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Final-offer arbitration – intentionally high-risk, says Canadian court (really?)

Final-offer arbitration has been described by a Canadian court (quoting an earlier opinion) as “an intentionally high risk form of arbitration that encourages settlement and tempers final positions“; the court observed that in the specific business context (rate-setting for railroad shipping charges),”[t]he limited duration of the decision’s binding effect on the parties is closely linked to the limited timeframe within which the arbitration process occurs.” Canadian Nat’l R.R. Co. v. Gibraltar Mines Ltd, 2019 FC 1650 ¶ 27 (cleaned up, emphasis added, citation omitted) (hat tip: Daniel Urbas).

Final-offer arbitration is also known as baseball arbitration or last-offer arbitration, which has a very high settlement rate. A couple of years ago I proposed a similar, hybrid dispute-resolution procedure in which (i) early in the case, an arbitrator hears the parties’ opening statements and provides her tentative views on the merits; (ii) if the parties don’t settle — and hearing the arbitrator’s views should make settlement more likely — then at the close of the evidence, each party makes a final offer, and the arbitrator must choose one of the offers, just as in baseball arbitration.