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news - International Arbitration - SIAC's proposal for a protocol on cross-institutional consolidation of arbitrations: too much complexity to be beneficial?
SIAC's proposal for a protocol on cross-institutional consolidation of arbitrations: too much complexity to be beneficial?
12 January 2018 | International Arbitration
One of the characteristics of international arbitration that users sometimes find frustrating is the very limited potential to consolidate into a single arbitration disputes between the same parties on fundamentally the same matters. Contesting separate arbitrations on the same or closely related issues is likely to result in increased costs, will quite possibly entail delay in reaching a final resolution, and may lead to inconsistent outcomes. We have recent experience of this in a dispute where the same facts and broadly the same substantive arguments were at issue in five separate arbitrations.
The Singapore International Arbitration Centre's proposal for a protocol covering the consolidation of cross-institutional arbitrations is interesting and deserves further consideration, but faces questions both of principle and as to whether it is capable of being of real utility, as well as practical hurdles. This comment will focus on a few key issues.
Party autonomy and "efficiency and fairness"
First, matters of principle. SIAC takes as its starting point an extract from its President's core text on international arbitration, noting that "by selecting divergent arbitration procedures …, arbitral seats and/or appointing authorities, the parties (wisely or unwisely) expressed their preference for incompatible dispute resolution mechanisms".
Whether or not the parenthetical comment is unduly wry, the broad statement is true enough, except that the parties do more than express a preference – they make a choice. Of course, while that choice is typically made at the time of the original contracting, it is always open to parties to enter into a submission agreement as and when disputes arise, to enable all of those disputes to be decided within a single dispute resolution process. Where a party declines to do so, it is utilising rights that it has negotiated for and agreed. Any infringement of a party's ability to enforce contractual rights, particularly within a contractual jurisdiction, should not be undertaken lightly.
Secondly, the memorandum asserts that such a protocol would "result in significant gains in efficiency and fairness for parties that seek to resolve their disputes through arbitration".
"Fairness and efficiency" are, it seems, equated with a reduced risk of satellite disputes, inconsistent awards, and additional costs of fighting the same or similar issues in multiple forums. With the caveats discussed below, that is clearly a sensible motive. On the basis of the current proposal, however, the scale of the potential benefit is unclear and there seems to be a very real risk that a protocol entered into with the intention of bringing efficiency may give rise to exactly what it seeks to avoid i.e. satellite disputes, additional costs, and delay.
Compatibility: a high hurdle?
Although the paper does not address in detail the substantive test for whether arbitrations should be consolidated in any particular situation, there is helpful reference to the compatibility requirement for consolidating arbitrations found in many arbitral rules. SIAC refers to Bernard Hanotiau's view that compatibility entails no differences in the institutional or ad hoc nature of the arbitration, the seat, the number of arbitrators, or the appointment procedure. This definition of compatibility has implications for the proposal:
The choice of institution is often, although by no means always, linked to the choice of seat e.g. London with the LCIA; Paris with the ICC; Singapore, SIAC; Hong Kong, HKIAC. While that is a generalisation, if compatibility is required and entails identical seats (or at least identical arbitral regimes), this seems likely to be a significant constraint on the utility of any protocol.
Looking at the institutional/ad hoc split, should ad hoc arbitrations be excluded from the proposal's ambit? Should the protocol be capable of application if an institution has an administrative role under the ad hoc arbitration agreement? Can a third party (the Secretary General of the PCA, perhaps) participate in the decision-making process where an ad hoc arbitration agreement is in play? The last solution would seem directly contrary to party autonomy. The other two approaches would be conceivable if the parties had agreed, for example, to the UNCITRAL Rules and those Rules themselves had incorporated a consolidation protocol, or it was clear from the rules of the administering authority that the possibility to consolidate existed in this situation as well as where its own rules were to be followed.
The requirement for identical appointment processes may also derail potential consolidations. To give an obvious example, the default position under the LCIA Rules is institutional selection, whereas under the ICC Rules it is party nomination. Assuming that parties had incorporated those sets of rules without amendment into separate agreements, would that difference in the respective rules exclude cross-consolidation?
Other reasons for caution
Any protocol must also pay due regard to the fact that there are perfectly sensible reasons why parties that have every intention of performing their contracts (and, if necessary, arbitrating disputes on the basis agreed), might choose differing institutions, seats, etc within the same contractual suite. These might include:
Enforcement considerations;
Concerns around cyber-crime (for example, the risk of hacking being higher in one jurisdiction than another and the consequent desire to keep certain material out of a particular jurisdiction);
Parties having corporate policies mandating certain dispute resolution mechanisms in certain circumstances and the mix being the best available compromise.
Users might have other motivations, too. These might include reasons that are not specific to the particular transaction or project. They might well also include, as a matter of commercial reality, the settlement leverage which may flow from either the need for parallel proceedings or the possibility, or reality, of inconsistent arbitration awards on matters arising out of the same contractual suite (and, quite possibly, the same facts). Indeed, having inconsistent dispute resolution mechanisms may be the only available protection for a well-informed party that has had to accept otherwise problematic commercial terms. (While an arbitration agreement is severable, it is hardly unknown for its provisions to be traded for terms elsewhere in the underlying contract.)
The sensible user will, of course, weigh as far as possible the costs and benefits of its approach as at the date of contract. And, as noted above, it is of course open to the parties to agree a different approach at the time when a dispute arises. Do "fairness and efficiency" demand that institutions should have the power to trump a party's contractual rights?
Who decides and how?
As the memorandum acknowledges, there are other matters that would need to be ironed out. For example, what should happen if the representatives of two named institutions on a joint committee do not agree? Presumably, no agreement means no consolidation, but they may be in agreement on the desirability of consolidation, but differ as to which of them should take the case. (In passing, all the suggestions in the memorandum for criteria to determine which institution's rules should apply are open to being gamed to a greater or lesser degree – with the possible exception of the geographical criterion, which seems unlikely to be attractive to institutions or to parties.) If three or more institutions are in play, should a majority suffice or should unanimity be required? The answer may differ between the two questions.
As noted at the outset, the limitations on consolidation in arbitration can be problematic for users. SIAC's proposal is innovative but engages matters of principle which make careful consideration important. It will be interesting to see how all stakeholders respond to SIAC's consultation process and how those responses affect the development of this proposal.
Philippa Charles, head of the International Arbitration Department, has been quoted in CDR Magazine with respect to the SIAC proposal. Her comments can be found here: New proposal for consolidation of arbitrations by SIAC.
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