Consolidation and joinder of arbitration proceedings and parties in international arbitration are powerful tools for case management. Globalization has fostered complexity in international commercial transactions. Fulfillment of a contract can now involve multiple parties, guarantors, and jurisdictions. If a dispute arises, parties will have an interest in joining other parties to the arbitration. Currently, near 40% of arbitrations by the International Chamber of Commerce involves multiparty arbitrations.
With multiple parties, parties and arbitrators may consider it beneficial to consolidate arbitrations to avoid unnecessary expenses or avoid the risk of having contradictory awards over the same dispute matter.
Problems begin when the third-party argues there is a lack of consent to joinder or consolidation. To tackle this problem, it must be viewed first, whether the arbitrators have inherent powers to consolidate and join arbitrations and parties. Second, the extent to which the parties must express their consent to consolidation or joiner. Third and last, the risk that the award is set-aside for consolidating or joinder applications without consent.
- Arbitrators inherent powers to consolidate and join arbitration cases and parties
Usually, arbitrators have broad powers over the proceedings. Most arbitration rules state that unless the parties have agreed otherwise, the arbitrator will decide joinder or consolidation in light of all relevant circumstances. By relevant circumstances, the arbitrator will examine whether the dispute arises from the same transaction, if there is a common question of law or fact, or if a party to be joined is an indispensable party in order for the tribunal to render a correct decision.
Consolidation and joinder are in accordance with the arbitration being efficient, timely, and cost-effective. In other words, the power to order joinder and consolidation is in accordance with the arbitrator’s wide powers to conduct the proceedings. This order is an efficient case management decision.
While there exists a tendency to reform arbitration rules to strengthen the powers of the tribunal or of the arbitration institution such as the LCIA Rules and the ICC Rules, most arbitration rules still have not regulated such matters. In this case, careful use of the arbitrator’s powers is necessary. In Parker v. Dimension Serv. Corp., the arbitral tribunal determined that consolidation was appropriate for purposes of discovery practices. It was pointed out that if the parties’ wished so, separate hearings against each counterparty would be granted. The cases were consolidated only to the extent to which the arbitrators considered it to be necessary.
Arbitrators’ inherent powers can be enough when there exist relevant circumstances and to the extent that the parties’ rights are preserved.
- The necessity of parties’ consent to consolidation and joinder
When parties agree to arbitrate with a particular set of rules, some authors argue that it is implied that they also consent to the content of said rules.
The issue arises when the tribunal is constituted before the application for consolidation or joinder. If a party is joined or a case consolidated after a dispute has begun, the third-party would not have participated in the formation of the tribunal. It has been considered that the third-party must waive its right to participate in the formation of the tribunal. For example, the Singapore International Arbitration Centre Rules (“SIAC Rules”) state in its Art. 7.12 that in relation to the joinder application “any party who has not nominated an arbitrator or otherwise participated in the constitution of the Tribunal shall be deemed to have waived its right to nominate an arbitrator or otherwise participate in the constitution of the tribunal”.
The SIAC Rules expressly provide waiver by the third-party to nominate an arbitrator. However, plenty of rules have not regulated this matter. Parties can agree to arbitrate with a particular set of rules that allow consolidation and joinder applications but that do not state the waiver of the right to appoint the arbitrator. Can it be understood that due to the mere existence of the consolidation and joinder provisions the parties have waived their right to participate in the constitution of the arbitral tribunal?
When considering this, it must be noted that there are also multiple other mechanisms to constitute the arbitral tribunal without having a party waiving its rights. Let’s imagine that a party files an application for joinder of a third-party and said the party has indeed agreed to arbitrate under the Swiss Chambers Arbitration Institution Rules of International Arbitration. Those rules do not provide for a waiver of the right to appoint an arbitrator. If the application for joinder is successful, the following circumstances can be applied to avoid affecting third-parties rights:
- The institution appoints both parties’ arbitrators.
- Both parties appointed arbitrators resign and new arbitrators would be appointed with the participation of the third-party.
- Depending on whether the third-party joins as claimant or respondent, only their respective appointed arbitrator resigns and a new one is nominated co-jointly. In the event of disagreement, the institution appoints both parties’ arbitrators.
None of the prior options deprive the parties’ right to appoint an arbitrator and all of them can also be as implied by reference to arbitration rules on the same degree that a waiver of right is implied. If all scenarios can be inferred, why choose the only one that diminishes a party’s right? As mentioned by Prof. Kröll when reviewing German legislation, the parties’ right to appoint an arbitrator is part of public policy.
In Siemens AG and BKMI Industrieanlagen GmbH v. Dutco Construction Co (“Siemens v. Dutco”), the Supreme Court of France stated that under French jurisdiction “the principle of equality of the parties in the designation of arbitrators is a matter of public policy; it can be waived only after the dispute has arisen”. Arbitral institutions have tried to by-pass this line of thought by including in their rules that the third-party would waive their right to participate in the formation of the tribunal. However, according to the Court in Siemens v. Dutco, it would be contrary to infer that a party has waived their right just by agreeing to arbitrate with a model clause since it would not be able to waive their right before the arbitration has commenced.
Another layer of complexity is brought when the third-party is not a signatory to the arbitration agreement. An unwilling non-signatory can be forced to join a dispute if the application is supported by an applicable legal theory that is recognized. Some of these doctrines include alter ego, estoppel, agency, and the group of companies doctrine.
Legal theories that compel non-signatories should be used to prove an implicit consent by the non-signatory to arbitrate. A double lack of consent is thus presented. First, whether the non-signatory consented to arbitrate, and second, whether such non-signatory consents to the joinder provisions and to waive its right to nominate an arbitrator. It has been argued that requiring express consent would give a veto power to the joining party or the third-party being consolidated. Such a veto power would be excessive when the third-party is already a signatory to the arbitration agreement in a multiple-party transaction or when it falls under a legal doctrine to compel non-signatories.
Consequently, it is not necessary the express consent of the third-party if it has already implicitly or under other relevant circumstances agreed to arbitrate. But lack of express consent should not be understood as waiver of a right to nominate an arbitrator.
- Risk of the award being set aside or enforcement denied
When dealing with issues that might affect the parties’ right to due process or public policy such as participating on the constitution of the tribunal or a party’s lack of consent, the arbitral tribunal might compromise the enforcement of their award.
Upon Art. V(1)(c) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, an award may be denied recognition and enforcement if it deals with a matter not falling within the scope of the arbitration agreement. Under the same grounds, the award might be annulled pursuant to Art. 34(2)(a)(iii) of the UNCITRAL Model Law.
If the tribunal admits an application for joinder or consolidation, it must consider that the matter subject of the dispute does not fall outside of the four corners of the arbitration agreement due to the participation of a non-signatory. If not, the award might not survive an attempt to set it aside.
The joinder and consolidation of third parties without their consent is still a sensitive topic due to the absence of knowledge of the consequences of the third party’s waiver of essential rights. Arbitrators’ wide powers to conduct the proceeding can be more than a practical tool since they can adapt the proceedings to ensure parties’ rights.
Therefore, as a last thought, arbitrators must view the elasticity of the concept of consent of the parties on a case-by-case basis. If the tribunal has wide powers and the third-party agreed to waive its right to nominate an arbitrator, joinder of parties and consolidation of cases even without consent might be feasible.