No party wants to be caught up in parallel proceedings, but sometimes it is unavoidable. In those situations, parties need a strategy to manage the dispute to secure a final and binding award or judgment, and to reduce the risk of escalating costs.
When do parallel proceedings arise?
Parallel proceedings can involve the same two parties which have multiple disputes under multiple contracts between them. Or parallel proceedings can involve a dispute that spans multiple parties, but arises out of substantially the same facts.
A few examples include:
1. Two parties with multiple contracts
Let’s take the example of two parties that have entered into a joint venture agreement, governed by the laws of New York. Disputes under the JV agreement will be referred to litigation in New York. They may also have a supply agreement, which refers disputes to London-seated arbitration. And they may have a distribution agreement in which disputes are referred to Singapore-seated arbitration.
A delay in the supply and distribution could lead to disputes under all three contracts, in three separate forums.
2. Complex projects with multiple subcontractors
In a construction project, the owner may contract to a main contractor, who in turn subcontracts various different aspects of the project to different parties.
The subcontracts may each include different dispute resolution clauses. One may provide for LCIA arbitration, while another asks parties to refer their dispute to ICC arbitration.
If a dispute arises around delay to the project, which may be caused by two or three different subcontractors with different dispute resolution clauses, there could be three different arbitrations afoot which scrutinise the same facts.
3. International investments in state entities
An investor in a state entity usually has an ICSID arbitration claim against the state under the relevant Bilateral Investment Treaty. But the investor may also have commercial claims against subcontractors or other parties involved in the project.
4. Investigations
Investigations by the Financial Conduct Authority or the Serious Fraud Office may prompt concurrent criminal and civil proceedings. The company under investigation may need to manage parallel proceedings in both the criminal and civil courts. For more information in this area, please read our article on this here.
Risks with parallel proceedings
The first risk with parallel proceedings is that one forum will make a decision in direct conflict with another forum. The LCIA arbitration may decide that the delay was the subcontractor’s fault and award the main contractor damages. The ICC arbitration may decide that the main contractor’s claim has no merit at all. If this happens, which award is enforceable?
This sort of scenario can also lead to double recovery. In the above scenario, the main contractor could be awarded damages in the ICC arbitration as well, and would be awarded two lots of damages on the basis of the same facts.
Finally, the costs of parallel proceedings are a big risk for the parties. Particularly if the dispute reaches the disclosure stage, parties could end up paying the costs of two separate disclosure exercises.
How to manage parallel proceedings
There are a few tactics that can help parties to mitigate the risks of parallel proceedings.
1. Consolidation
Parties may be able to apply to consolidate the proceedings in the same forum, so that they are heard as one arbitration. However, it can be challenging to get all parties to agree to this. For more information on consolidation, see our article here.
2. Appointing the same arbitrator
If possible, appoint the same arbitrator to the different arbitrations. Then there is one member of the tribunal who has sight of both sets of proceedings.
3. Anti-suit injunctions and anti-arbitral injunctions
In some cases it is possible to put a stop to litigation that is started in breach of an arbitration agreement with an anti-suit injunction. It may also be possible to end a conflicting arbitration with an anti-arbitral injunction.
Key takeaways
Parties should take steps to avoid parallel proceedings where possible. At
the stage of negotiating contracts, check the dispute resolution clause and ask if it aligns with other contracts in the chain. This should help parties to consolidate arbitration if the time comes.
However, if it’s not possible to avoid parallel proceedings, parties need to mitigate the risks of conflicting decisions and escalating costs. The first risk can be managed by appointing the same arbitrator to the tribunal, if that is possible.
Tactics to manage costs vary. It can help to agree a reduced scope of disclosure to minimise the cost of the disclosure exercise. But this of course runs the risk that some evidence will be overlooked. Alternatively parties can seek mediation at an early stage of the dispute in an attempt to find a commercial settlement before costs escalate.
