Experience, as Oscar Wilde noted, is the name people give to their mistakes. There can be no worse experience in international arbitration than for a party, however unwittingly, to have allowed his opponent to bring duplicate proceedings. This may happen where one party commences arbitration under the arbitration clause of one agreement, only to find that his opponent commences a parallel arbitration against him in relation to the same dispute under the arbitration clause of a separate, but related agreement.
The likelihood of this happening is greater than is commonly imagined. In any commercial relationship where there is more than one agreement or more than one party (e.g. joint venture arrangements, construction projects and "string" commodities deals), the potential for duplicate proceedings exists. And it does happen. The Bulk Oil1 disputes, albeit involving arbitration and litigation proceedings, are real examples of a real problem.
The immediate consequence is cost. It will inevitably cost more to fight two arbitrations than to fight one. Challenges to the jurisdiction of the competing tribunals will only add to spiralling legal bills. Moreover, if the two arbitrations are to be conducted in different countries or under different laws or languages, a second firm of lawyers may need to be instructed. Taken together, these factors could have a serious impact on the ability of a party with limited resources to obtain an award against a larger party with much greater resources.
If each arbitration is allowed to run its course, the potential for arbitral chaos is immense. For example, the tribunal in arbitration A may make a different award to that made by the tribunal in arbitration B2. Should each party then seek to enforce the Award most advantageous to it in the national courts, chaos will ensue. The resulting confusion is amply demonstrated by the string of conflicting decisions arising in the disputes between OTV and Hilmarton3.
From a practical perspective, there is relatively little that can be done to stop a parallel arbitration in its tracks. The only answer is to challenge the jurisdiction of the usurping tribunal. Unlike parallel proceedings in litigation4, there is no general principle of lis alibi pendens in international arbitration (although a sympathetic tribunal may adopt the doctrine and apply it by analogy). A challenge to the tribunal’s jurisdiction must therefore be made on more general grounds. Amongst the arguments which have been used in the past, parties have submitted that:
- Overlapping arbitration clauses should be viewed as options to arbitrate. So, by invoking arbitration clause A, the Claimant necessarily prevents the Respondent from invoking arbitration clause B in relation to the same disputes.
- As a matter of subjective intention, the parties cannot be taken to have agreed to arbitrate the same disputes before two different tribunals and under two different arbitration agreements.
As a matter of logic, both submissions must be right. If so, the arbitration first commenced should take precedence over the second, which should be stayed.
If the challenge fails, the alternative is to try to have the two arbitrations consolidated. The power to do so certainly exists under some national laws5 and institutional rules6. But practical application of that power is not without its own problems.
The principal problem is that the consent of both parties will be required before proceedings will be consolidated. Indeed, since the Sofidif decision of the French Cour d’Appel7, the ICC has shied away from consolidating separate, albeit related, arbitrations in the absence of the parties’ agreement to that effect.
More problems may arise if the tribunals in each arbitration are different. Indeed, a party may seek to derail attempts at consolidation by nominating different co-arbitrators in each arbitration. Assistance may be had from appointing institutions who may refuse to confirm the appointment8; and from national courts who may overrule the appointment and instead appoint the same arbitrator(s) to each reference9. But again, relief may be harder to obtain in practice than might be supposed.
This may be particularly true where the two arbitration clauses provide for different seats, languages, governing laws or institutional rules. A party may then insist on its right to arbitration under one of the clauses, if it perceives tactical advantages in doing so (e.g. the arbitration may have its seat in that party’s home jurisdiction, or may have to be conducted in that party’s native language). In such circumstances, consolidation will present a practical difficulty as to which of the differing factors should prevail in the consolidated arbitration. Even putting aside the issue of party consent, this may make it even more difficult to persuade a court or institution to consolidate the separate proceedings.
There is one solution. Before parties enter into multilateral or multi-contractual relations, they should provide for a dispute resolution procedure which will avoid the potential for duplicate proceedings. Without seeking to generalise, the following suggestions should be considered:
- Provision of only one dispute resolution procedure, binding upon all parties. This may require some form of umbrella agreement.
- All other agreements should make reference to that procedure and provide that disputes arising under them are to be referred to arbitration in accordance with that procedure.
- The dispute resolution procedure should additionally make provision for consolidation of arbitral proceedings involving substantially the same or connected disputes, and/or the same parties.
- Depending on the nature of the parties’ relationship and the number of parties involved, it should also provide for multi-party arbitration.
- Provision requiring parties to appoint the same arbitrators in the related arbitrations.
Drafting such a dispute resolution procedure will not be easy. It will require a close understanding of the parties’ relationship and the nature of the disputes that may arise between them. That said, the effort involved in drafting such a procedure will be amply rewarded if it avoids the cost and chaos which parallel proceedings can produce.
Notes
1 Bulk Oil (Zug) v Trans-Asiatic Oil SA [1973] 1 Lloyd’s Rep. 129
2 A point not lost on Lord Denning in Abu Dhabi Gas Liquefaction Company Limited v Eastern Bechtel Corp. [1982] 2 Lloyds Rep. 425, CA. In fact, just such a situation arose in an investor dispute against the Czech Republic. Two different arbitrations in two different countries were decided by two different panels. Each arbitral tribunal reached a different conclusion on a similar set of facts and law.
3 Although the second set of proceedings was occasioned by the resignation of the sole arbitrator in the original arbitration. [1999] 2 All ER (Comm) 146
4 See, e.g. article 21 of the Brussels and Lugano Conventions (to be replaced by Section 9 of EC Council Regulation No. 44/2001 on 1 March 2002).
5 See, e.g. Arbitration Act 1996, section 35 (England); Code of Civil Procedure 1986, article 1046 (Netherlands). There is no similar provision under the Model Law; for this reason, some states adopting the Model Law have added a provision for consolidation of arbitrations (e.g. Florida and California).
6 ICC Rules of Arbitration, article 4, rule 6; Construction Industry Model Arbitration Rules (JCT 1998 ed.), Rule 3.3; GAFTA Arbitration Rules, No. 125, article 7.2. Note there is no equivalent under the LCIA Rules (although article 22(h) does provide for joinder of third parties), nor the UNCITRAL Rules.
7 Cour d’Appel , Versailles, 7 March 1990 (OIAETI et Sofidif v. COGEMA, et al ).
8 See the powers contained in the ICC Rules, article 7, rule 4; LCIA Rules, article 11.1.
9 As indeed happened in Abu Dhabi Gas (op. cit.). This can result in an award being refused enforcement because the tribunal was not properly constituted in accordance with the provisions of the New York Convention, Article V(1).
© Herbert Smith 2002
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