One of the major advantages of the choice of arbitration over courtroom litigation is the key principle of party autonomy. It guarantees the consensus of parties on the appointment of their arbitrator/arbitrators, the choice of arbitral institution/ rules, the choice of the seat of the arbitration and the manner in which the arbitration proceeds, as contained in the Arbitration Agreement. Arbitral tribunals are thus required to observe the sanctity of party autonomy, from which they also derive their source and authority, throughout the proceedings.
What are multiparty arbitral proceedings?
Multiparty arbitral proceedings arise from commercial contracts which involve a chain of actors. These are a common feature in the construction and maritime industry, to name but a few. Some examples of the different scenario which give rise to multiparty party arbitral proceedings are as follows:
- Where there are several parties to a single contract such as a joint venture or consortium. This would not be problematic, as the contract would have a common arbitration clause, signed unto by all the parties.
- A project which involves different parties under different contracts with a common underlying objective. Such a scenario may be a construction project involving the employer and the contractor; the contractor and the subcontractor; the contractor and the supplier, all relating to an engineering, procurement and construction (EPC) contract or a turnkey contract. This second scenario is where the issues discussed in this article become pertinent.
Generally, arbitration is more suited to the first scenario, which involves a common arbitration agreement signed by all the parties. In the second scenario however, there are several back to back contracts, each containing separate arbitration agreements/ clauses. This invariably means that in the event of a dispute affecting the various roles under the project, there will be several arbitrations relating to the same underlying issues going on at the same time. However, it is more practical for a single ruling on common issues which can then be applied to produce consistent results in all the related contracts. (See CIARB Practice Guideline 15)
The governing principles
In addressing the issue of the choice of arbitrators in a multiparty scenario, it is necessary to look at the relevant principles found in the lex arbitri (which is the law of the seat of arbitration) and the institutional or adhoc rules, as contained in the arbitration agreement. For instance, under the Arbitration Act 1996 of England and Wales,
Section 35 provides:
“(1) The parties are free to agree—
(a) that the arbitral proceedings shall be consolidated with other arbitral proceedings, or
(b) that concurrent hearings shall be held, on such terms as may be agreed.
(2) Unless the parties agree to confer such power on the tribunal, the tribunal has no power to order consolidation of proceedings or concurrent hearings.”
This provision upholds party autonomy and consensus is paramount.
Relevant Case Law
In the Dutco case (Paris, Cour de Cassation, 7 janvier 1992), the ICC had invited the parties, under its 1988 rules, to agree on a joint arbitrator. This was subsequently challenged on grounds of improper composition of the tribunal. The Paris Court of Appeal confirmed the appointment procedure and rejected the challenge. The Cour de Cassation however overturned the decision on grounds of public policy, stating that the principle of “equality of the parties” had been overlooked.
The Arbitral Rules
Under the ICC rules, Article 7(1) on joinder provides:
“Unless all parties, including the additional party, otherwise agree, or as provided for in Article 7(5), no additional party may be joined after the confirmation or appointment of any arbitrator.” In effect, the problem arises where the joinder is sought after the composition of the tribunal. Article 7(5) further states that a party may be joined “subject to the additional party accepting the constitution of the arbitral tribunal”. This therefore erodes the right of the joining party to an arbitrator of his choice.
In relation to the LCIA Rules, Article 8 on “Three or More Parties”, provides that where the Arbitration Agreement entitles each party howsoever to nominate an arbitrator, if the parties to the dispute number more than two and such parties have not all agreed in writing that the disputant parties represent collectively two separate “sides” for the formation of the Arbitral Tribunal (as Claimants on one side and Respondents on the other side, each side nominating a single arbitrator), the LCIA Court shall appoint the Arbitral Tribunal without regard to any party’s entitlement or nomination.”
Similarly, Article 17(5) of the Stockholm Chamber of Commerce (SCC) rules provide that “where there are multiple Claimants or Respondents and the Arbitral Tribunal is to consist of more than one arbitrator, the multiple Claimants, jointly, and the multiple Respondents, jointly, shall appoint an equal number of arbitrators. If either side fails to make such joint appointment, the Board may appoint the entire Arbitral Tribunal.”
This trend, which is found in many arbitral rules, permits the arbitral institutions to appoint the tribunal in place of the parties. The rules further establish that parties joining after the composition of a tribunal in multiparty arbitral proceedings, do so without the right to an arbitrator of their choice.
A conflicting situation arises since the freedom of choice by a joining party to an arbitrator, is curtailed. This is contrary to the principle of party autonomy due to the fact that it erodes such a party’s right to the choice of its own arbitrator.
Therefore, in the context of multiparty arbitral proceedings, there is a clear departure from the principle of party autonomy and freedom of choice of one’s arbitrator, as it would ordinarily pertain in arbitration. A related issue is whether the dichotomy introduces an element of inconsistency into international arbitration, as a dispute resolution mechanism. This writer adopts the view that though it appears to be the case, the rules relating to multiparty proceedings are to ensure a practical and expedient process. Another arising issue is whether the need for expediency and practicality should override the requirement of providing the parties with an equal and fair opportunity to present their case. Without the rules that ensure an expedient and practical approach, multiparty arbitrations would run the risk of becoming too unwieldy, with an unlimited number of arbitrators and no limit on the time frame for appointments, which means the process could become non-ending. Furthermore, since a tribunal is to be independent and impartial, the original tribunal should be deemed to be capable of arriving at a fair outcome for all parties.
To prevent the contradictions inherent in multiparty arbitral proceedings, particularly with respect to the appointment of arbitrators, as outlined above, this writer adopts the view that there is a need for drafters of arbitration agreements to envisage and include elaborate provisions on how multiparty arbitrations will be handled.
© 14/11/21 Ellen Bannerman-Quist FCIArbEllen Bannerman-Quist FCIArb
Photo by Sebastian Herrmann on Unsplash
This Blog is for general information only and not intended for readers to rely upon as legal advice. Readers requiring legal advice on specific issues relating to the subject matter are advised to contact Bannerman-Quist Legal Consult& Notary directly.