Rise of Multi-party and Multi-contract disputes in arbitration

Arbitration agreements usually involve two parties under a single contract with an arbitration clause. However, with the growth in popularity of arbitration to resolve disputes, naturally there has been a rise in complexity of these disputes. This has required a need for arbitral institutions to adapt and develop mechanisms to accommodate disputes involving multiple parties and/or under multiple contracts.

Modern commercial ventures often use a series of contracts, and in certain sectors often involve multiple parties, in order to complete a transaction. In order for international arbitration to be a viable option for dispute resolution, institutions have created routes to join parties to arbitration, consolidate arbitrations, or run arbitrations concurrently.

Multi-party disputes

Multi-party disputes arise when there are either multiple parties under a single contract (e.g. a joint venture with more than two parties) with an arbitration clause or when there are a series of agreements linking various parties. A common example arises in construction disputes, where the head contractor has agreements with various subcontractors.

Multi-contract disputes

Multi-contract disputes arise when a single dispute involves multiple contracts that are interconnected, often with different arbitration agreements or clauses. This is common in industries such as construction, finance, and joint ventures, where various agreements govern different aspects of the same overall transaction or related transactions. For example, a construction project may involve separate contracts for design, engineering, procurement, and subcontracting, all of which are linked to the same underlying project.

The mechanisms currently available to tribunals are addressed below.

Procedural mechanisms

Joinder

Joinder is the mechanism to allow a third party to join ongoing or newly forming arbitral proceeding. There are some benefits to allowing a third party to join an ongoing arbitration with regards to the saving of costs and minimising the risks of contradicting decisions. This can occur if the parties were to launch parallel proceedings on the same issues. The major caveat to this is the consent of the third party, as arbitration is a consensual process they can not be forced into the arbitration. Other mechanisms may be used such a consolidation or coordination (if there is an agreement to arbitrate) otherwise the court process may need to be used.

The nuances of when joinder is allowed in an arbitration is different for each set of arbitration rules. It is generally covered under LCIA rules article 22.1(x), ICC rules article 7 and SIAC rule 18.1. It is worth noting that the ICC rules only allow joinder to occur before confirmation and appointment of any arbitrator.

A joinder can be beneficial to the efficiency of proceedings, however, it may also raise issues such as the confidentiality of the original arbitration being broken, risks with enforcement due to unequal treatment of parties (discussed below), and may even lead to the increase in costs for certain parties in the dispute whilst saving other parties costs.

Consolidation

Another mechanism available to courts and tribunals is consolidation. This is the process in which related cases are heard together, whether it’s the same parties under a different contract (“multi-contract”) or multiple related parties (“multi-party”).

Under the 2021 ICC rules, consolidation is governed by Article 10, which allows ICC court to consolidate multiple arbitrations if:

1. All parties agree to the consolidation; or
2. All claims are made under the same arbitration agreement, or
3. There are different agreements, but the arbitrations are between the same parties, the disputes arise in connection with the same legal relationship and the Court finds the arbitration agreements to be compatible.

The LCIA rules also allow for consolidation of arbitrations, which is governed under Article 22A. The main circumstances where this can be done is where:

1. All parties agree for consolidation; or
2. Claims are under the same arbitration agreement and between the same disputing parties or arising out of the same transaction or related transaction, provided no tribunal has already been formed or
3. There is a determination by the LCIA Court that two or more arbitrations (under same or compatible agreements, either between the same disputing parties or transaction(s)), that they shall be consolidated into one single arbitration.

Parties will often have good reasons not to agree to consolidation. The arbitration becomes more complex and lengthy, which in turn is likely to escalate costs and inconvenience.

Coordination / Concurrent proceedings

Coordination in arbitration refers to the process of managing multiple related arbitrations rather than consolidating them into one. Parties to the arbitration agreement take part in their own arbitration, but related arbitration proceedings between other parties are run concurrently. This may minimise inconsistencies, reduce costs, and improve efficiency. When disputes involve multiple parties and/or multiple contracts, it is not always possible to consolidate the cases into a single proceeding. Therefore it may be necessary to coordinate proceedings to ensure consistency in procedural and substantive rulings.

Coordination may involve appointing the same tribunal for related arbitrations, sequencing hearings strategically to avoid conflicting decisions, or allowing for cross-use of evidence. Both the ICC rules and the LCIA rules have articles to allow this kind of flexibility when managing concurrent or parallel proceedings. At present there is no uniform mechanism for coordination across different arbitral institutions.

Challenges Tribunals face

Jurisdiction

One of the main challenges in multi-party and multi-contract arbitrations is determining whether the tribunal has jurisdiction to hear all matters involving multiple contracts and potentially non-signatory parties. As arbitration is a consensual process, issues arise when some parties are bound by arbitration agreements and others are not. Courts and tribunals may rely on principles such as agency, estoppel, and third-party beneficiary to extend arbitration agreements to non-signatories.

There can also be issues when multiple contracts with different arbitration clauses are involved, potentially requiring the tribunal to interpret conflicting arbitral provisions. This may lead to issues of jurisdictional consistency.

Choice of law

Another issue in multi-contract arbitrations is the potential for different governing laws to apply to different contracts within the same dispute. If a project involves multiple agreements with varying governing laws, tribunals must determine which law applies to specific claims. This can also increase the complexity of disputes as it may require experts from each jurisdiction.

As an example, a construction contract may be governed by English law, whilst the financing agreement on the same project is governed by New York law. This can lead to conflicts in legal principles, making it difficult for tribunals to resolve disputes fairly or efficiently.

Equal treatment of all parties

It is imperative that when there are multiple parties, that each and all receive equal treatment in the appointment of an arbitral tribunal, as this can be a basis to challenge any subsequent award if there is unfairness in the appointment of the tribunal.

Issues can also arise, where in the various contracts there are different methods provided for the selection of the tribunal. This may give rise to a potential dispute under the New York convention (Article V – 1(d)) as that allows recognition to be refused on the basis that “the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties…”.

Tribunals also need to take into account the efficiencies of their proceedings, as consolidation of similar cases may prejudice a more minor party in the proceedings forcing them to spend extra or a longer wait for an outcome.

Conclusion

Arbitrations which involve a number of different parties, and / or multiple contracts are complex. In some circumstances, parties may seek consolidation of the arbitrations, but this is not a panacea. There is a risk that the consolidation is challenged, which can escalate costs of the arbitration. Or the consolidation may be challenged later at the recognition and enforcement stage, which may leave a successful party unable to enforce the award.

When consolidation is inadvisable, the next best option is to have the arbitrations run concurrently. This can increase the overall time of the arbitration process, if related proceedings must be stayed in favour of other proceedings. But it may reduce the risk of inconsistent awards or awards that may be challenged at a later date under local laws.