LEGAL MATTERS: Bulletproof multi-party arbitration clauses (Part II)

IN last week’s piece, I dealt with key considerations that parties must be aware of when contemplating multi-party dispute resolution mechanisms. I looked at multi-party arbitration clauses and the factors that parties must address to be protected at law.

This week, I will deal with contractual mechanisms for dealing with multi-party situations and how to structure an arbitration agreement.
Contractual mechanisms for dealing
with multi-party and multi-contract situations

Brevity may be difficult to achieve in the context of the multi-party and multi-contract situation. When there are several parties to a contractual relationship or several contracts to a project, it is impossible to predict who will become parties to a dispute or which contracts may be engaged.
Where a dispute is likely to involve issues arising under more than one contract, or may involve more than two parties, it may be prudent to consider:
• Providing for the consolidation of two or more arbitral references commenced under different contracts. Consolidation usually refers to the joining of two or more sets of arbitral proceedings, to make one reference to which all the original parties are party. In certain circumstances, this may be the most efficient and cost-effective way to resolve the disputes and it is best to expressly agree to consolidation in the arbitration clause.
• Where there are more than two parties involved in a multi-contract situation, great care needs to be taken in drafting the consolidation clause. One of the problems is that each party must have an equal opportunity to appoint the tribunal. One way to provide for this is to require the appointments to all be made by an institution or appointing authority.
• In a multi-party situation, providing for joinder of, or intervention by, third parties. Joinder refers to the admission, into an arbitral reference, of a third party to the proceedings so that the arbitration agreement and subsequent award binds it. Intervention is materially similar to joinder, save that it is the third party who seeks to be joined. Because every party is party to a single case, the problems of inconsistent findings are avoided and the overall costs minimised.
• Agreeing to the appointment of a common arbitrator to determine the disputes arising under the various contracts. This can be achieved by the parties agreeing to the identity of a suitable candidate or, more commonly, a third party, such as an institution, to make the appointment. Although this will go some way to minimising the possibility of inconsistent findings, it will not eliminate the risk altogether, because the evidence heard in each reference may differ. Also, there is no means for the common arbitrator to order a party from one reference to pay the costs of a different reference.
• Appointing a common arbitrator and also agreeing that the evidence and award from each reference may be deployed in the other related proceedings. This solution further reduces the risk of inconsistent findings, by ensuring that the evidence in each reference is identical. However, there will still need to be separate hearings for each reference.
• Agreeing to concurrent hearings and common evidence, either with or without a common arbitrator. If a common arbitrator is agreed, this should eliminate the risk of inconsistent findings.

• In a multi-contract situation, it is conceivable that different, related arbitrations will be commenced at different times.
With regard to appointment of arbitrators, where multiple parties are involved, individual selection of arbitrators becomes impractical and so a workable and objectively fair procedure needs to be achieved. This can be done in a number of ways, for example, by stipulating for all appointments to be made by a third party, such as an arbitral institution.
Structuring the arbitration agreement
There are various options for structuring the arbitration agreement. The simplest solution is to draft a stand-alone dispute resolution protocol or umbrella agreement, to be separately signed by all parties. Alternatively, each contract can incorporate by reference a global arbitration agreement.
Further, parties can ensure that each contract contains an identical or compatible arbitration clause which allows for joinder of parties or consolidation of disputes or both.
It is essential to ensure that the arbitration agreements in each contract are materially identical, or at least compatible, with each other on essential terms such as:
• whether the arbitration is to be ad hoc or administered by an arbitral institution, and if administered, the clauses should all provide for the same administering institution;
• the seat of the arbitration; and
• the governing law.
“Submissions on behalf of” provision
Lastly, I want to talk about the “submissions on behalf of” provision. This is a mechanism that is sometimes used in construction contract adjudication provisions, but also possibly in arbitration clauses.
It allows an interested party in a contractual chain, for example the subcontractor, the right to require the party above it in the chain, the contractor, to make submissions on its behalf in its dispute with the purchaser.
A typical example is where a subcontractor has not been paid for work done and claims against the contractor.
Meanwhile, the contractor claims against the purchaser for non-payment of invoices. In this way the dispute between the contractor and the purchaser will, it is hoped, resolve related issues in dispute between the contractor and its subcontractor.
It will be interesting to see if, and how well, this provision can made use of within our jurisdiction.

Muza is a duly admitted lawyer with expertise in business advisory, labour law and commercial litigation. He writes in his personal capacity. For feedback, email him at hilarykmuza@gmail.com or call on +263719042628.