International Arbitration: Lecture 12

International Arbitration: Lecture 12
Dr. Matteo Zambelli
[email protected]
University of West London
School of Law
1
Overview
A. Damages in international arbitration.
B. Non-damages remedies in international arbitration.
C. Multi-party and multi-contract issues.
D. Q&A.
2
Damages in international arbitration
An award of damages is one of the most frequently sought remedies in
international arbitration. The principles governing the entitlement to and
calculation of damages may give rise to several issues.
The determination of whether a party is entitled to damages is generally
considered to be part of the substance of the dispute. This means that the law that
governs the substance of the dispute will govern the award and assessment of
damages too.
The law that governs the substance of the dispute is usually referred to as “the
applicable law”, “the proper law” or “the governing law”. In practice, an arbitral
tribunal will usually apply the law that the parties have chosen to govern the
contract in dispute (“the proper law of the contract”) as the applicable law.
3
(cont.)
The LCIA Arbitration Rules 2020 (LCIA Rules) state: “The Arbitral Tribunal shall
decide the parties’ dispute in accordance with the law(s) or rules of law chosen by
the parties as applicable to the merits of their dispute. If and to the extent that the
Arbitral Tribunal decides that the parties have made no such choice, the Arbitral
Tribunal shall apply the law(s) or rules of law which it considers appropriate
“.
(Article 22.3.)
The ICC Arbitration Rules (2012, 2017 and 2021) (ICC Rules) state: “The parties
shall be free to agree upon the rules of law to be applied by the arbitral tribunal to
the merits of the dispute. In the absence of any such agreement, the arbitral
tribunal shall apply the rules of law which it determines to be appropriate
“. (Article
21.1.)
The UNCITRAL Arbitration Rules 2010 and 2013 (UNCITRAL Rules) state:
The arbitral tribunal shall apply the rules of law designated by the parties as
applicable to the substance of the dispute. Failing such designation by the parties,
the arbitral tribunal shall apply the law which it determines to be appropriate
“.
(Article 35.1.)
4
(cont.)
Some laws, for example, English law, characterise some aspects of the
assessment of the quantum of damages as a procedural matter that should be
governed by the law of the forum of dispute (see
Harding v Wealands [2006]
UKHL 32). If this arises, the tribunal may want to consider the impact of the law of
the seat of the arbitration on their assessment of damages.
If the parties have not agreed on an applicable law then the tribunal will have to
decide what law should govern the question of damages. It can do this in several
ways:
By applying the choice of law rules of the seat of the arbitration.
By applying a choice of law rule that the tribunal thinks is most suitable to the
case (see, for example, section 46(3), Arbitration Act 1996 (AA 1996)).
By directly choosing the most suitable law or rules to resolve the substance of
the dispute. For example, Article 1496 of the French New Code of Civil
Procedure and Article 187(1) of the Swiss Private International Law Act both
provide that the tribunal may apply laws and rules of various origins and is not
bound by strict choice of law rules.
5
Civil Law and Common Law on damages
The basic measure of damages for breach of contract in both common and civil
law is the same. Both seek to put the injured party back into the position in which
he or she would have been had the contract not been breached.
The aim is to compensate the claimant, but not to put him in a better position than
if the contract had not been breached: “The lodestar is that damages should
represent the value of the contractual benefits of which the claimant had been
deprived by the breach of the contract, no less but also no more” (
Golden Strait
Corporation v Nippon Yusen Kubishka Kaisha
[2007] UKHL 12).
Article 1149 of the French Civil Code and paragraph 249 of the German
Bürgerliches Gesetzbuch (BGB) also set out the compensatory nature of
damages.
However, there are several differences between the civil and the common law
approach to damages and remedies. Which approach a jurisdiction takes depends
on whether it is governed by civil law (for example, France and Germany), or
common law (England and Wales).
6
(cont.)
Some of the differences between the two legal systems are:
The common law sees the primary remedy for non-performance of contract as
damages. By contrast, in civil law (for example, French and German law), the
primary recourse is to have the contract performed as agreed. This is what
lawyers from common law jurisdictions would recognise as specific performance.
The common law and civil law both recognise two broad categories of loss that
are recoverable. While these two heads of recoverable loss are similar, they are
not identical. This may cause some difficulties when it comes to pleading the
losses suffered, in circumstances where the parties and the tribunal come from
different legal backgrounds. I.e. French law sees loss as falling under two
categories, described as damnum emergens (actual loss) and lucrum cessans
(lost gain); and in German law losses are also split into two, referred to as positive
interest and negative interest. These two categories are similar to what English
lawyers recognise as expectation and reliance interest.
7
(cont.)
The French law distinction between damnum emergens and lucrum cessans does
not necessarily correspond exactly to the English distinction between reliance and
expectation interest. This is important to recognise as it may explain differences in
quantification and classification of damages between French lawyers and English
lawyers in the same claim.
Under the common law, a debtor becomes liable in damages when he or she
breaches the terms of the contract. In many civil law jurisdictions, for example,
French and German law, there is the additional requirement that the creditor give
the debtor notice that he or she is in delay or in breach of the agreement. There is
no such requirement under the common law: a debtor’s common law liability in
damages arises when he or she has breached the contract.
The two legal systems have different ways of restricting the damages recoverable,
although in broad terms they tend to limit liability of the defendant to pay only
those damages which were foreseeable at the time the contract was made.
8
(cont.)
In common law, the claimant is under a duty to mitigate their loss. This means that
he or she cannot recover damages for any loss which they could have taken
reasonable steps to avoid. A similar principle is expressly recognised in German
law, but is treated as part of the rules relating to contributory negligence
(paragraph 254, BGB). France does not expressly recognise a duty to mitigate
loss, although the concept of “fault of the victim” is used to deal with the situation
where loss is caused partly by the fault of a party to the claim.
French law is more generous in awarding damages for non-pecuniary loss (what
is called “prejudice moral” or “dommage moral”) than German and English law.
9
United Nations Convention on Contracts for the International Sale of Goods
The United Nations Convention on Contracts for the International Sale of Goods
(CISG) is an international treaty which sets out a uniform sales law. It was
developed by the United Nations Commission on International Trade Law
(UNCITRAL). To date it has been ratified by 83 countries, with the UK being one
of the significant states not to have ratified the convention.
The CISG applies:
To contracts of sale of goods between parties whose places of business are
in different states when the states are contracting states.
When the rules of private international law lead to the application of the law of
a contracting state.
If the parties to the contract agree that it should apply.
The CISG only deals with the formation of the contract and the rights and
obligations of the parties under the contract. The principles of the CISG are often
used by arbitrators in international arbitrations, either on their own or in
conjunction with national laws, to resolve substantive disputes between the
parties. The CISG contains specific provisions on damages at Articles 74 to 77.
10
Proving Damages
The usual practice in international arbitration is that the party who makes an
allegation must prove it. It will do this by submitting evidence, which may be
written, oral, expert or witness testimony.
A damages claim (including a claim for interest) should therefore be clearly
particularised and supported by the necessary written and oral evidence required
to prove the claimant’s case.
It is generally accepted that the standard of proof in international commercial
arbitrations is the “balance of probabilities”.
In international arbitration, expert accounting evidence is often adduced to support
a claim for damages. Experts will give evidence on the complex calculations
relating to loss of profits or diminution in value of a business. The tribunal may
appoint its own expert to assist on matters of quantum, either instead of or in
addition to the parties’ experts (see, for example,
Suez, Sociedad de Aguas de
Barcelona SA and another v Argentine Republic
(ICSID Case No ARB/03/19).
11
(cont.)
It is possible to split liability and quantum stages of the arbitration; the first stage
may deal with all issues relating to liability and the second stage should deal with
all issues relating to damages and other remedies. Given the complex nature of
large-scale international arbitrations, it is now common for the parties and the
tribunal to at least consider bifurcating the proceedings.
The ICC Commission on Arbitration in its report on “Techniques for controlling
time and costs in arbitration” suggests the tribunal should consider bifurcating the
proceedings or rendering a partial award when doing so may genuinely be
expected to result in a more efficient resolution of the case.
One of the advantages of bifurcation is that it may save time and costs if liability
issues are resolved so that there is no damages claim at all or the damages claim
is focused on a particular area of liability. Bifurcation may also encourage
settlement of proceedings.
12
(cont.)
However, bifurcation could easily result in delay in the overall resolution of the
case. Furthermore having a separate second hearing stage can increase costs.
Finally, it is sometimes difficult to separate out clearly the issues of liability from
quantum, particularly at an early stage of proceedings when the full nature of the
claim is not yet known.
13
Basic principles governing the award of damages
The guiding principle in international commercial arbitration is that damages
should compensate the claimant for loss caused by the respondent’s breach of
contract. The award of damages should put the claimant back into the position in
which he or she would have been, had the contract not been breached. The
amount (or quantum) of damages will be limited by principles of remoteness,
causation and mitigation.
Other than in public international law, restitution is a remedy which arises when
one party has been unjustly enriched at the expense of another party. The
claimant in a restitutionary claim will seek to reverse the consequences of that
action, so that the respondent returns the unjust enrichment to the claimant.
Unlike a claim for compensation, the focus of the claim in restitution is not about
what loss the claimant has suffered as a result of the respondent’s actions.
Instead, the focus of a restitutionary claim is on what benefits the respondent has
obtained at the claimant’s expense.
14
(cont.)
The time at which losses are valued can have a huge impact on the overall
damages claim. The value of commodities, investments and businesses are all
sensitive to changes in the economic, financial and political climate.
The two main points in time for assessing damages are:
The date(s) of the breach or non-payment of the debt.
The date of the award.
In deciding when to assess damages, an international arbitration tribunal will
normally consider some or all of the following:
The terms of the agreement(s) between the parties, to establish whether the parties have
agreed on a date to assess damages.
The law governing the substance of the dispute or any other relevant national law. For
example, if the CISG applies, article 76 provides that the time at which damages should
be assessed is the time of avoidance of the contract, unless the party claiming damages
has avoided the contract after taking over the goods, in which case the damages should
be assessed according to the price of the goods at the time the goods were taken.
15
(cont.)
The time at which losses are valued can have a huge impact on the overall
damages claim. The value of commodities, investments and businesses are all
sensitive to changes in the economic, financial and political climate.
The two main points in time for assessing damages are:
The date which will result in the claimant being fairly compensated for their losses.
Golden Strait Corporation v Nippon Yusen Kubishka Kaisha [2007] UKHL 12 is an
English case decided by the House of Lords which exemplifies the reasoning behind the
need for flexibility in setting the date for the assessment of damages. Referring to Lord
Wilberforce’s dictum in Miliangos v Frank (Textiles) Ltd [1976] AC 443, Lord Scott of
Foscote states that: “It is for the courts, or for arbitrators, to work out a solution in each
case best adapted to giving the injured plaintiff that amount in damages which will most
fairly compensate him for the wrong which he has suffered … ” (at paragraph 32). In
addition, when considering the date at which a foreign money obligation should be
converted into sterling, he chose the date that “gets nearest to securing to the creditor
exactly what he bargained for”.
16
(cont.)
In international arbitration there will often be a convergence of different legal
systems and expectations about exactly how damages should be awarded.
However, at their core, most legal systems recognise that the aim of damages is to
put the claimant back into the position in which it would have been, had the
contract not been breached.
An international tribunal will normally measure the claimant’s loss resulting from
damage to both its:
Reliance interest (often referred to as damnum emergens). This measures what the claimant has lost in
reliance on the contract. This is typically framed as the claimant’s costs and expenditures in reliance on
the contract, which were wasted as a result of the respondent’s breach.
Profit and performance or expectation interest, often referred to in international arbitration as lucrum
cessans (although care should be taken not to equate it to lucrum cessans as understood in French law).
This head of loss covers claims for loss of profit, claims for damages arising out of the diminution in value
of an investment and loss of opportunity or loss of a chance.
17
(cont.)
The approach often adopted in international arbitrations to quantify the loss of
profit for a business is the discounted cash flow (DCF) method. Accounting experts
are usually instructed to prepare and present DCF calculations and supporting
evidence.
The DCF method seeks to estimate the net cash flow that a business would have
made over a specific period but for the breach of contract.
This cash flow is then discounted by a specified amount (the discount rate) so as
to take into account the time value of money and the uncertainty of future cash
flows.
The “time value of money” is a principle which recognises that an amount of
money received today is worth more than the same amount if it is received in ten
years’ time. The calculation of the DCF model gives rise to a single figure,
representing the net present value (NPV) of the projects or business’s future cash
flows. This amount can then be claimed as the loss of future profits.
18
(cont.)
When formulating a claim for damages, the claimant must consider the currency
in which it seeks the award of damages. Currency fluctuations can significantly
impact the overall value of the award. The claimant should be prepared to make
written or oral submissions on why it has chosen this currency as the appropriate
currency of payment.
A tribunal will wish to comply with any agreements between the parties on the
currency of the award. It is therefore a good idea to check any relevant contracts
or concession agreements for currency provisions.
Where there is no clear agreement as to the currency of the award, the usual
approach is for the award to be made in the currency of the contract or of the
country where the loss was suffered.
The tribunal may also choose to look at what the law governing the contract or
assessment of damages provides for. Under English law, damages should be
expressed in the currency in which the claimant truly felt loss (The Texaco
Melbourne [1994] 1 Lloyd’s Rep 473).
19
(cont.)
The tribunal may decide to apply a national law to determine if and how interest
should be awarded. The difficulty for a tribunal is determining which law governs its
power to award interest.
Under English law, the liability to pay interest is considered a substantive issue
governed by the law of the contract. However, the following aspects of interest are
considered procedural matters and so are governed by the law of the seat of the
arbitration:
The rate.
The date from which interest is to be awarded.
The amount.
20
Non-damages remedies
While the most common remedy sought and granted in international arbitration is
the award of damages, other remedies are also available. It is not entirely clear
whether the AA 1996 treats remedies as procedural or substantive; however, the
fact that the parties may agree the availability of remedies suggests the latter.
An arbitral tribunal is not obliged to apply the same approach to choice of law
issues as would be adopted by a domestic court with the same seat. An arbitral
tribunal may, for example, be conscious that the seat of the arbitration has been
chosen precisely because it has no connection with either party or their contractual
relationship, to provide a neutral venue. It may not accord with either party’s
expectations that the law of the seat should be applied to determine available
remedies.
The tribunal is likely to want to render an enforceable award, and may be aware
that applying the law of the seat could lead it to award a remedy that would not be
enforceable at one or more likely enforcement venues.
21
(cont.)
In practice, the best approach when seeking to make an application to a tribunal for a
non-damages remedy is to “start at the end”, that is, consider where the award is likely
to be enforced. Before deciding whether to ask the tribunal to order non-damages relief,
consider whether an award granting such relief will be enforceable and whether it may
be at risk of being set aside at the place of arbitration.
The parties should consider what the courts in the place of enforcement and the place
of arbitration will treat as the applicable law, and what other laws (if any) those courts
will consider relevant.
In addition to considering the law at the place of likely enforcement, parties may wish to
take into account that it will be either the law of the seat or the law governing the
substance of the dispute, or perhaps both, that will govern the question of whether, and
which, non-damages remedies are available. It may, therefore, be prudent to analyse
the position under each potentially applicable law and identify any differences that may
arise.
22
(cont.)
A claim in debt is for an order to pay an amount due under a contract. Therefore,
an action for recovery of a contractual debt involves the enforcement of a
contractual obligation to pay. For example, failure to pay for goods or services
rendered within the time required by contract would give rise to a debt claim. A
debt claim is not a claim for damages as such, although it is a request for
monetary relief. As with any other claim under a contract, the claimant should
specify the contract terms and the facts giving rise to the debt. Note in particular:
At the time of making a claim in arbitration, the amount may already be fixed, or it may
continue to accrue, in which case the request for relief should reflect this.
The contract or the applicable law may provide for pre-award interest, and the applicable
law may provide for post-award interest. Both of these interest components should be
included in the request for relief.
An action in debt is a pecuniary action, and so provided the debt is due and
payable, the issues are unlikely to be more complex than those in a damages
action. In many cases, a claimant will choose to advance alternative claims for
debt and damages. In either case, a claimant should consider any restrictions
contained in the contract, applicable law or any institutional rules regarding the
currency in which an award may be made.
23
(cont.)
Some care is needed when considering a claim for “restitution” as this term
may have differing meanings:
In common law systems, restitution is a remedy that is ordered when a
respondent has been unjustly enriched at the expense of the claimant. The
respondent must undo the consequences of its wrongful action by giving up
the unjust enrichment to the claimant. A claim for restitution targets the
respondent’s wrongful gain rather than claimant’s loss. The remedy may be
available where tort or contractual damages are not. For example, in the
contractual context, damages may be unavailable because the parties’
contract has become void or unenforceable, or because loss cannot be
established. In such circumstances a claim in restitution may be available.
In public international law, restitution is understood in a broader sense of
putting the claimant back into the position it would have been in had the
respondent not breached its international obligations. It encompasses the
possibility of an order that a state “undo” wrongful actions, for example by
returning specific property or restoring a licence, thereby including what
common law lawyers understand as “specific performance”.
24
(cont.)
An order to indemnify requires the respondent to make good the loss or
expenditure incurred by the claimant, usually in connection with liability to a third
party. For example, where there is a chain of contracts, a claimant may seek an
order for indemnification from one contractual counterparty, requiring that
counterparty to reimburse the claimant for any amounts that the claimant has to
pay to a third party (ie its counterparty under another contract). An obligation to
indemnify may be expressly or impliedly provided for in the parties’ contract.
Such claims may frequently arise in relation to a construction project, for example,
a contractor may seek an order for indemnification from a subcontractor where
damages are claimed by another subcontractor against the contractor.
A party may seek an order to indemnify in respect of a fixed amount or an amount
not yet determined. If the amount claimed is not yet ascertained, the request for
relief should carefully track the contractual language. Claimants should ensure
that their request for relief covers all relevant amounts, including costs and
interest.
25
(cont.)
The terms “specific performance” and “performance” refer to similar remedies:
Specific performance. Specific performance is a remedy recognised in
common law systems. An order for specific performance requires the party in
breach of contract to perform its contractual obligations in circumstances
where damages would not provide an adequate remedy. For example, where
the goods to be supplied by the respondent to the claimant are not available
from any other source, an order of specific performance may be appropriate.
Specific performance is generally only available where damages would not be
an adequate remedy. Even if damages would not be an adequate remedy,
specific performance is likely to be refused if the performance would have to
be supervised, or if the contract is one for personal services.
Performance. The equivalent remedy in civil law is “performance”. As a
matter of principle, performance (rather than damages) is considered the
primary remedy for breach of contract in civil law jurisdictions. However, there
are numerous exceptions to this rule and it cannot be assumed that where
the law of a civil law jurisdiction governs, performance will automatically be
available; therefore, specific local law advice should be sought.
26
(cont.)
A declaration is a statement about the parties’ rights, an existing state of facts, or
a legal principle. A party may seek a declaration to clarify the relationship between
it and an opposing party. A declaration may also be sought for strategic or
defensive purposes, to create a res judicata that prevents the respondent from
arguing, in future litigation or arbitration, that a contrary state of fact or law exists.
In many legal systems, the right to claim a “bare” declaration, that is, a declaration
unaccompanied by any other remedy, is restricted, due to a concern that the
courts’ time may be wasted by making declarations that do not resolve an existing
dispute between parties. French, German and Swiss rules of civil procedure
restrict the availability of declaratory relief before the courts. For example:
A claimant before the French courts must show an “intérêt légitime”, or “justified interest”,
which includes a showing that there is an existing dispute between the parties about the
rights covered by the declaration sought.
Swiss rules of procedure provide that, if an action for performance is available,
declaratory relief is not available.
In other jurisdictions (for example, England), the remedy is discretionary.
27
(cont.)
In the common law world, an injunction is an order requiring a party to do or not do
something. In the civil law, what the common law calls an injunction is conceived as
falling within the scope of an order for performance. Injunctive relief is generally
recognised as falling within the powers of an international arbitral tribunal.
Injunctive awards may be difficult to enforce. However, where a respondent lacks funds
to pay damages, an injunction restraining further breach of contract may be a more
attractive option for a claimant.
At the enforcement stage, the same issues arise as in respect of specific performance:
What can a claimant do if the respondent breaches the terms of the injunction, or if the
claimant anticipates that the respondent will do so?
If the award is stated simply in terms of an injunction, how will the courts in which the
claimant seeks the injunctive effect enforce the award, assuming that no grounds for
refusing enforcement are made out?
What penalties will that court impose on the enjoined party if it fails to comply? These
may or may not be adequate to ensure compliance, and they may be payable to the
court rather than to the party seeking enforcement. Further, if the enjoined party’s
conduct affects more than one jurisdiction, an award might have to be enforced in
multiple states.
28
(cont.)
In common law systems, rectification is a remedy by which an error in the
recording of an agreement can be corrected. The remedy of rectification is usually
sought where there has been a mutual or unilateral mistake in the drafting of the
contract.
The AA 1996 provides that, in the absence of an alternative agreement between
the parties, an arbitral tribunal “has the same powers as the court … to order the
rectification, setting aside or cancellation of a deed or other document.” (Section
48(5)(c).)
Article 27(a) of the SIAC Rules 2016 provides that, unless otherwise agreed by
the parties, and except as prohibited by the mandatory rules of law applicable to
the arbitration, the tribunal shall have the power to order the correction or
rectification of the contract, subject to the law governing the contract. Article
24.1.a of the SIAC Rules 2013 also permits the tribunal to order the correction of
any contract, though only to the extent required to rectify a mistake “which it
determines to have been made by all the parties to the contract” and only if the
proper law of the contract allows rectification of the contract.
29
(cont.)
It is important to be as clear as possible about the relief sought, particularly given
the lack of consistency around terminology and the differing approaches to
categorisation.
It is prudent to set out the relief sought in a draft order, to be included with the
request for relief. Claimants should also consider advancing alternative claims for
damages.
When formulating the terms of the relief sought, the claimant should consider
what relief the arbitral tribunal will be prepared to grant. An arbitral tribunal does
not want to have its award set aside at the place of arbitration; nor does it want to
produce an award that is not enforceable. Further, the sheer ubiquity of damages
as a remedy may make a tribunal reluctant to order a different form of relief.
30
(cont.)
The claimant should consider:
Does the substantive contract between the parties (or the BIT in an investment dispute)
provide for, or disallow, the remedy sought?
Does the law governing the substance of the parties’ dispute (the proper law of the
contract, or the law governing the BIT) provide for or disallow the remedy sought?
Does the law of the seat of the arbitration (if commercial or non-ICSID) provide for or
disallow the remedy sought?
Does the law of the place or places of likely recognition or enforcement provide for or
disallow the remedy sought?
A respondent wishing to resist a request for non-damages remedies should also
consider the answers to these questions at an early stage.
As well as considering the technical availability of non-damages remedies, the
claimant should consider whether any award will be effective. This involves
considering where the claimant wants to enforce the award (or have it
recognised).
31
Multi-party and multi-contract issues
In international commerce, individuals, corporations and state agencies often
combine in joint relationships or transactions, frequently constituted and evidenced
by multiple interlocking or related contracts. Such transactions typically take the
form of a web of inter-related contracts or a chain of contracts. In such situations,
disputes arising in connection with the transaction will very often involve multiple
parties and may require consideration of rights and obligations under multiple
contracts
Disputes arising from complex contractual relationships and involving more than
two parties can raise difficult procedural issues in international arbitration. The
arbitral process is a creature of consent.
Parties are free to agree to choose arbitration in whatever form they wish, but
without that agreement they are in no way obliged to act in any prescribed manner.
It follows that it is not possible, in arbitration, to deal with multi-party disputes
without the consent of all concerned. This is a disadvantage of arbitration compared
to litigation and can give rise to significant problems and increased costs in an
arbitration.
32
(cont.)
Disputes arising in connection with such complex transactions will very often
involve multiple parties and may require consideration of rights and obligations
under multiple contracts. However, the commencement of multiple overlapping
proceedings presents a number of obvious problems:
Multiple proceedings inevitably involve inefficiencies of both cost and time when
compared with a single set of proceedings. Those inefficiencies are likely to be magnified
where both arbitration and court proceedings are involved.
The existence of overlapping proceedings risks conflicting or inconsistent decisions given
by differently constituted tribunals or courts, perhaps acting under different procedural
rules.
Costs incurred in one reference may not be recoverable up or down the line in a related
reference arising from the same facts.
Therefore, in most cases it will be preferable for all disputes to be determined by
the same tribunal in a single set of proceedings binding all the parties. If that
cannot be achieved, then parties will generally attempt to ensure that dispute
resolution mechanisms are consistent and, possibly, to seek to ensure concurrent
hearings, to minimise the risks outlined above.
33
(cont.)
The main challenges are to ensure that:
All parties sign up to the same, or at least consistent, dispute resolution procedures.
The dispute resolution provisions do not overlap or, if they do, that it is clear which is to
prevail where both are potentially engaged.
There is a mechanism for consolidation of proceedings or joinder of third parties, so that
all related claims are disposed of consistently and efficiently.
Principles of equal treatment are observed.
The consent of all parties is essential in order to ensure the enforceability
of any award.
34
(cont.)
The problems of inefficiency and potentially inconsistent decisions will be
particularly acute if each contract provides for a different dispute resolution
mechanism. Parties should ensure that each contract contains the same
arbitration clause.
Consolidation, concurrent hearings and joinder are important procedural
mechanisms which can be deployed by the tribunal(s) or parties to minimise the
risks of multiple proceedings.
Apart from some narrow exceptions under national law provisions for courtenforced consolidation, these mechanisms all depend on establishing consent.
Such consent may be contained in an express agreement or may be evidenced
by agreement to institutional rules.
35
(cont.)
Consolidation is the joining of two or more sets of arbitration proceedings to form
a single set of proceedings. A single tribunal will determine all the issues in a
single global reference by publishing an award that binds all the parties to that
reference. In this way, the risk of inconsistent outcomes is avoided.
Concurrent hearings: this mechanism involves the hearing together of two
separate references. In theory, the two references may be decided inconsistently,
particularly if the same tribunal is not appointed to each reference. But in practice,
the hearing of the evidence in common means that the risk of inconsistency is
minimised. Further, in practice, parties will generally strive to ensure that common
arbitrators are appointed to each reference, thereby further reducing the risk of
inconsistency and also minimising costs.
Joinder is the joining of a third party to an existing arbitration – typically where
there is a “claim over” for an indemnity against the third party, or perhaps where a
respondent alleges that the third party is responsible for loss and damage in
respect of which the claims have been brought.
36
(cont.)
A factor that must be considered where more than two parties are involved in a
dispute is the need to ensure equal treatment in connection with the appointment
of the tribunal and the conduct of the proceedings.
For example, A, B and C conclude a contract that contains a dispute resolution
clause referring all disputes to arbitration. Disputes arise between the parties, A
advancing claims against B and C. Given the need for equal treatment of the
parties, how will the tribunal be appointed fairly, such that all three parties have an
equal “say” in the make-up of the tribunal?
The problems of equal treatment in multi-party disputes were highlighted in the
well-known 1992 French Cour de Cassation case of Siemens AG/BKMI
Industrienlagen GmBH v Dutco Construction Company XVIII YBCA 140 (1993)
(Dutco). Dutco was concerned with an International Chamber of Commerce (ICC)
arbitration in which there were two respondents and one claimant.
37
(cont.)
The claimant appointed its arbitrator, but the ICC Court insisted that the two
respondents should jointly appoint a single arbitrator (with the third to be
appointed by the ICC Court). The French court subsequently annulled the award
given by the ICC tribunal, finding that the procedure for the appointment of
arbitrators provided for in the ICC Rules gave rise to an inequality because one
party (in this case the claimant) had a greater influence on the make-up of the
tribunal than the other parties (two respondents with divergent agendas who were
called upon to jointly nominate an arbitrator).
The decision in Dutco was reached partly on the basis of the French Civil Code
that enshrined public policy concerns, including the principle of equality in the
appointment of arbitrators. The court was of the opinion that, as it was a matter of
public policy, the principle could not be waived before a dispute had arisen.
Therefore, and notwithstanding any pre-dispute contractual arrangement, each
party must be afforded equal autonomy in the arbitration process and in particular
the appointment of the arbitrators.
38
(cont.)
Some national laws have developed legal theories and principles that entitle third
parties to take the benefit of arbitration clauses or bind third parties to arbitration
clauses contained in contracts to which they are not signatories. Where such
principles apply, they entitle the third party to join in the arbitration directly,
thereby avoiding the need for consensual joinder, consolidation or concurrent
hearings of proceedings. However, such national law principles are unlikely to
provide a complete solution to the problems of multi-party arbitration and, in most
cases, parties will need to draft a specific clause.
The position varies from jurisdiction to jurisdiction, but the principal legal theories
that have emerged in the jurisprudence are:
Incorporation by reference. This is where an arbitration clause contained in a
contract between A and B is incorporated by reference into a contract to which C is
a party, thereby binding C to arbitrate.
Assumption by conduct. This is where an agreement to arbitrate disputes is
inferred from the conduct of the third party.
39
(cont.)
Third-party beneficiary. This is where a third-party beneficiary (for example, an
assignee or subrogated party) who wishes to enforce a contractual right arising
from an agreement that contains an arbitration clause must respect this dispute
resolution choice made by the main parties to the contract.
Agency. Here, a principal is bound by an arbitration agreement made by its agent,
sometimes even in cases of apparent authority, or where the principal is
undisclosed.
Equitable estoppel. Any person (including a non-signatory) claiming a benefit from
a contract containing an arbitration agreement is equitably estopped from refusing
to arbitrate.
Alter ego arguments. This is where a signatory to an arbitration agreement is
merely the alter ego of a non-signatory, the corporate veil of the signatory may be
pierced, so that the non-signatory is also bound by the arbitration agreement.
Assignment. Here, the benefit of the arbitration agreement is assigned to the third
party.
Group of companies theory. Where a signatory to an arbitration agreement is part
of a group of companies, the doctrine allows for the extension of the application of
the arbitration agreement to one or more companies in the same group as the
signatory.
40
(cont.)
The problem with court-enforced consolidation is that it offends against the
consensual nature of arbitration. As such, there is an argument that it is
inconsistent with the regime for the enforcement of international arbitral awards
provided in the New York Convention.
Article V.1(d) of the Convention provides that the composition of the tribunal and
the procedure to be followed must be determined by agreement between the
parties. It is questionable whether enforced consolidation falls within this criterion.
There is academic support for the view that, where a court order results in the
consolidation of proceedings, the award should be enforceable as long as the
parties agreed to arbitration in the same seat. However, especially where a
tribunal has been forced on the parties, the possibility remains that enforcement
and recognition of the resulting award could be refused.
Enforced consolidation also ignores such issues as equality of treatment, as
highlighted by Dutco.
41
(cont.)
Most of the major institutional rules provide for the joinder of, or intervention by,
third parties and the consolidation of proceedings.
The LCIA Rules 2020 give the tribunal the power to join third parties to the arbitration,
at the request of a party, provided that the third party and the applicant party consent in
writing (Article 22.1(x), LCIA Rules 2020).
In addition, under the LCIA Rules 2020, the tribunal has the power (with the LCIA
Court’s approval) to order the consolidation of the arbitration with one or more other
arbitrations, where all the parties to the arbitrations to be consolidated agree in writing
(Article 22.7(i), LCIA Rules 2020).
Under the LCIA Rules 2020, Article 22.7(ii) now allows for the tribunal to consolidate
arbitrations under compatible arbitration agreements between “the same disputing
parties or arising out of the same transaction or series of related transactions”. This
broader scope has also been applied to the powers of the LCIA Court under Article
22.8(ii).
42
(cont.)
In response to the issues in A v B [2017] EWHC 3417 (Comm), the LCIA Court
included at Article 1.2 of the LCIA Rules 2020 a provision that a claimant may
(under certain circumstances) issue what is called a “composite” request for
arbitration in order to commence multiple arbitrations at once. This is then
followed at Article 2.2 by the ability for a respondent to file a composite response.
While the issue of a composite request may be accompanied by a request for
consolidation of those disputes, consolidation is not automatic and will need to be
sought in accordance with the LCIA Rules.
Article 22.7(iii) of the LCIA Rules 2020 also provides for a tribunal to run
concurrent arbitrations which, in practice, is likely to occur where it is standard
market practice in the relevant industry (as in maritime arbitration), or where
concurrent arbitrations were agreed in the relevant contract.
43
(cont.)
The ICC Rules 2021 provide that a party may request that an additional party be
joined to the arbitration by submitting a Request for Joinder to the ICC Secretariat.
The Request for Joinder must be submitted before the confirmation or
appointment of any arbitrator, unless all parties (including the additional party)
agree otherwise (Article 7).
Article 9 of the ICC Rules 2021 provides that claims arising out of or in connection with
more than one contract may be made in a single arbitration, irrespective of whether
such claims are made under one or more than one arbitration agreement. Article 10
further provides that the ICC Court may, if requested by a party, consolidate two or
more arbitrations pending under the ICC Rules where the parties have agreed; or all
the claims are made under the same arbitration agreement; or if the claims are made
under more than one arbitration agreement, the arbitrations are between the same
parties, the disputes arise in connection with the same legal relationship and the ICC
Court finds the arbitration agreements to be compatible.
44
(cont.)
The SIAC Rules 2016 provide that before the constitution of the tribunal, the SIAC
Court may join parties provided that either they are prima facie bound by the
arbitration agreement or all parties, including the party to be joined, have
consented to the joinder (Article 7.1). In addition, under Article 7.8, a joinder
application may be made to the tribunal after its constitution on the same basis as
under Article 7.1.
The SIAC Rules 2016 introduced consolidation provisions. Article 6.1 provides
that, in a multi-contract scenario, the claimant may either file various notices of
arbitration and concurrently file a request to have those claims consolidated, or it
may file one consolidated notice of arbitration including a statement referencing
each contract and arbitration agreement invoked and indicating how the
applicable criteria for consolidation set out in Article 8.1 are satisfied.
45
Q&A
Any Questions?
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