Dealing with Multi-Party and Multi-Contract Arbitration Issues

With the introduction in January this year of new rules for ICC arbitrations, now is a good time to recap the key issues and highlight how some of the major arbitral institutions approach this potentially difficult area. 

Issues surrounding multi-party/multi-contract disputes

Not every transaction or contract is executed by two counter-parties.  Often there may be one contract but more than two parties (“multi-party“), or a number of contracts possibly involving different parties (“multi-contract“).

In these cases, parties should carefully consider how they would like their disputes to be resolved, what issues may arise out of the contractual arrangements and, importantly, who should be a party to arbitration.  Failure to do so can cause difficulties, including:

  • Jurisdictional arguments over who may arbitrate against whom, and how; and
  • Commencement of parallel proceedings (i.e. where more than one arbitration is commenced involving the same issues and/or the same parties) which may in turn lead to conflicting results, significant duplication and unnecessary additional costs.

To address these issues, and to allow for a smoother arbitral process, parties can consider “joining” parties to an arbitration, allowing a party to “intervene” in an existing arbitration, and “consolidating” two or more arbitrations together.  We set out below how four of the major arbitral institutions approach each of these techniques.

Joinder                                                                   

Joinder refers to the joining of parties (usually contracting parties, but potentially other third parties as well) to an arbitration by an existing party.

ICC Rules Article 7 permits a party to file a “Request for Joinder” against a third party:(i) before an arbitrator is appointed, if there is an arbitration agreement under the Rules that binds all the parties; and(ii) after the appointment of any arbitrator, if all the parties, including the third party, agree and if there is an arbitration agreement under the Rules that binds all the parties.[1]The joined party will also be permitted, pursuant to Article 8, to make claims against any other party in the arbitration. Article 9 is not strictly a joinder provision, but it does offer an important alternative route for bringing claims against parties in multi-contract arrangements.  It permits claims arising out of or in connection with more than one contract to be made in a single arbitration, irrespective of whether such claims are made under one or more than one arbitration agreement under the Rules.In order to bring claims under multiple contracts pursuant to Article 9, the consent of all the parties to the arbitration is required and the arbitration agreements should be compatible.[2]
LCIA Rules Article 22 permits joinder of a third party to the arbitration upon the application of a party.  Consent of the third party is required.  There is no express requirement that the third party must be party to the arbitration agreement so this should permit joinder in multi-contract situations. 
JCAA Rules Rule 43 permits any interested party to participate in an arbitration with the consent of all the parties.  However, the tribunal may deny participation in the arbitration if it will delay the arbitral proceedings or for any other “proper reason”.There is no express requirement that the third party must be party to the arbitration agreement so this should permit joinder in multi-contract situations.
SIAC Rules Article 24(b)permits third parties to be joined to an arbitration. However the third party:(i) must be a party to the arbitration agreement; and(ii) must consent in writing to the joinder.
 
 
Intervention
 
Intervention refers to the voluntary intervention in an existing arbitration by a third party.
 
ICC Rules, LCIA Rules, & SIAC Rules There are no express provisions for intervention, so parties who wish to allow for intervention should include bespoke drafting to that effect in the arbitration agreement.
JCAA Rules Rule 43 (see above) will also apply to cases of intervention.
 
Consolidation
 
Consolidation refers to the merging of separate but related arbitrations, often where the related arbitration has been commenced pursuant to a different arbitration agreement and/or involves a different party.
 
ICC Rules Article 10 permits consolidation of two or more pending arbitrations at the request of a party, provided that:(i) the parties have agreed to the consolidation;(ii) the claims are made under the same arbitration agreement; or(iii) where the arbitrations are between the same parties, the disputes arise in connection with the same legal relationship and the arbitration agreements are compatible.
LCIA Rules The Rules are silent in relation to consolidation.[3] 
JCAA Rules Rule 44 permits consolidation of multiple requests for arbitration if they contain claims that are essentially and mutually related. Consent of the parties is not required if the multiple requests for arbitration arise out of the same arbitration agreement, but if they arise out of separate arbitration agreements (i.e. in a multi-contract situation) the tribunal will require the written consent of all of the relevant parties.
SIAC Rules The Rules are silent in relation to consolidation. 
 
Recommended action
 
In multi-contract transactions, parties should consider bespoke drafting to ensure that the arbitration agreements in the different contracts are compatible.  Alternatively, an umbrella agreement[4] may be executed to satisfy the requirement for an arbitration agreement binding on all parties.
Where consent of the parties is required for joinder or consolidation, parties are advised to consider bespoke drafting to record their consent in the arbitration agreement(s).
 
Concluding comments
 
There is a risk, even where an arbitral institution’s rules permit joinder of third parties, intervention or consolidation of parallel claims, that complex contractual arrangements will not be properly accommodated.  We therefore advise the following:
  • If institutional arbitration is chosen, parties should check the rules carefully to see how they deal with joinder, intervention and consolidation;
  • When drafting an arbitration agreement, parties should consider what bespoke provisions will be required to accommodate their contractual arrangements, particularly if the intended arrangements diverge from institutional rules; and
  • Specialist legal advice should be obtained when drafting complex arbitration clauses in multi-party and multi-contract transactions.  

[1] Agreement is required at this stage because of a concern that the third party has not had the opportunity to take part in the formation of the arbitral tribunal.
[2] Article 6(4)(ii)
[3] However, if applicable, section 35 of the English Arbitration Act 1996 permits arbitrations to be consolidated where the parties have agreed to confer such power on the tribunal.
[4] “Umbrella agreement” refers to a master dispute resolution agreement incorporated by reference in various underlying contracts.
 

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