In International Arbitration unlike before National Courts, parties are free to determine procedure to be adopted by Arbitral Tribunal to conduct proceedings, except applicable mandatory provisions of National Law, relating to seat of arbitration.

For due process, it is party autonomy which holds vital importance to allow parties to select procedure as per requirement and purpose expected to be unhindered by conflicting procedure or legal practice.

In absence express agreement of parties, it is upon their selection of set of Arbitration Rules & Procedures that proceedings become predictable. This leads to saving time and cost, especially when established set of Arbitration Rules & Procedures are adopted by parties. The determination of Tribunals jurisdiction over a dispute is contingent to agreement of parties to arbitrate that dispute, which gets complex when there are multiple parties under same contract or different contracts and involvement of third parties, giving rise to jurisdictional and procedural problems.

Over the years, International Arbitration has navigated and adapted to limitations through working out a solution as redressal mechanism, but core difficulty remains on account of the fact that arbitration as a dispute resolution mechanism is consensual in nature, which expressly looks for answer through arbitration agreement. In absence thereof, the process of arbitration by its very nature is not equipped to give answers which led to many international arbitral institutions amending their rules to equip themselves in order to meet those complex eventualities.

MULTIPARTY AND MULTICONTRACT ARBITRATIONS:

Multiparty arbitration is a term used to identify involvement of more than two parties in one arbitration proceeding. The focus point is not as who is a party to arbitration but to the fact of method of appointing the Arbitral Tribunal and conducting Multiparty arbitration proceedings. This issue involves joinder and intervention of parties. Joinder involves when parties to the proceeding seek to join third parties and, as and when third parties knowing of the dispute want to become party to the proceedings, it is said to be intervention of party. As arbitration agreements are recognized and enforced in accordance with parties intention making consent of additional parties, being an essential condition, imperative for joinder to the arbitration agreement.

Similarly, Arbitration involving multi-contract claims mandates agreement of parties,  whether express or implied as an imperative condition for consolidation. At National  level some States in their Arbitration Laws have added provision empowering National Courts or Arbitral Tribunal to consolidate arbitrations, subject to consent of parties.

The complexity which accrues from the above given situation is firstly, the issue of due process with respect to appointment of arbitrators and submission of evidence and secondly, due to consensual nature of dispute resolution mechanism, the issue of including non-signatory to an arbitration agreement in order to establish that they are bound by arbitration agreement, despite not having signed it.

In International Arbitration, a multiparty agreement with uniform arbitration clause constitute sufficient basis for multiparty arbitration proceedings. The fact that an agreement has been entered must be considered as an implied consent to multiparty arbitration by each of the parties to an arbitration agreement. In respect to multi-contract claims, International Arbitral Institution Rules contains different conditions and procedures for consolidation and bringing claims together. Most important rules allow consolidation of separate arbitrations only when arbitration is subject to same institutional rules, arbitration between same parties and dispute in arbitration arising in connection with same legal relationship with arbitration agreement to be compatible amongst the multiple contracts. 

It is often a case that Tribunal must weigh desirability of insuring disputes involving common issues, which are resolved consistently while weighing that if arbitrations are consolidated or heard together, they may become unduly prolonged.

NON-SIGNATORIES: -

As per General Principles, an Arbitration Agreement only binds parties to the agreement. It is a question of interpreting the arbitration clause as whether the arbitration agreement would apply to a third party, which otherwise cannot be considered as a party to the arbitration agreement.

The theories applicable for extending arbitration agreement to non-signatories are:

(a) Consent to arbitration based upon conduct: Conduct of a non-signatory has been considered to be an expression of intention to be bound by an Arbitration in view of underlying contractual relationship. (b) Group of Companies Doctrine:  The doctrine is best explained through Dow Chemical Case[1] wherein “the arbitration clause expressly accepted by companies of the group should be by those companies, which by virtue of their role in conclusion, performance or termination of the contract acted in accordance with the mutual intention of all parties to the proceedings”. (c) Representation and Agency: a non-signatory to an arbitration agreement may be considered as a principle to be bound to an arbitration agreement if it was entered into by a person acting as its representative or agent. The Law of Agency in relation to International Arbitration varies between Domestic Courts. The Arbitral Tribunal is to determine the principle or the Agent or both as when compelled or permitted to arbitrate a dispute arising out of an agreement having an arbitration clause. The Law of Agency is stated to be invoked when party alleges existence of an undisclosed or apparent mandate to include the non-signatory principle in Arbitration. (d)  Guarantee Contracts: An arbitration clause may also be extended to a non-signatory as and when based on explicit or implied guarantee of non-signatory. In Westland[2] case relating to investment arbitration, it was held that four non-signatory States were bound to an arbitration agreement entered into by a company which they had created and controlled and States were held liable on implied guarantee made in favour of this Company. (e) Principle of Piercing the Corporate Veil:  Arbitration Agreement is extended to controlling parent company applying doctrine of piercing the corporate veil to identify the controlling authority upon lifting the Corporate Veil so as to determine the accountability of the corporation. Although, this doctrine is applied restrictively and usually in cases of abuse of rights or fraud.

MULTI PARTY & MULTI-CONTRACTS ARBITRATION IN INDIA:

The Arbitration and Conciliation Act 1996, under Section 7 defines an Arbitration Agreement as an agreement to submit to arbitration all or certain disputes which have arisen or may arise between parties in respect of a defined legal relationship, whether contractual or not. The said provision is said to hold the center stage in answering issues hovering around the abovementioned aspects.

In Chloro Controls (India) (P) Ltd. v. Severn Trent Water Purification Inc.[3], a Bench of Three Judges of the Hon’ble Supreme Court of India, in a matter pertaining to International Arbitration referred non signatories to a common international arbitration; holding that, under exceptional conditions composite reference can be made without prior consent of non-signatories or third parties for reference to arbitration recognizing the expression ‘any person claiming through or under’ takes within its ambit persons who are in legal relationship through or under multiple and multi-party agreements.

Through recognition of “Group of Companies” doctrine, Hon’ble Supreme Court of India evolved ways to meet this eventuality, as found in case of Cheran Properties Limited v. Kasturi Sons Limited[4]. Herein, the Hon’ble Supreme Court of India recognised “Group Company Doctrine” affected through multiple corporate structuringand agreements within Group of Companies to enforce an award. It observedthat binding signatory or non-signatory entities within the group is through conduct. The threshold for determining non-signatory to be bound is to attribute circumstances and connect it with showing an intent to bind someone who is not formally a signatory but has bound itself to actions of a signatory.

CONCLUSION

Chloro Controls has set jurisprudence for consideration of Multi-Party Arbitration through introduction of non-signatories in the Arbitration Proceedings in recognition of the fact that, commercial transactions are multi-party and multi-layered. If left out, it would make the dispute redressal through arbitration incomplete as an effective Dispute Redressal Forum.

The Multi Party Arbitration Proceedings could always leave a ground for challenge to the Arbitral Award. Although in most of the Rules of the various Arbitration Institutions, there is a provision thereof but the decision is left to the Arbitral Tribunal for the consolidation, joining of a party or the intervention of the party.  Giving sufficient opportunity to Tribunal to determine its jurisdiction while at the same time, a challenge can be made to the Court of the seat of Arbitration.

The benefit to hold a Single Arbitration involving multi-party and multi-contracts has been found to be beneficial in context of time, money and controversy as found in the case of P.R. Shah v. B.H.H. Securities[5] wherein it was held by the Hon’ble Supreme Court of India that when a challenge had been made to consolidation, it gives a benefit for not having multiplicity of proceedings and conflicting decisions. 

Keeping the principles of Multi-Party Contracts in mind, it is not as a thumb rule that all disputes in relation to a particular contract would be referred to the same Arbitral Tribunal. But upon comparisons to the powers of a Court, Arbitration is no longer limited to bi- party and multi-party disputes to remain centered on the fact that the parties totally rely upon the Agreement between them. 

Author, Atul Nigam, Advocate can be reached at : anigam.law@gmail.com  +91 9810049589.

Address: 24, Jangpura ‘A’, Mathura Road, New Delhi -110014, India.