International trade and projects often involve a host of parties joined by a chain or network of separate contracts. When a dispute emerges at one point in this matrix of contractual arrangements, it can often give rise to legal actions under other related contracts. The costs of duplication and the risk of inconsistent decisions will inevitably grow if these actions proceed separately.
Various forms of multi-party arbitration have been developed to counter such problems. Although this raises difficult issues in the appointment and jurisdiction of the tribunal, those issues can be resolved successfully through careful drafting of the arbitration agreements and by proper consideration of procedural issues at an early stage. By addressing these matters at the outset in the various contracts, the parties can achieve a successful arbitration of all related disputes producing consistent awards at minimum cost.
Types of Multi-Party Arbitration
There are four main types of multi-party arbitration:
- Unified multi-party arbitration involves all parties joining in one proceeding to resolve all disputes before a single arbitral tribunal.
- Consolidated arbitrations involve two or more separately commenced arbitrations that are then consolidated and thereafter proceed before a single tribunal as an unified multi-party arbitration.
- Concurrent bilateral arbitrations involve two or more separate arbitrations that proceed before the same tribunal at common hearings, thus allowing common issues in the various arbitrations to be considered and resolved together.
- Parallel bilateral arbitrations involve two or more separate arbitrations that proceed before the same tribunal but at separate hearings and without any exchange of documentary or witness evidence between the separate proceedings.
Appointment of the Tribunal
A fundamental problem in multi-party arbitration arises from the inherent right of each party to nominate its own arbitrator. Where there are more than two parties to the arbitration, there will not be enough arbitral appointments to go round. If a party to the arbitration is thus deprived of the right to appoint an arbitrator, it may successfully challenge the final award. The French Court upheld such a challenge in 1994 on the basis that " the principle of the equality of the parties in the appointment of the arbitrators is a matter of public policy".1
There are two possible approaches to this problem. Firstly, the arbitration clause may provide that all parties on one side of the arbitration, the joint claimants or joint respondents, shall make a joint nomination of one arbitrator, failing which the governing arbitration institution shall make that appointment for them. This approach seeks to preserve the common practice of having each side appoint one arbitrator, with the presiding arbitrator then being appointed by a neutral body. Alternatively, the arbitration clause may simply provide that all arbitrators shall be appointed by the governing arbitration institution.
Whichever approach is adopted, multi-party arbitrations should proceed before an arbitration institution in order to handle problems in the appointment of the tribunal in the ways described above. Many arbitration institutions, including the Singapore International Arbitration Centre and the Hong Kong International Arbitration Centre, recognise these problems and provide expressly in their rules that the power of appointment in the absence of agreement shall be exercised by the institution.
The Jurisdiction of the Tribunal
The purpose of multi-party arbitration is to ensure consistency in the decisions and to minimise cost and delay. It would defeat this purpose if the tribunal could hear disputes between parties A and B and between parties B and C but not disputes between parties A and C. The tribunal must have jurisdiction to deal with all disputes arising between all parties. These jurisdictional issues must be addressed when drafting the multi-party arbitration clause or subsequently in the arbitration agreement or terms of reference.
The starting point is that consistent arbitration clauses should be used in all relevant contracts and sub-contracts. These clauses should provide that all disputes are to be referred to unified multi-party arbitration consolidated or heard concurrently before a single tribunal at one venue and governed by one set of rules. If any of these elements is absent a party may then choose, for tactical reasons, to commence separate proceedings in a separate jurisdiction and to appoint a separate tribunal although the facts and issues will be the same. The objectives of consistency and cost-saving are then lost.
Institutional Rules & Local Law
The importance of addressing these matters in the contracts stems in part from the lack of relevant provisions in institutional rules or local laws. Arbitration is a consensual process with high regard for party autonomy in decisions as to how the dispute should proceed. In consequence, local laws and the rules of arbitration institutions will rarely, in the absence of express agreement, force the parties to consolidate arbitrations or to proceed concurrently. Contrast the procedural rules of litigation that allow or even compel joinder of third parties and consolidation of related actions.
The one notable exception is section 6B of the Hong Kong Arbitration Ordinance that allows the Hong Kong Court to order consolidation or concurrent hearings of domestic arbitrations (and international arbitrations that are to proceed as domestic arbitrations). That approach has not been followed in (for example) England’s Arbitration Act 1996 or Singapore’s Arbitration Act 1953 and International Arbitration Act 1994. The English Court has, however, recognised the need for consistency. In a 1982 case it decided that it had power to order the appointment of the same arbitrator or tribunal in parallel arbitrations where it appeared appropriate.2 In contrast, Article 1046 of the Netherlands Code of Civil Procedure provides that any of the parties may request the President of the District Court of Amsterdam to order consolidation of the proceedings if the arbitral proceedings issued before an arbitral tribunal is connected with the subject matter of proceedings commenced before another arbitral tribunal.
Summary
By their nature multi-party projects and trading arrangements may throw up disputes involving several parties and several different contracts. Such disputes, however, often involve related factual and legal issues. To avoid the unnecessary time and expense of resolving those disputes through separate arbitrations, and to avoid the risk of inconsistent decisions, the contracting parties should carefully consider multi-party arbitration clauses when preparing the project documentation. If they have not done so, they should consider the consolidation or concurrent hearing of separate arbitrations as soon as the disputes arise.
"© Herbert Smith 2002
The content of this article does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.
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