survey.

ABSTRACT

This Article examines the compensation policies of international arbitrators. Specifically, the Article details the results of a survey of individuals who practice in the area of international arbitration.

Initially, the Article describes the different methods of calculating the fees of the arbitral tribunal, discussing the relative advantages and disadvantages of each method. The study concludes that most arbitrators calculate their fees using a time-based method, except when the arbitral institution requires that their fees be determined under the ad valorem method.

Next, the Article examines arbitrators' policies regarding cancellation and commitment fees. Survey results highlighted confusion about whether arbitrators were prohibited by a jurisdiction's laws or ethical rules. In addition, many commentators debate the propriety of such fees. The survey results reveal that most arbitrators do not charge cancellation or commitment fees. While practitioners in certain jurisdictions more routinely charge these fees, charging such fees is not widespread in continental Europe or the United States.

The Article then addresses the implications for U.S. arbitrators who are considering the adoption of cancellation and commitment fees. Although most arbitral institutions do not explicitly permit such fees, institutional guidelines are broad enough to allow for such fees. Furthermore, because arbitrators are not fiduciaries in the same manner as lawyers who are employed by clients, the policy behind the ban on nonrefundable special retainers would not be served by applying it to prohibit arbitrators from charging cancellation or commitment fees. Finally, the Article argues that none of the rules or codes governing the conduct of arbitrators in international arbitrations expressly prohibit the payment of cancellation or commitment fees. As a result, if such fees are reasonable, the Author contends that they should be permissible.

I. INTRODUCTION

In international commercial arbitrations, the fees of the arbitral tribunal can be considerable.(1) For example, a dispute involving $100 million and a panel of three arbitrators appointed under the Rules of the International Chamber of Commerce (ICC) could result in arbitrators' fees totaling $780,000.(2) Despite the significant amounts involved, little is known about the process for remunerating arbitrators in international disputes. Indeed, there has been relatively scant commentary on the methods for determining the arbitrators' fees and the types of fees that they may charge, such as cancellation or commitment fees. Yet, these fees have been quite controversial and the subject of much debate in the international arbitral community.

In spring 2000, the author undertook a survey of arbitrators around the world to determine how they calculate their fees and what types of fees they charge. In particular, the survey sought to determine: (1) the methods that are used to determine the arbitrators' remuneration, (2) whether the practice of charging cancellation or commitment fees is widespread, and (3) the reasons that arbitrators cite for charging or not charging particular fees. The results were surprising.

What the survey found is that most arbitrators base their fees on the amount of work performed, except when an arbitral institution, such as the ICC, sets their fees based on a percentage of the amount in dispute. In addition, the survey revealed significant variations among jurisdictions on the question of whether arbitrators charge cancellation or commitment fees. For example, it is common practice to charge cancellation or commitment fees in the United Kingdom, while it is unusual to do so in other European countries and in the United States. In general, the survey respondents were often unsure about whether cancellation or commitment fees were prohibited by a jurisdiction's laws or ethical rules; and there was considerable debate among respondents over whether arbitrators should be allowed to charge these fees.

This Article examines arbitrators' fees. Section II describes the methods for determining the remuneration of an arbitral tribunal and the types of fees that arbitrators may charge, with particular emphasis on the practice of charging cancellation and commitment fees. Section III discusses the methodology of the survey and its results. Section IV focuses on its implications in the United States, and predicts that the charging of cancellation and commitment fees will become more prevalent in the United States.

II. OVERVIEW

Under some systems, it is common for individuals to serve as arbitrators on an unpaid basis.(3) This practice is rare, however, in international commercial arbitrations.(4) As a general rule, arbitrators in international arbitrations are entitled to be compensated for their work by the parties who appointed them, unless they waive their fees.(5)

The process for determining the fees of the arbitrators depends initially on whether the method of arbitration is institutional or ad hoc. In arbitrations conducted under the auspices of an arbitral institution, the governing body often fixes fees of the tribunal.(6) By contrast, in ad hoc arbitrations, the parties negotiate directly with the arbitrators regarding their fees.(7) While the type of arbitration may dictate the process used to set the arbitrators' fees, there are various methods available to calculate the fees. In addition, many arbitrators have recently begun charging cancellation or commitment fees.

A. Methods of Calculating the Fees of the Arbitral Tribunal

In general, there are three methods of calculating the fees of arbitrators in international commercial arbitrations: (1) the ad valorem method; (2) the time-based method; and (3) the fixed fee method.

1. Ad Valorem Method

Under the ad valorem method, the fees of the arbitrators are based upon the amount in dispute. Typically, the arbitrators' fees represent a percentage of the total amount in dispute.(8) This method is commonly used by arbitral institutions to assess both administrative fees and the fees of the arbitrators.(9) The ad valorem method has the advantage of providing the parties with a reasonable degree of certainty in estimating the arbitrators' remuneration. Its main drawback, however, is that the fees may be fixed without reference to the actual amount of time that the arbitrators work on the case. As a result, the fees awarded may seem too high or too low.(10)

The ICC is an example of an arbitral institution that utilizes the ad valorem method but also permits some flexibility.(11) Under the ICC Rules, the International Court of Arbitration (ICC Court) frees the arbitrators' fees according to a scale of costs and fees.(12) The scale provides a range of maximum and minimum arbitrators' fees that are calculated based on the amount in dispute. The ICC Court may fix the fees of the tribunal at any figure between the range established by the fee schedule, taking into account "the diligence of the arbitrator[s], the time spent, the rapidity of the proceedings, and the complexity of the dispute...."(13) To illustrate, under the ICC scale, a dispute involving $1 million will result in each arbitrator receiving between $11,250 and $53,500, while a dispute involving $100 million will result in each arbitrator receiving between $61,750 and $260,000.(14) The ICC Rules also provide the ICC Court with the discretion to "fix the fees of the arbitrators at a figure higher or lower than that which would result from the application of the relevant scale should this be deemed necessary due to the exceptional circumstances of the case."(15) In practice, however, the ICC Court rarely deviates from the scale.(16)

2. The Time-Based Method

Under the time-based method, the fees of the arbitrators are determined according to the amount of hours or days spent on the arbitration. They may also be determined by a combination method, where a daily rate is charged for hearing days and an hourly rate is charged for work performed outside of the hearings. The time-based method has the advantage of compensating the arbitrators based on the actual amount of work performed. Its main drawback is that it does not provide an incentive for efficiency.(17)

The time-based method is typically used in ad hoc arbitrations. It is also the system used by some arbitral institutions, such as the London Court of International Arbitration (LCIA) and the American Arbitration Association (AAA). Under the LCIA Rules, the LCIA Court determines the costs of the arbitration, including the fees of the arbitrators, in accordance with its Schedule of Fees and Costs.(18) The LCIA's Schedule of Fees and Costs provides:

      The Tribunal's fees will be calculated by reference to work done by its
   members in connection with the arbitration and will be charged at rates
   appropriate to the particular circumstances of the case, including its
   complexity and the special qualifications of the arbitrators. The Tribunal
   shall agree in writing upon fee rates conforming to this Schedule of Fees
   and Costs prior to its appointment by the LCIA Court. The rates will be
   advised by the Registrar to the parties at the time of the appointment of
   the Tribunal, but may be reviewed annually if the duration of the
   arbitration requires.

      The fee rates shall be within the following bands: 800 [pounds sterling]
   to 2,000 [pounds sterling] per normal working day and 100 [pounds sterling]
   to 250 [pounds sterling] per hour for periods less than or in addition to a
   normal working day.

      However, in exceptional cases, the rates may be higher or lower,
   provided that, in such cases, (a) the fees of the Tribunal shall be
   fixed by the LCIA Court on the recommendation of the Registrar, following
   consultations with the arbitrator(s), and (b) the fees shall be agreed
   expressly by all parties.(19)

With regard to compensating the arbitrators, the AAA International Rules provide:

   Arbitrators shall be compensated based upon their amount of service, taking
   into account their stated rate of compensation and the size and complexity
   of the case. The administrator shall arrange an appropriate daily or hourly
   rate, based on such considerations, with the parties and with each of the
   arbitrators as soon as practicable after the commencement of the
   arbitration. If the parties fail to agree on the terms of compensation, the
   administrator shall establish an appropriate rate and communicate it in
   writing to the parties.(20)

In ad hoc arbitrations or where the institution does not fix the arbitrators' fees in accordance with a fee schedule, the arbitrators' rates vary depending on the status of the arbitrators, the importance and complexity of the matter, and the prevailing practice where they reside.(21) For example, an arbitrator in South Africa indicated that he charges ZAR6000 (approximately $840) per day for hearings or travel and ZAR600 (approximately $84) per hour for other work performed in connection with the arbitration.(22) By contrast, in the United States, arbitrators in ad hoc arbitrations typically charge between $1,500 and $4,000 per normal working day and between $200 and $450 per hour for preparatory work.(23) It should also be noted that in some countries, such as Germany and Austria, arbitrators' rates are usually based on the statutory attorneys' fee-scale.(24)

3. The Fixed Fee Method

Under the fixed fee method, the compensation due to the arbitrators is set at a certain amount. This amount covers all work performed by the arbitrators in connection with the matter, including hearing days and time spent on travel for hearings. The advantage of this method is that the parties know their cost-exposure at the outset of the arbitration. Its disadvantage is that the remuneration may not necessarily correspond to the amount of time spent in connection with the arbitration.(25)

The fixed fee method is less commonly used than the other two approaches and, where it has been employed, the cases tend to be of major importance and involve arbitrators of high international standing.(26) Perhaps one of the reasons why it has not been regularly employed is that fixing the amount of the arbitrators' fees at the outset tends to be a difficult task. Alan Redfern and Martin Hunter explain:

   [I]t is difficult to know how the case will develop; whether or not it will
   settle before it reaches a hearing; and if it does not settle, how long the
   hearing itself is likely to take. The best that can be done, in such
   circumstances, is to make an intelligent assessment of the total number of
   days likely to be spent by the arbitrators on the case, assuming that it
   runs its full course, and then to multiply this total by an appropriate
   dally rate, so as to arrive at a figure for the fixed fee.(27)

B. Securing Payment, Cancellation and Commitment Fees

It is customary in both institutional and ad hoc arbitrations for parties to pay, in advance, a sum of money as security for the payment of the fees and expenses of the arbitral tribunal.(28) This deposit is to be applied against future fees and costs incurred during the course of proceedings. If the proceedings are prematurely terminated (because, for example, the parties settle their dispute), traditionally the arbitrators refund any unearned monies.(29) It also has become common practice for some arbitrators to require the parties to pay a certain amount if they book the arbitrators' time, but do not ultimately use it. These fees are commonly called cancellation or commitment fees.

1. Cancellation Fees

A cancellation fee is an amount that the parties agree to pay if a previously scheduled hearing is canceled or continued. The rationale for imposing such a fee is that the arbitrator must set aside particular days for the hearings, and, in the event of a last-minute cancellation or continuance, the arbitrator will be unable to schedule another income-producing activity in substitution for that period.(30)

The amount of the cancellation fee varies depending on the arbitrators' practice, the number of days reserved for the hearing, and the date when the arbitrator is notified that the hearing is canceled or postponed. The AAA states that if a cancellation fee is charged, it is generally one-half of the arbitrator's daily rate.(31) Where consecutive days of a hearing are postponed, the AAA encourages arbitrators to charge for the cancellation of only one day.(32)

The following are examples of cancellation clauses used by arbitrators in ad hoc arbitrations. The first is from an arbitrator in the United States and the second is from an arbitrator in New Zealand:

      Sample Clause 1: Cancellations or continuance of hearings less than
   thirty (30) days notice but more than seven (7) days prior to their having
   been scheduled will result in a fee of fifty percent (50%) of the time
   reserved by me, and if canceled within seven (7) days before such hearing,
   a fee of seventy-five percent (75%) of the time thus reserved to compensate
   for such time in which other work was not scheduled.(33)

      Sample Clause 2: In the event of cancellation or postponement less than
   4 weeks before the start of the hearing, [a cancellation fee will result
   amounting to] 50% of the Tribunal's daily sitting rate multiplied by the
   number of ,days reserved and in the event of cancellation or postponement
   more than 4 weeks but less than 12 weeks before the start of the hearing,
   [a cancellation fee will result amounting to] 30% of the Tribunal's daily
   sitting rate multiplied by the number of days reserved.(34)

2. Commitment Fees

In general, a commitment fee, also known as a booking fee, is an amount paid by the parties to the arbitral tribunal when the hearing dates are set. If the hearing takes place, the fee is credited against the amount owed to the tribunal. If the hearing does not take place, the tribunal keeps the fee.(35) Like cancellation fees, the commitment fee is to compensate the arbitrators for lost employment.(36)

The Chartered Institute of Arbitrators (Chartered Institute) advises arbitrators that they may wish to "protect themselves against the consequences of hearings or meetings being cancelled at relatively short notice" by charging "a non-returnable booking fee at a proportion of the full daily rate for the time set aside to be paid at the time the hearing is firmly fixed."(37) However, the Court of Appeal in England has stated that "if arbitrators wish to insist on the payment of a commitment fee, the proper time to do so is before appointment" and that once they accept appointment, "no term can be implied that entitles ... [them] to a commitment fee, and the arbitration agreement cannot be varied in that way without the consent of all parties."(38) In addition, if the agreement between the arbitrators and the parties is silent on the payment of a commitment fee, it would constitute misconduct for the arbitrators to insist on the payment of such fee as a condition to performing their services.(39)

At least one arbitral institution's rules explicitly provides for the payment of a commitment fee. According to the Terms of the London Maritime Arbitrators Association:

(a) For a hearing of up to ten days' duration there shall be payable to the tribunal a booking fee of 250 [pounds sterling] per person or such other sum as the Committee of the Association may from time to time decide, for each day reserved. The booking fee will be invoiced to the party asking for the hearing date to be fixed or to the parties in equal shares if both parties ask for the hearing date to be fixed as the case may be....

(b) For hearings over ten days duration the booking fee in [paragraph (a)] above shall for each day reserved be increased by 30% in the case of a hearing of up to 15 days and 60% in the case of a hearing up to 20 days and may, at the discretion of the tribunal, be subscribed in nonreturnable instalment payments. For hearings in excess of 20 days the booking fee shall be at the rate for a hearing of 20 days plus such additional sum as may be agreed with the parties in the light of the length of the proposed hearing.

(c) Where the case proceeds to an award, or is settled subsequent to the start of the hearing, appropriate credit will be given for the booking fee in calculating the amount to be paid in order to collect the award, or as the case may be, the amount payable to the tribunal upon settlement of the case.

(d) Where, at the request of one or both parties, a hearing is adjourned or a hearing date vacated prior to or on or after the start date, then, unless non-returnable instalment or other payments have been agreed, the booking fee will be retained by the tribunal (i) in full if the date is adjourned or vacated less than three months before the start date or on or after that date, (ii) as to 50 per cent if the date is adjourned or vacated three months or more before the start date....

(e) Where, at the request of one or both of the parties, a hearing is adjourned or a hearing date is vacated and a new hearing date is fixed, a further booking fee will be payable in accordance with paragraphs (a) and (b) above.(40)

While these rules provide an example of an explicit provision for the payment of a commitment fee, charging such fees often remains at the arbitrators' discretion, as seen in the results of the survey discussed below.

III. THE SURVEY

A. The Scope of the Survey

In March 2000, questionnaires were sent to 877 individuals in 72 countries who practice in the area of international arbitration, either as attorneys or arbitrators, or both.(41) The questionnaires asked five questions:

1.In what country do you practice?

2. When serving as an arbitrator, how do you calculate your fees? (The survey specifically asked whether the respondent, when serving as an arbitrator, calculated his or her fees based on (a) a fixed fee, (b) the amount of worked performed, (3) a percentage of the amount in dispute, or (d) some other method.)

3. Do you charge cancellation or commitment fees?(42)

4. How do you calculate any refund due to the parties? (The survey specifically asked whether the respondent (a) refunded to the parties all unearned fees, (b) refunded all unearned fees if settlement occurred at least one month before the scheduled arbitration hearing, or (c) refunded the unearned fees to the extent that the time that would have been spent preparing for the arbitration could be used for other matters.)

5. What is your reason for not charging cancellation or commitment fees? (The survey specifically asked whether (a) the practice was prohibited by local law, (b) the practice was prohibited by ethical rules, or (c) there was some other reason for not charging cancellation or commitment fees.)

Because mail surveys often do not lend themselves to extensive probing of the complexities of the subject matter, the questionnaire contained adequate space for the respondents to provide additional comments or other information.

In order to encourage responses, complete anonymity was promised.(43) In addition, included with the questionnaires were self-addressed envelopes to return the survey.(44)

B. The Survey Results

1. The Respondents

A total of 262 individuals completed and returned the questionnaire. This amounts to a thirty percent response rate, which is statistically very good for this type of survey.(45)

2. Method for Calculating Arbitrators' Fees

Over two-thirds of the respondents indicated that, when serving as an arbitrator, they calculate their fees based on the amount of work performed. The remaining respondents were nearly equally divided over whether they calculate their remuneration based on a fixed fee, based on a percentage of the amount in dispute, or based on some other method.

It should be noted that a significant number of respondents (27%) indicated that they use more than one method to calculate their fees as an arbitrator. Many stated that when serving as an arbitrator in an arbitration administered under the auspices of an institution, they based their fees on the amount in dispute, but when serving as an arbitrator in an ad hoc arbitration, they based their fees on the amount of work performed.

3. Cancellation or Commitment Fees

The survey found that almost one-third of the respondents charge cancellation or commitment fees. The majority of those that do so practice in the United Kingdom.

Many respondents provided reasons for charging cancellation or commitment fees. One United States arbitrator explained:

   Many of my cases require a week or more of hearing time. Often days of
   travel also are necessary. Once the time is reserved, it eliminates those
   dates for other work as a neutral. Since I often schedule matters 2 or 3
   months in advance, I frequently lose other cases because of the parties'
   time constraints. I learned yesterday that a scheduled matter ... will have
   to be moved. Unfortunately, I lost two cases because I was not available
   when contacted. That continuance[, which was not covered by the
   arbitrator's current cancellation policy,] cost me over U.S. $10,000.(47)

A respondent located in Ireland similarly explained why, when serving as an arbitrator, it is necessary to charge such fees, "In many cases, one is appointed and nothing happens for a long time during which you would have refused to take other appointments. Then, the parties settle and you will [be left] with nothing for the time wasted."(48)

Interestingly, a number of respondents, mainly located in the United States, indicated that, although they did not currently charge cancellation or commitment fees, they were considering doing so in the future. One respondent based in Switzerland noted that "as arbitrations become more complex, the practice of arbitrators charging [cancellation or commitment fees] is likely to spread."(49) Another respondent in Switzerland wrote:

   [M]ost Swiss lawyers ... charge for time actually spent, taking into
   consideration the amounts at stake and the result. It will be I think
   considered as improper to charge for time booked and not used, unless in
   exceptional circumstances....

      Personally, talking from experience (unfortunately experience of wasted
   time not of payment), I think there is very much to be said in favour of
   some sort of fiat lee to compensate the arbitrator for time reserved and
   not used. There are an increasing number of arbitrations that are settled
   at a rather early stage, without too much involvement of the arbitrator,
   except possibly for a first meeting with counsel, but which had been taken
   into consideration by the arbitrator when organizing his calendar for the
   next coming months or years, thus prompting him to refuse other
   arbitrations in consideration of the existing ones. This was recently the
   case for me with two or three ICC arbitrations that I had accepted, but
   which settled after a few months, sometimes a few years of silence, but
   were still on the list. Once again, some sort of consideration should be
   given for some sort of compensation.(50)

4. Calculating Any Refunds Due to Parties

Almost half of the respondents indicated that it is their practice to refund all unearned fees when, for example, a case settles. A small number of arbitrators indicated that they refund unearned fees if settlement occurs at least one month before the scheduled arbitration hearing or if the time that would have been spent preparing for the arbitration can be used on other fee-generating matters.

5. Reasons for Not Charging Cancellation or Commitment Fees

As noted, the majority of the arbitrators surveyed do not charge cancellation or commitment fees. The reasons for not doing so vary. A small number of respondents indicated that such practice was prohibited by either local law or ethical rules. Most, however, provided some other rationale. Several respondents indicated that they felt it was morally wrong to charge for work not performed; that is, the charge would result in a windfall to the arbitrators. Others indicated that it was not common practice to charge cancellation or commitment fees in their jurisdictions. A few noted that to charge such fees would unduly complicate their bookkeeping. One respondent based in the United States wrote that the "practice [is] universally disliked by parties and can add considerably to the cost of the arbitration."(52)

There seems to be much confusion over whether local laws or ethical rules forbid the practice of charging cancellation or commitment fees. For example, one respondent from Nigeria indicated that the fees were prohibited by local law, while others from that country stated that it was acceptable to charge these fees. In addition, some respondents from Egypt and Saudi Arabia wrote that the ethical rules in their countries prohibited arbitrators from charging cancellation or commitment fees, while some of their colleagues thought it was appropriate to do so. Responses from respondents residing in civil law countries in Europe and from the United States noted similar confusion.

6. Survey Conclusions

Several conclusions can be drawn from the survey. First, the most commonly used method to determine arbitrators' fees is the time-based method, except when the arbitral institution calculates the tribunal's fees based on the ad valorem method. Second, while most arbitrators do not charge cancellation or commitment fees, the number of arbitrators that do charge such fees is substantial (30%). The practice of charging cancellation or commitment fees is most commonly employed in the United Kingdom. It also appears to be used regularly in Canada, the Middle East and Oceania. Currently, cancellation and commitment fees are not widely used in the European continent and the United States. Third, the charging of cancellation or commitment fees is likely to increase. A number of respondents, especially in the United States and the European continent, expressed an inclination to begin charging such fees. In addition, most jurisdictions do not appear to explicitly prohibit by law or ethical rules the charging of such fees. The practice of not charging such fees seems to be based more on personal preference or regional custom. Thus, arbitrators in many jurisdictions appear to be free to adopt the practice of charging such fees if they so desire.

IV. IMPLICATIONS FOR ARBITRATORS LOCATED IN THE UNITED STATES HEARING TRANSNATIONAL DISPUTES

Arbitrators in the United States are especially likely to adopt the practice of charging cancellation or commitment fees. In addition to the survey's findings, several factors support this proposition. First, the rules or practices of the most widely used arbitral organizations allow for such fees to be charged in international arbitrations. Second, although it is far from clear, it appears that most ethical rules and local laws do not prohibit arbitrators from charging cancellation or commitment fees. Third, the charging of such fees is not likely to have a significant adverse impact on the costs of the arbitration or the ability of the parties to settle their dispute.

A. Arbitral Rules Facilitate Charging Cancellation and Commitment Fees

The rules of the most widely used arbitral institutions do not explicitly address whether arbitrators may charge cancellation or commitment fees.(54) However, the provisions of these rules addressing arbitrator compensation are, in most instances, broad enough to allow for the inclusion of such fees. Moreover, several institutions' guidelines for compensating arbitrators expressly allow for such fees.

The international arbitration rules of the AAA, the largest arbitral body in the United States, simply state that "[a]rbitrators shall be compensated based upon their amount of service, taking into account their stated rate of compensation and the size and complexity of the case."(55) The issue of cancellation and commitment fees, however, is addressed in the AAA's guide to arbitrators' fees and expenses. It provides:

   [A]rbitrators may charge cancellation fees, provided same are indicated on
   their resume. An arbitrator's cancellation fee is generally one-half of his
   or her daily rate. Where consecutive days of hearing are postponed,
   arbitrators are encouraged to charge for the cancellation of only one
   day.(56)

Similarly, the LCIA Rules do not expressly address the payment of cancellation or commitment fees, but these fees are acknowledged in other guidelines. Article 28 of the LCIA Rules, which concerns the fees of the tribunal, states that the arbitrators' fees "shall be determined by the LCIA Court in accordance with the [LCIA] Schedule of Costs."(57) The LCIA schedule of costs provides that "[t]he Tribunal's fees may also include a charge for time reserved but not used as a result of late postponement or cancellation, provided that the basis for such charge shall be advised in writing to, and approved by, the LCIA Court."(58)

The ad hoc arbitration rules set forth by the United Nations Commission on International Trade Law (UNCITRAL) also do not explicitly provide for or prohibit the payment of cancellation or commitment fees.(59) With respect to the remuneration of the tribunal, the UNCITRAL Rules provide that the arbitrators' fees "shall be reasonable in amount, taking into account the amount in dispute, the complexity of the subject-matter, the time spent by the arbitrators, and any other relevant circumstances of the case."(60) This language is sufficiently broad to allow for the payment of cancellation or commitment fees.(61)

In short, the most widely used arbitral rules should not be a barrier to arbitrators to charging cancellation or commitment fees. Moreover, the largest arbitral body in the United States, the AAA, expressly allows for the payment of these fees. These factors are likely to facilitate their increased use by arbitrators in the United States.

B. Ethical Rules and Cancellation and Commitment Fees

A number of survey respondents were uncertain whether cancellation or commitment fees were prohibited by applicable ethical rules governing the conduct of lawyers. Some respondents believed that attorney ethics rules applied to lawyers serving as arbitrators, meaning that the provisions in those rules governing attorneys' fees would preclude the charging of cancellation or commitment fees. Others disagreed. This result is not surprising; jurisdictions and commentators are divided over whether attorney ethics rules apply to lawyers serving as arbitrators. Even if such rules do apply, however, it appears that they would not per se prohibit lawyers serving as arbitrators from charging cancellation or commitment fees.

1. Applicability of Ethical Rules Governing the Conduct of Lawyers Who Serve as Arbitrators

In the United States, all fifty states and the District of Columbia have adopted some form of regulation for lawyers. Most of these regulations are based on the American Bar Association (ABA) Model Rules of Professional Conduct.(62) Federal courts also have adopted rules regulating the conduct of lawyers practicing before those courts. These rules often incorporate the attorney ethics code of the state in which the federal court sits.(63)

The Model Rules do not explicitly address whether their provisions apply to attorneys serving as arbitrators. There are two provisions, however, that may be relevant to the issue: Model Rules 2.2 and 5.7.(64)

Model Rule 2.2 sets forth guidelines under which a lawyer may act as an intermediary between clients.(65) While Rule 2.2 is silent on whether it applies to a lawyer acting as an arbitrator, the comment explicitly states that it does not.(66)

The ABA Commission on Evaluation of the Rules of Professional Conduct (Ethics Commission 2000), which was established to undertake a comprehensive study and evaluation of the Model Rules, has recommended that Model Rule 2.2 be deleted in its entirety.(67) The Commission believes that Model Rule 2.2 is deficient because it implies that a lawyer representing multiple clients as an intermediary is not fully subject to the conflicts of interest rules, particularly Model Rule 1.7.(68) The Commission has proposed that the ABA revise the rules and comments to address the conflicts of interest that lawyers face when undertaking joint representations.(69) It also has proposed a new rule on lawyers serving as third party neutrals, which requires attorneys serving as neutrals to make clear to the parties the nature of their role as arbitrators or mediators.(70) It does not, however, attempt to apply all the attorney ethics rules to lawyers serving as third party neutrals.(71) The Commission intends to submit its proposed recommendations to the ABA House of Delegates for adoption in the fall of 2000, and debate in that body is expected to begin in the summer of 2001.(72)

Model Rule 5.7 addresses the conditions under which a lawyer may provide law-related services.(73) It states that an attorney is subject to the Model Rules if the law-related services are provided:

(1) by the lawyer in circumstances that are not distinct from the lawyer's provision of legal services to clients; or

(2) by a separate entity controlled by the lawyer individually or with others if the lawyer fails to take reasonable measures to assure that a person obtaining the law-related services knows that the services of the separate entity are not legal services and that the protections of the client-lawyer relationship do not exist.(74)

Model Rule 5.7 defines law-related services as service[s] that might reasonably be performed in conjunction with and in substance are related to the provision of legal services, and that are not prohibited as unauthorized practice of law when provided by a nonlawyer."(75) The comment to this rule states that "[e]xamples of law-related services include providing title insurance, financial planning, accounting, trust services, real estate counseling, legislative lobbying, economic analysis, social work, psychological counseling, tax return preparation, and patent, medical or environmental counseling."(76) Arbitration is not included on the list, but this list appears to be illustrative as opposed to exhaustive.(77) Indeed, North Dakota has determined that alternative dispute resolution (ADR) services are law-related services within the meaning of the rule.(78) Others that have adopted Model Rule 5.7, such as Indiana, Maine and Michigan, have not yet taken a position on the issue.(79)

Commentators also are divided over whether lawyers serving as arbitrators, or performing other ADR services, are subject to attorney ethics rules. Those in favor of applying the attorney ethics rules to providers of ADR services, such as mediators and arbitrators, argue that lawyers engaged in such activities are providing law-related services within the meaning of Model Rule 5.7.(80) Others state that the Model Rules are inapplicable to those providing ADR services, noting that "[a] third party neutral is not a `representative' of a party and thus is seemingly taken out of the lawyer rules...."(81) They also argue that applying attorney ethics codes to lawyers who provide ADR services, but not to nonlawyers who provide the same services, would unfairly set a higher standard of conduct on the lawyers.(82)

In view of the above discussion, it remains unsettled whether attorney ethics rules apply to arbitrators.(83) This conclusion supports the survey's finding that arbitrators are unsure of whether attorney ethics rules govern their conduct.

2. Analysis of Cancellation and Commitment Fees Under the Attorney Conduct Rules

If lawyers serving as arbitrators are subject to attorney ethics rules, it must be determined whether any of those rules prohibit them from charging cancellation or commitment fees.(84) A strong argument can be made that the ethics rules should permit these fees.

The relevant provision is Model Rule 1.5. It sets forth the rule that "[a] lawyer's fee shall be reasonable."(85) It also provides factors to consider in determining the reasonableness of the fee. These factors include, among others:

(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;

(2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;

(3) the fee customarily charged in the locality for similar legal services;

(4) the amount involved and the results obtained;

(5) the time limitations imposed by the client or by the circumstances;

(6) the nature and length of the professional relationship with the client;

(7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and

(8) whether the fee is fixed or contingent.(86)

Whether a cancellation or commitment fee is reasonable is likely to vary from case to case.(87) The purpose of these fees is to compensate the arbitrator for lost employment opportunities in the event that the parties cancel a hearing within a time period that may not permit the arbitrator to find substitute work. Because lost employment opportunities may be considered in setting a lawyer's fee, it appears that cancellation and commitment fees would not be per se prohibited by Model Rule 1.5.(88)

It may also be argued that cancellation and commitment fees are akin to nonrefundable retainers and that the rules regulating the circumstances under which lawyers may charge nonrefundable retainers should apply to cancellation and commitment fees. To date, there have been no cases in the United States discussing the applicability of the rules on nonrefundable retainers to cancellation or commitment fees in international arbitrations. It appears, however, that the rules on nonrefundable retainers should not apply to arbitrators charging cancellation or commitment fees.

In general, there are two types of attorney retainers: general and special. A general retainer is an agreement between a lawyer and a client under which the client secures for a fee the lawyer's availability to provide legal services during a fixed time period.(89) A special retainer, which is also known as a specific retainer, is an agreement between a lawyer and a client under which the client pays the lawyer a fee for a particular service.(90) A subset of the special retainer is the nonrefundable special retainer, which is "a fee paid to a lawyer by a client in advance of services to be rendered and denominated by the lawyer as nonrefundable in the event that the client terminates the relationship, even if the work has not been done."(91) Courts have ruled that general retainers (even though nonrefundable) are valid because the fees are earned when paid.(92) By contrast, jurisdictions are divided over the validity of nonrefundable special retainers. Some courts have held it unethical for lawyers to charge nonrefundable special retainers because they violate public policy.(93) Other courts and state ethics committees have upheld the use of these retainers so long as they are reasonable.(94)

The leading decision prohibiting attorneys from charging nonrefundable special retainers is In re Cooperman.(95) In that case, lawyer Edward Cooperman's fee agreement provided for his clients to pay at the outset a nonrefundable special retainer.(96) A disciplinary action was instituted against Cooperman after several former clients complained to the local grievance committee that Cooperman had refused to refund any portion of the retainers collected, even though the clients had discharged Cooperman prior to the completion of the matters for which he was hired.(97) The New York Supreme Court, Appellate Division held that the nonrefundable special retainer agreements were unethical, unconscionable and excessive, and the court suspended Cooperman for two years.(98) On appeal, the New York Court of Appeals affirmed, ruling that special nonrefundable retainers are per se unethical.(99) The Court of Appeals stated that clients have an "unqualified right to terminate the attorney-client relationship at any time," with or without cause, and that nonrefundable retainers inappropriately compromise the right to sever the fiduciary relationship because it imposes penalties on the client for discharging the lawyer.(100) The Court of Appeals explained:

   Special nonrefundable retainer fee agreements diminish the core of the
   fiduciary relationship by substantially altering and economically chilling
   the client's unbridled prerogative to walk away from the lawyer. To answer
   that the client can technically still terminate misses the reality of the
   economic coercion that pervades such matters. If special nonrefundable
   retainers are allowed to flourish, clients would be relegated to hostage
   status in an unwanted fiduciary relationship--an utter anomaly. Such
   circumstance would impose a penalty on a client for daring to invoke a
   hollow right to discharge.(101)

The Court of Appeals thus held that nonrefundable special retainers violate public policy and that it is ethically improper for attorneys to use them.(102)

Unlike the New York Court of Appeals, the New Jersey Superior Court, Appellate Division has stated that nonrefundable retainers are not per se unethical.(103) The court ruled that such retainers are "subject to the overriding precept that any fee arrangement must be reasonable."(104) The court noted, however, that the "unused portion of even a nonrefundable retainer should be returned if the contravening events should render it unconscionable for the attorney to keep it."(105)

Cancellation and commitment fees arguably are similar to nonrefundable special retainers in that they are paid to the arbitrators so that they will be available for a specific service; namely the arbitration hearing.(106) Nevertheless, the prohibition on nonrefundable special retainers should not apply to cancellation and commitment fees. The prohibition on nonrefundable special retainers is based on the principle that these retainers violate public policy because they compromise the client's "unqualified right" to terminate the attorney-client relationship.(107) In international arbitrations, however, there is no attorney-client relationship between the arbitrator and the parties who employ them. Indeed, it is "a fundamental principle in mainstream international commercial arbitration that an arbitrator must be and remain impartial and independent."(108) Because arbitrators are not fiduciaries of clients in the same manner as the lawyers who are employed by clients to represent them, the policy behind the rule banning nonrefundable special retainers would not be served by applying it to prohibit arbitrators from charging cancellation or commitment fees.(109)

3. Ethics Codes for Arbitrators

Many ethics codes drafted specifically to cover arbitrators offer little guidance on the propriety of cancellation and commitment fees. None of the codes forbid them. At least one prominent code expressly permits cancellation fees and one set of guidelines indirectly permits them.

In the United States, there are very few state ethics codes for arbitrators.(110) Furthermore, those that have been adopted typically apply to court-appointed arbitrators.(111) A number of private organizations, such as the American Bar Association (ABA) and the International Bar Association (IBA), have drafted codes of ethics for use in private arbitrations or as model codes that may be adopted by states. These codes either allow for the payment of cancellation or commitment fees or are otherwise silent on the payment of these fees.

In 1977, a joint committee of the ABA and the AAA prepared a Code of Ethics for Arbitrators in Commercial Disputes.(112) This code applies to all AAA arbitrators involved in commercial disputes and where "disputes or claims are submitted for decision to one or more arbitrators appointed in a manner provided by an agreement of the parties, by applicable arbitration rules, or by law."(113) It was revised in 1999, by a special committee consisting of members from both organizations and CPR Institute for Dispute Resolution. The 1999 ABA Code of Ethics has not yet been approved by the ABA House of Delegates or the Board of Governors of the ABA.(114) It has been adopted, however, by the AAA.

The 1977 Code of Ethics did not address the payment of cancellation or commitment fees. The provision on arbitrators' remuneration stated, among other things, that arbitrators should reach an agreement with the parties on fees prior to accepting appointment.(115) This provision was revised in 1999 to specifically indicate that cancellation fees may be charged. The 1999 Code of Ethics states in pertinent part that "[i]t is preferable that, before the arbitrator finally accepts appointment, the terms and conditions of payment, including cancellation fees and compensation for study and preparation time, be established and that all parties be informed thereof in writing."(116)

The Chartered Institute has promulgated a Code of Ethical Conduct (Institute's Ethical Code) and Guidelines of Good Practice for Arbitrators (Institute's Good Practice Guidelines).(117) The Institute's Ethical Code sets forth ethical principles to which their members are required to adhere when conducting arbitrations. It does not explicitly address the charging of cancellation or commitment fees. With respect to the arbitrators' remuneration, the Institute's Ethical Code provides that the arbitrators' fees "must be reasonable taking into account all the circumstances of the case" and the basis of such fees must be disclosed to the parties.(118) By contrast, the Institute's Good Practice Guidelines provides advice for arbitrators on being impartial, independent, competent, diligent and discreet. Unlike the Institute's Ethical Code, the Good Practice Guidelines explicitly addresses the payment of cancellation fees. It provides:

      11.1 Cancellation charges are intended to compensate the arbitrator for
   any loss likely to be suffered as result of time set aside for a hearing
   not being required and for the inconvenience caused by cancellations. In
   fixing the amount of such charges the arbitrator should make full allowance
   for the possibility of mitigating his loss.

      11.2 Provision as to cancellation charges should, if possible, be agreed
   with the parties no later than the acceptance of the appointment.(119)

The IBA also has promulgated Ethics for International Arbitrators (IBA Ethics Rules).(120) The IBA Ethics Rules are not binding on arbitrators or on the parties to an arbitration unless they are adopted by agreement.(121) With respect to the fees of the tribunal, the IBA Ethics Rules is silent on the payment of cancellation or commitment fees. It simply states that arbitrators shall not make any unilateral arrangements for fees and expenses.(122)

One organization, the Commission on Ethics and Standards in ADR, has issued a Proposed Model Rule of Professional Conduct for the Lawyer as Third Party Neutral, which is designed to be adopted into the Model Rules of Professional Conduct.(123) The proposed rule would apply to a lawyer who acts in a neutral role, such as a mediator or arbitrator.(124) Although it contains a section discussing the fees of the third party neutral, it does not explicitly address the payment of cancellation or commitment fees. It requires, inter alia, that the basis, rate, and allocation of the third party neutral's fees be set forth in writing to all parties, unless he or she is serving in a no-fee or pro bono basis.(125)

In short, none of the rules or codes governing the conduct of arbitrators in international arbitrations expressly prohibit the payment of cancellation or commitment fees. In addition, a few of these arbitral ethics codes, including the code of the most widely used arbitral body in the United States, expressly or implicitly allow for the payment of cancellation fees. Just as importantly, the codes and guidelines call for reasonable fee arrangements. Thus, as long as cancellation and commitment fees are part of a fairly negotiated agreement, they should be permissible.

C. Applicability of Rules Concerning Liquidated Damages and Penalties to Cancellation and Commitment Fees

Survey respondents were also uncertain whether cancellation or commitment fees were prohibited by local laws, the most relevant of which are laws regulating the payment of liquidated damages and penalties. To date, there are no statutes or cases in the United States directly addressing whether cancellation or commitment fees are permitted or prohibited under such laws. While the validity of particular agreements to pay cancellation or commitment fees under laws regulating liquidated damages and penalties would have to be determined on a case-by-case basis, it appears that, as a general proposition, these fees would not be void per se. (126)

In the United States, a contract clause stipulating the amount of damages to be paid in the event of a breach may be considered either as a liquidated damages clause or a penalty clause.(127) The distinction between the two is crucial. Courts typically enforce liquidated damages clauses on the grounds that they provide certainty as to the amount of recoverable damages and they save parties time and money by eliminating the need for litigation as a result of a breach of contract.(128) By contrast, courts have held penalty clauses invalid because they have an Kin terrorem effect"; that is, they function to coerce a party into performing and punish that party for failing to perform.(129) The purpose of a penalty clause also is contrary to the compensation principle behind the awarding of contractual remedies because the stipulated sum exceeds the amount of damages that a court would have awarded to the nonbreaching party. As a result, a penalty clause places the non-breaching party in a far better position than it would have enjoyed had the contract been performed. (130)

There exists no uniform approach to distinguish a liquidated damages clause from a penalty clause.(131) To determine whether an amount specified in an agreement is a valid liquidated damages clause or an invalid penalty clause, jurisdictions typically have considered one or more of the following factors: (1) the intention of the parties; (2) the difficulty of ascertaining damages; and (3) the reasonableness of the stipulated sum.(132)

1. Parties' Intent

A few courts have held that whether a clause calling for the payment of a fixed sum in the event of a breach is a liquidated damages clause or a penalty clause depends on the intent of the parties.(133) Where the purpose of the clause is to fix the amount to be paid in lieu of performance, it is more likely to be a liquidated damages provision. By contrast, where the purpose of the clause is to secure performance, it is more likely to be a penalty.(134) The intent of the parties is typically determined from the surrounding circumstances and whether the parties described the stipulated sum in question as "liquidated damages" or a "penalty."(135) It should be noted, however, that the intent of the parties is rarely the overriding factor today in determining whether a provision is a valid liquidated damages clause or an invalid penalty clause.(136)

2. Difficulty in Ascertaining Damages

Some courts will uphold a provision as a liquidated damages clause only if the damages resulting are uncertain or difficult to ascertain.(137) Courts that employ this factor divide over the time when the damages must be difficult to estimate. Some courts have ruled that the stipulated damages must be difficult to estimate at the time that the contract was formed.(138) Other courts have held that the stipulated damages must be difficult to estimate at the time of trial.(139)

3. Reasonableness of Stipulated Sum

The most important criterion used by courts to distinguish a liquidated damages clause from a penalty clause is that a provision fixing the amount of damages in the event of nonperformance will be considered a valid liquidated damages clause if the stipulated sum is reasonably related to the actual loss that the party would sustain in the event of a breach.(140) There are two points in time at which courts examine the reasonableness of the stipulated sum: (1) at the time of contracting (ex ante); or (2) at the time of breach (ex post).(141) Most jurisdictions have adopted the ex ante view, requiring that the stipulated amount be reasonable in view of the damages foreseeable at the time of contracting.(142) If there are no actual damages, however, some jurisdictions refuse to enforce a stipulated damages clause even when the fixed amount is reasonable under the ex ante test.(143)

4. Applying the Factors

Jurisdictions also are divided over which factor or factors are to be used to distinguish liquidated damages clauses from penalty clauses.(144) For example, under California law, "a provision in a contract liquidating the damages for the breach of the contract is valid unless the party seeking to invalidate the provision establishes that the provision was unreasonable under the circumstances existing at the time the contract was made."(145) In New York, in order for a promise to pay a pre-estimated amount of damages in the event of a breach to be upheld as liquidated damages, the stipulated amount must bear "a reasonable proportion to the probable loss and the amount of actual loss [must be] incapable or difficult of precise estimation."(146) By contrast, Georgia courts require all three factors to be considered in determining whether a provision fining a sum to be paid in the event of a breach constitutes a liquidated damages clause or a penalty clause.(147)

Cancellation fees and non-refundable commitment fees appear to meet the three requirements necessary to be upheld as valid liquidated damages clauses.(148) First, the parties and the arbitrator intend the fees as compensation for time reserved but ultimately never used, and not as a penalty. The purpose of cancellation and commitment fees is not to punish the parties for settling or to dissuade them from doing so.(149) Rather, in imposing such fees, the parties intend to alleviate the financial loss to the arbitrators that arises from last minute cancellations of hearings that leave the arbitrators without the opportunity to secure comparably remunerative work.(150)

Second, losses arising from missed employment opportunities are uncertain and are difficult to measure both at the time that the contract was formed and at the time of trial. At the time of contracting, it would be virtually impossible to calculate with any degree of certainty the damages that the arbitrator would sustain if the. parties canceled the hearing. This is because the loss would depend on, inter alia, when the parties notified the arbitrator of the cancellation and what opportunities were available to the arbitrator to secure comparable work for the days that were set aside for the hearing. At the time of trial, calculating the damages sustained by the arbitrator may be somewhat easier, but doing so arguably would still be wrought with difficulties. As Lord Justice Leggatt explained in K/S Norjarl A/S v. Hyundai Heavy Indus.:

   [It is] impracticable [to] suggest[ ] that ... clients might be prepared to
   reimburse the arbitrators for such actual loss as could be shown to have
   been incurred by reason of settlement before the end of the period
   reserved. Arbitrators cannot reasonably be invited to agree to such an
   amorphous arrangement. It would in any event provide a fruitful source of
   discord, which might involve proof of the amount of the arbitrators' actual
   earning during the relevant period as well as the reasons why they had not
   availed themselves of particular opportunities of work.(151)

Third, while it is difficult to predict in the abstract whether a particular cancellation or commitment fee provision would be reasonably related to the actual loss sustained by the arbitrator in the event that a hearing was canceled, so long as the fee generally approximates the actual damages sustained by the arbitrator, it would satisfy the reasonableness test.(152) In some jurisdictions, if the arbitrator is able to secure comparable alternate employment after the parties cancel, the arbitrator does not collect a cancellation or commitment fee, even if the amount of the fee is reasonable under the ex ante test.(153) Thus, while cancellation and commitment fees probably would not be considered per se invalid penalties,(154) whether a particular clause is enforceable as liquidated damages is generally determined on a case-by-case basis, and the result is unpredictable given the state of the law in this area.(155)

D. The Impact of Cancellation and Commitment Fees on the Cost of the Arbitration and Settlement

Critics of cancellation and commitment fees argue that they increase the cost of arbitrations and hinder the parties' ability to settle the case.(156) It appears, however, that the payment of such fees has little effect on either the cost of the arbitrations or the parties' ability to settle.

Charging cancellation and commitment fees appears to increase the overall cost of arbitrations because it requires the parties to pay a portion of hearing costs, regardless of whether the hearings actually take place. Without such fees, however, the last minute cancellation of hearings would often leave arbitrators with no compensation for time reserved and without the opportunity to secure comparable remunerative work.(157) To compensate for lost income resulting from cancellations, arbitrators are likely to adjust their billing rates to reflect the anticipated lost employment so that their expected profits would still be realized. Indeed, it is common practice for lawyers in the United States to consider lost employment opportunities in setting their hourly billing rates.(158) Accordingly, without the use of cancellation and commitment fees, the parties would generally pay higher rates for all services performed by the arbitrators. It is therefore unclear whether the use of cancellation and commitment fees actually increases the cost of arbitrations.

Cancellation and commitment fees also are unlikely to have a significant impact on the parries' ability to settle the dispute. In general, settlement can occur when the minimum amount that the claimant is willing to accept is lower than the maximum amount that the respondent is willing to pay.(159) The difference between these two dollar amounts is commonly referred to as the settlement range.(160) In theory, agreeing to any number within this range would place both the claimant and respondent in a better position than if they proceeded with the arbitration.(161)

The minimum amount that the claimant will settle for is equal to the present value of claimant's estimate of the amount awarded by the tribunal if claimant wins at arbitration ([A.sub.c]), multiplied by the claimant's estimate of the probability that the claimant will win at arbitration ([P.sub.c]), minus the costs of the arbitration, including attorneys' fees ([C.sub.c]), plus claimant's settlement costs ([S.sub.c]).(162) In other words, claimant's minimum offer would be equal to:

[A.sub.c][P.sub.c] - [C.sub.c] + [S.sub.c]

The maximum amount that the respondent will offer to settle the dispute is equal to the present value of respondent's estimate of the amount awarded by the tribunal if respondent loses at arbitration ([A.sub.r]), multiplied by the respondent's estimate of the probability that the respondent will lose at arbitration ([P.sub.r]), plus the costs of the arbitration, including attorneys' fees ([C.sub.r]), minus respondent's settlement costs ([S.sub.r]). In other words, respondent's maximum offer would be equal to:

[A.sub.r][P.sub.r] + [C.sub.r] - [S.sub.r]

The following examples illustrate the application of these principles. Assume that the stakes in the dispute are $1 million to each side and each party believes that it has a fifty percent chance of winning.(163) In addition, assume that the cost of the arbitration to each party is $200,000, and that this amount includes each party's legal costs and half of the costs and fees of the tribunal. Also assume that the parties are risk neutral.(164) If we ignore for the moment the costs of settlement, the claimant would be willing to accept anything above $300,000 to settle the dispute,(165) while the respondent would be willing to settle the dispute for anything less than $700,000.(166) Thus, the size of the settlement range is $400,000.(167)

Many disputes are settled prior to the tribunal reaching a final award because, among other things, settlements save the costs of arbitration.(168) As noted, however, there are costs associated with settlement.(169) These costs typically include lawyers' fees and the parties' time spent in negotiating the settlement.(170) Thus, if in the above example the settlement cost to each party is $20,000, the claimant would now be willing to accept anything above $320,000 to settle the dispute,(171) while the respondent would be willing to settle the dispute for anything less $680,000.(172) The size of the settlement range is now $360,000.(173)

In the event of settlement, the payment of a commitment or cancellation fee arguably should be considered a settlement cost. This is because such fee would be paid by the parties as a direct result of settling the dispute. If so, this fee would, like other settlement costs, have the effect of reducing the likelihood of settlement. To illustrate, assume that each party also is required to pay half of a $6,000 cancellation fee if they settled the dispute before the hearing date. The claimant, who was originally willing to accept anything more that $320,000 to settle the dispute, would now only be willing to accept an amount greater than $323,000.(174) Conversely, if the respondent would have been willing to pay anything less than $680,000 to settle the dispute, the cancellation fee would decrease the respondent's maxi