An analysis of SIAC's Proposal on Cross-Institution Consolidation Protocol

Updated: Sep 27, 2020



Background

 

Commercial transactions are not uniform. Hence, commercial contracts cannot be uniform even if they pertain to the same enterprise. It is but natural that contracts can have different clauses pertaining to dispute resolution. However, just because the clauses differ, it does not mean that the law does not allow parties the independence to not only perform contracts but also resolve disputes in a manner which is cost-effective, efficient and furthers the principles of a free economy. It is in this context that the consolidation of arbitration proceedings assumes importance. As it has been accepted, the existing arbitral institutions’ rules do not provide for consolidation when the arbitrations are governed by rules of different arbitral institutions.



Scope of this Essay

 

In this essay, I accept that the Singapore International Arbitration Centre (“SIAC”) Memorandum Regarding Proposal on Cross-Institution Consolidation Protocol, (“the SIAC Memorandum”) is a lodestar in the process of allowing consolidation of arbitral proceedings even when they are governed by different arbitral institutions’ rules. I examine the extent to which the SIAC Memorandum mitigates the perceived weaknesses of arbitrations in effectively resolving multi-party, multi-contract disputes, by exploring the idea of the autonomy of parties given its predominance in the discourse relating to arbitration and especially in the context of multi-party arbitration and how the SIAC Memorandum tackles the issue of autonomy.[1] I look at how the effectiveness of these arbitrations is determined by the different forms in which the idea of autonomy develops in the context of multiparty arbitrations and to what extent, the SIAC Memorandum deals with the problems that could arise thereon. I also look at other factors that determine the effectiveness of arbitration.


Autonomy

The autonomy of parties is the basis of them entering into arbitration agreements and needs to be respected in case of consolidation of multi-contract, multi-party arbitrations.[2]

The issue of party autonomy in the context of mandatory arbitral institutions’ rules is usually resolved by arguing that parties have agreed to the mandatory, non-derogable provisions of the rules of the arbitral institutions. Hence, there is no breach of their autonomy even when the parties differ from the rules of the arbitral institutions but the rules would prevail as parties have explicitly consented to the rules.[3] To a large extent, the SIAC Memorandum mitigates the problem that may arise on the question of autonomy by providing that the rules of the arbitral institutions will be changed to incorporate the provisions of consolidation thus giving the same contractual status to the consolidation process.


Critical to the notion of free consent, is the idea that parties agree to a contract based on situations and hence, are not bound by any template for the same. Hence, there might be situations where parties have agreed to arbitral institutions’ rules which do not provide for the consolidation as envisaged. In such situations, neither legally nor outside of court, should parties be forced to agree to consolidation proceedings without their consent. The SIAC Memorandum could provide for adequate safeguards to protect such free will of the parties.


Such a problem could also arise during the transition period for which the SIAC Memorandum suggests an opt-in mechanism. There might be situations where not all parties intend to opt for the consolidation or where arbitrations have commenced, the status of the parties are unequal, arising from their economic status, either on their own absolutely, or relative to other parties.[4] The problems of unequal bargaining power could manifest itself in several different ways. For instance, parties may choose to manipulate contracts in a way that the consolidation is conducted towards an institution which favours them the most.[5]


In such situations, the rules should provide for protecting the freedom of the weaker parties into agreeing to any such consolidation against their free will.

Determination of Consolidation Applications

It is important that parties have a say in determining the procedural aspect of arbitration which is in fact, the essence of having a procedure different from the judicial process.[6] In the absence of such control over determining the arbitral process, given especially the diversity of claimants, defendants and contracts in a multi-party, multi-contract arbitration, there could be manifold claims that the process was determined without the involvement of the respective parties and hence open to challenge on the grounds of lack of autonomy.

This determination, as envisaged by the SIAC Memorandum would happen at the stage of the Joint Committee of arbitral institutions deciding on the consolidation applications. It is important, therefore, that parties have a greater say in the way in which the applications are being decided, something that the SIAC Memorandum misses. Perhaps, the proceedings of the Joint Committee could be explicitly declared a quasi-judicial proceeding allowing the representation of parties when the applications are being decided and thereupon fulfilling the other requirements of the principles of natural justice.

Applicability of the Appropriate Arbitral Institution’s Rules

Commencing arbitration requires the consent of all parties and certain institutions require the express signature on the agreement to arbitration based on the institution’s rules.[7] For instance in the case of the Trans-Siberian Natural Gas Controversy, according to E. Scott Fraser, where the US-based suppliers had run into a dispute with the US government oversupply of raw material to a Trans Siberian Natural Gas pipelines, the suppliers could not have asked for arbitration as per ICC rules without the consent of the US government.

Hence, rules such as those of the ICC as explained in the above context, seem to provide the necessity of express consent and/or signatures to the agreement to commence arbitration. The SIAC Memorandum seemingly mitigates this problem as it provides for “appropriate changes” to be made to the rules of the arbitral institutions. At the stage, however, when changes are being carried out, these provisions of the rules which strictly limit the applicability of the rules would have to be addressed.

Appointment of Arbitrators

Despite the fact that the ICC Rules provide for instances where the institution would appoint arbitrators in the absence of consensus between the parties and it may be argued that by agreeing to the ICC Rules the parties have entered into an agreement to allow the ICC to appoint the arbitrators[8]. This can, however, perhaps be a ground for challenge under the New York Convention[9] which specifically provides improper constitution of the tribunal as a ground for challenging the arbitral award.


In the absence of a consensus to appoint arbitrators, according to Redfern, the enforceability of the award would still not be very clear as the lex arbitri- that is, the law of the state in which the arbitration took place, would have to permit such agreements entered into even before the start of the arbitration.[10]


Multi-party arbitrations by nature, usually have to adhere to the arbitral laws of more countries than usual. Given the consolidation would in effect be a pre-arbitration agreement, its nature and enforceability across all jurisdictions will have to be examined. Going by the logic above, in the absence of party involvement at every stage of the process, there might not be final closure to the dispute as the award may not be enforceable. This weakness is not addressed by the SIAC Memorandum.

Difficulty in obtaining recognition of awards made by a tribunal that has been established for the parties rather than by the parties

Professor E. Scott Fraser terms binding parties to the decision made by the arbitral tribunal, as “the most effective way to arbitrate multi-party disputes”.[11] Being bound by the award necessarily implies providing recognition and the prospect of enforcement by courts.

A clause entirely foreign to the contract will be inserted. Whilst it is agreed that the problem of consent, as discussed above, might not arise as should not arise as there has been a clear subscription to the institutional rules, the New York Convention provides enough scope for challenging awards if the “composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties…[12] A similar problem could arise, in the context of consolidation where the issue of consolidation is decided not directly by the parties but indirectly, on the basis of subscription to the rules of the arbitral institutions. This could be compounded by the fact that there might be situations where representatives of those arbitral institutions which were not even originally envisaged by the parties, have decided on crucial issues of arbitral procedure. The same remains unanswered by the SIAC Memorandum.

Choice of Institution

The freedom to choose the nature of arbitral institution included in a contract is not only integral to the concept of the freedom of contract but is also determined by several different practical considerations such as the comfort of the parties in the country in which the arbitral institution is located.[13]


Parties might be unable or unwilling to subscribe to the rules of a certain arbitral institution on account of reasons beyond their control. In such situations, the SIAC Memorandum does not provide guidelines for the Joint Committee to decide on the applicable rules. Clearly such untrammelled authority on the Joint Committee could lead to questions being raised on its independence and checks and balances on the power exercised.

Division of Costs

One of the biggest problems that arises in the context of these arbitrations, is the apportionment of costs.[14] Disputes with regard to costs have an impact on the effectiveness of arbitrations insofar as they vitiate the atmosphere of arbitrations, giving additional grounds to the weak party to claim that it has to bear an unequal burden and thus, prevent the proper execution of such contracts. These problems could compound in the context of these arbitrations with applicable rules being different in different contexts. Another issue which could arise is as to how the costs of the consolidation proceedings itself have to be shared between the parties.


The SIAC Memorandum does not address this vital point.

Confidentiality especially when it comes to Concurrent Hearings

Resolution of multi-party, multi-contract arbitrations could be done through different ways which include consolidating different arbitrations into one or by appointing the same arbitrator for different arbitrations. Be that as it may, chances of exchange of information and documents between different proceedings and parties who were not even parties to the same contract, remains. Apart from the possibility of parties being asked to deal with parties who they had no connection with, there are also grave chances of confidentiality being compromised,[15] a point that the SIAC Memorandum does not address.

Conclusion

 

While commending the SIAC’s path-breaking initiative in bringing out the SIAC Memorandum, this piece was intended to constructively critique the Memorandum in order that it was modified, as required, to fulfil its mandate. It would be in the interests of the institution and arbitration practice worldwide, that the creation of these rules for consolidation is undertaken through a public, deliberative exercise, such as this.




    [1] Section 1 of this article discusses why and how the idea of consent of parties becomes so important in the discussion around multi-party, multi-contract disputes. 
 
  [2] 141, Nigel Blackaby, Constantine Partasides QC, Alan Redfern and Marting Hunter, on International Arbitration 141, (6th ed, 2015). The authors cite the landmark ICC’s Commission on International Arbitration, Final Report on Multi-party arbitrations which says, “The greater the number of such persons, the greater the degree of care which should be taken to ensure that none of them is joined in the proceedings against its will.” 
 
  [3] Of course, this argument can, in no way, be an absolute prohibition on the autonomy of the parties to determine the rules of arbitration procedure, on their own free will, as recognized in several jurisdictions. Kinga Timar, The Legal Relationship between the Parties and the Arbitral Institution, ELTE LJ, 2013, 103-122  
 
  [4] The problem of parties being compelled on account of their unequal economic status and bargaining power may be higher in arbitration than in litigation, in the absence of the time tested safeguards that come with dispute resolution in courts. Dr. Tilman Niedermaier, Arbitration Agreements between Parties of Unequal Bargaining Power – Balancing Exercises on Either Side of the Atlantic, ZDAR 1/2014, 12-21.
 
  [5] “Parties may seek to exploit the criteria for cross-institution consolidation of proceedings, for example by commencing an arbitration under the agreement with the institutional rules that most benefit them first to sway cross-institutional consolidation towards that particular institution.” Alastair Henderson, Chris Parker, Venessa Naish, Caroline Le Moullec, SIAC Issues Proposal for Consolidation of Arbitral Proceedings etween Institutions, 22.12.2017, https://hsfnotes.com/arbitration/2017/12/22/siac-issues-proposal-for-consolidation-of-arbitral-proceedings-between-institutions/. 
 
  [6] “…the essential rule of the principle of arbitration is that where two parties freely enter into an arbitration agreement, there are few restrictions on their freedom to formulate their own terms of the agreement or to design a process, which caters precisely to their needs.” Sunday A. Fagbemi, Party Autonomy in International Commercial Arbitration, AFE BABALOLA UNIVERSITY: J. OF SUST. DEV. LAW & POLICY, 226. 
 
  [7] Scott Fraser, International Arbitration of Multi-Party Contract Disputes: The Need for Change, 6 Loy. L.A. Int'l & Comp. L. Rev. 427 (1983). 
 
  [8] For a discussion on the notion of paarty autonomy hhthe notion of consent and the ts of the principles of natural justiceautonomy.
 as determined without the involverty autonomy and its interplay with parties subscribing to mandatory arbitral institutions’ rules, see Section 1.
 
  [9] June 10, 1958, 21 U.S.T. 2517, T.I.A.S. No. 6997, 330 U.N.T.S. 38 (effective for the United States on December 29, 1970) codified at 9 U.S.C. §§ 201-208 (1982).
 
  [10] Supra note 2 at 143.
 
  [11] Supra note 6.
 
  [12] Supra note 8 at Article V(1)(d)
 
  [13] Take for instance the interesting guiding criteria for exercise of such choice as provided in Ashurst, International Arbitration: Which institution?, 30.01.2018 available at
  https://www.ashurst.com/en/news-and-insights/legal-updates/qg-international-arbitration-which-institution/, 
 
  [14] Micha Buhler, Awarding Costs in International Commercial Arbitration: an Overview, 22 ASA Bull. 249 (2004).   
 
  [15] Volodymyr Rog, Joinder of Multiple Disputes Between the Same Parties: Issue of Single Arbitration, Central European University, Available at file:///Users/kushanksindhu/Downloads/rog_volodymyr.pdf

This post has been authored by Kushank Sindhu.

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