Chains of Contracts

Multi-party/Multi-contract arbitrations

In principle, only the parties to an arbitration agreement can be parties to an arbitration referred under it, unless those parties and any relevant third party agree otherwise. Without such agreement, litigation style "joinder" of third parties is not normally possible, so arbitrations would be separate, and take place between parties to the relevant contract only. This can create problems: for example, if a sub-contractor cannot be brought into an arbitration under the main contract without all parties' consent.

Once there are disputes on the horizon, there will normally be at least one party who will not consent to consolidation of arbitral proceedings. As a result, there may be two separate arbitrations with different arbitrators producing two inconsistent awards, neither of which will be binding on non-parties.

Possible solutions at the drafting stage are:

(a) to include jurisdiction clauses choosing the same court in all the contracts in order to resolve the linked disputes in a single set of court proceedings. This may, however, be inappropriate if arbitration is the preferred method of dispute resolution for other reasons- for example, where it is selected for reasons of enforceability - see Arbitration... or Litigation?; or

(b) to insert in each contract a matching arbitration clause which allows consolidation of related arbitrations arising under the different contracts, or the appointment of the same arbitrator in the different arbitrations (or even to have a separate 'arbitration agreement' between all parties to be covered allowing for consolidation).

The clause below is a suggestion. Careful drafting of this type of provision is crucial to an effective and streamlined procedure. In particular, you will need to ensure that there is an appropriate cut off date, so that the first arbitration is not substantially delayed by any consolidation.

It has also become more common in recent years for arbitral institutions to include provisions in their rules intended to deal with some of the issues outlined above (see, for example, the ICC Rules articles 7-10, LCIA Rules article 22.1(ix)(x) and 22.6). So the use of institutional clauses may provide a degree of coverage in this area (dependent, of course, on the terms of the rules being used). However, even where the set of rules used does so, it can still be desirable to include a separate, general, clause such as the below in order, for example, to capture any situations which the provisions of the rules do not extend to. With this in mind, the clause makes it clear that it applies in addition to any similar powers that exist in any applicable arbitration rules so that it can sit alongside such powers (or, indeed, any that may be adopted in future if they do not currently exist).

"Where disputes arise under this Agreement and under any of the [Associated Contracts] which, in the [reasonable opinion/absolute discretion] of the first arbitral tribunal to be appointed in any of the disputes, are so closely connected that it is expedient for them to be resolved in the same proceedings, that arbitral tribunal shall have the power to order that the proceedings to resolve that dispute shall be consolidated with those to resolve any of the other disputes (whether or not proceedings to resolve those other disputes have yet been instituted), provided that no date for [exchange of witness statements/the final hearing of the first arbitration] has been fixed. If that arbitral tribunal so orders, the parties to each dispute which is a subject of its order shall be treated as having consented to that dispute being finally decided:

(i) by the arbitral tribunal that ordered the consolidation unless the [Insert relevant arbitration institute/appointing authority] decides that it would not be suitable or impartial; and

(ii) in accordance with the procedure, at the seat (or legal place), and in the language specified in the arbitration agreement in the contract under which the arbitral tribunal that ordered the consolidation was appointed, save as otherwise agreed by all parties to the consolidated proceedings or, in the absence of such agreement, ordered by the arbitral tribunal in the consolidated proceedings.

This clause shall apply even where powers to consolidate proceedings exist under any applicable arbitration rules (including those of an arbitral institution) and, in such circumstances, the provisions of this clause shall apply in addition to those powers."