Law code, gavel and books.

Nowadays high value M&A transactions and project structures can be very complex, in particular involving a number of parties based in different jurisdictions who between them enter into a variety of related contracts. To save time and money, parties can seek to resolve all the issues in dispute in the same set of legal proceedings, rather than in many different, but related, proceedings. This has traditionally been done relatively easily in court proceedings. However it has been more difficult to do this in arbitral proceedings due to the fact that it is an entirely consensual process, originally built to accommodate two parties per arbitration. As multi-party disputes have become more and more common, arbitral institutions have begun to recognise the importance of including joinder and consolidation provisions in their rules to counter this difficulty.

Parties to a multi-party contract or a number of related contracts with different parties should consider, at an early stage in the drafting and negotiating of those contracts, how they would wish any future disputes arising under such contracts to be handled . In considering this, the parties should consult and familiarise themselves with how their preferred arbitral rules deal with joinder (i.e. adding a party to existing proceedings) and consolidation (i.e. joining multiple existing proceedings together) at the time of drafting the contract(s), as well as at the outset of any potential dispute itself.

In this article, we provide a some practical tips followed by a brief overview of the key joinder and consolidation provisions.

Drafting tips for multi-party arbitration clauses

Key points to remember when drafting and negotiating multi-party contracts or a number of related contracts with different parties in circumstances where you are likely to want to join or consolidate any future arbitrations are:

The arbitration clause in each contract should be the same, similar, or at the very least compatible.

All parties should expressly record their consent to joinder or consolidation in the contract from the outset, to avoid lack of evidence/arguments around consent at a later date.

An umbrella arbitration agreement (i.e an overarching agreement that provides arbitration rules for disputes arising out of subordinate agreements) may be useful where there are various contracts with different parties that are likely to give rise to related disputes.

Of course, it goes without saying that drafting such express, precise multi-party arbitration friendly clauses will be an advantage to a party who wants to bring a claim against multiple parties, but may work against that party in circumstances where that party wishes to avoid being dragged into multi-party proceedings itself.

Seeking to join a party to proceedings or consolidate existing proceedings

If a party finds itself in a situation where it did not specifically draft a multi-party friendly arbitration clause but now wants to join another party to an arbitration or consolidate existing arbitrations, it is important to bear the following in mind:

Most arbitral institution require the consent of the third party to join the existing proceedings.

As arbitration is a consensual process, it is often not possible to join a new party after the tribunal has been chosen. For example, according to the ICC , no additional party may be joined to a dispute after the confirmation of appointment of any arbitrator, unless all parties agree otherwise. This is because of the concern that the additional party joining at this later stage will be deprived of the opportunity to take part in the formation of the tribunal and therefore their involvement in the process will not be entirely consensual.

National laws of the seat of the arbitration may provide that the court is entitled to order consolidation of connected arbitral proceedings for example via the Arbitration Act in the Netherlands; the California Code of Civil Procedure and Canadian Provincial laws. This is a useful and effective approach where all parties agree to arbitration with the same seat but do not necessarily consent to the joinder/consolidation. Certain courts may also be willing take a more pragmatic approach, as the English Court of Appeal did when it decided to exercise its power to appoint an arbitrator by appointing the same arbitrator in two parallel cases[1].

Seeking to avoid being joined to proceedings or having existing proceedings consolidated

Where a party is seeking to resist being joined to arbitral proceedings or to have numerous existing arbitrations consolidated, it is important to remember the following:

Withholding consent can be a very effective method of avoidance.

If a party is joined to/has proceedings consolidated against it without its consent, it may find it relatively easy to resist enforcement in certain jurisdictions. This is because the consensual nature of arbitration is often seen as key to its enforceability and, without consent, some jurisdictions will consider that a party has been “forced” to arbitrate and will therefore not enforce judgment against that party in that jurisdiction.

If the arbitration clause(s) in the disputes under various different but related contracts that a party is seeking to consolidate are not entirely similar, an arbitral centre may decide that such proceedings cannot be consolidated.

Conclusion

In light of the difficulties facing a party wishing to bring multi-party arbitrations that we have outlined above, and given the differing rules each arbitral institution has on joinder and consolidation, it is important that parties have a clear idea of how they would wish future disputes to be handled when drafting contracts in complex transactions. Drafting arbitration clauses in these complex transactions to ensure multi-party arbitrations can be set up smoothly requires precise, express drafting and careful consideration and specialist legal advice.

If parties find themselves in a situation where a dispute has arisen under complex contracts which do not contain a specific multi-party friendly arbitration clause, they should carefully consider their options and the steps needed to be taken to ensure any joinder or consolidation of proceedings is possible and that the dispute is handled in a cost and time effective manner.

 

International Rules Joinder Provision Consolidation Provision
LCIA Rules 2014 Art 22.1(viii) – only on application by a party and requires the consent of the applicant and the new party. Art 22.1(ix) and 22.1(x) – subject to approval by LCIA where:(i) all the parties consent; or(ii) multiple LCIA arbitrations have been commenced under the same/compatible arbitration agreement(s) between the same parties; and no tribunal has been appointed or the tribunal appointed is composed of the same arbitrators.
ICC Rules 2012 Art 7.1 – on request by a party and only permitted prior to the confirmation/appointment of any arbitrator. Art 10 – on request by a party, the tribunal can consolidate pending ICC arbitrations where:(i) the parties agree; or(ii) all claims are made under the same arbitration agreement; or

(iii) it is with the same parties, in connection with the same legal relationship, and the ICC finds the arbitration agreements compatible.

SCC Rules 2010 There is no joinder provision in these rules Art 11 – on request by a party, the tribunal can consolidate new claims where:(i) these concern the same legal relationship;(ii) in respect of which there is more than one pending SCC arbitration; and

(iii) between the same parties.

CIETAC Rules 2014 Art 18 – only on application by a party either before or after formation of the tribunal; in cases where there is an objection, CIETAC decides. Art 19 – on request by a party,(i) CIETAC can consolidate where parties agree; or(ii) CIETAC believes it necessary and all parties agree. Art 19.2 sets out the non-exhaustive factors CIETAC may consider.
SIAC Rules 2013 Art 24(b)on request by a party and only if the third party is a party to the arbitration agreement and consents to joinder There is no consolidation provision in these rules
HKIAC Rules 2013  Art 27 Рon request by a party or a third party and only if the third party is prima facie a party to the arbitration agreement. Art 28.1 Рon request by a party, the tribunal can consolidate where(i) parties agree; or(ii) the claims are under the same arbitration agreement; or(iii) there is a common question of law/fact in all the arbitrations, relief from the same transaction and where HKIAC finds all the arbitration agreements are compatible.
UNCITRAL Ad Hoc Rules 2013 Art 17.5 – on request by a party and only if the third party is a party to the arbitration agreement. The joinder cannot prejudice any party. There is no consolidation provision in these rules.

 

 

[1] Abu Dhabi Gas Liquefaction Co Ltd v Eastern Bechtel Corp [1982] 2 Lloyd’s Rep 425, CA

 

 

 

Previous articleEuropean Commission Targets Five EU Member States Over Intra-EU BITs
Next articleArgentina: First Court Ruling Regarding the Enforcement of ICSID Awards