Multiplicity in arbitration: perils and adversities
Juris Corp, Mumbai
Juris Corp, Mumbai
Juris Corp, Mumbai
Alternative Dispute Resolution (ADR) mechanisms, consisting of arbitration, conciliation, mediation, negotiation and Lok Adalat, was introduced inter alia, not only to reduce the burden on the courts, but also to adjudicate disputes with increased efficacy in a more cost-effective manner. Nevertheless, the use of such a mechanism has not been wholly accomplishing the purpose of its introduction.
Focusing on arbitration in particular, it is a simplified mechanism where two parties consensually agree to have their disputes adjudicated, based on their contractual relationship. As is often said ‘appearances are deceptive’, and this holds true to this model, since the process is often cumbersome and disordered by the parties.
Entering into intricate and multi-layered transaction frameworks by multiple parties for same or a set of transactions is the usual norm, particularly in the construction and investment sectors. In such agreements, arbitration is often chosen as the effective method of dispute resolution. Any issue in the parent contract, will create ripples in sub-contracts resulting in parallel arbitration proceedings by multiple parties for deciding their connected claims.
Consequently, a party may find itself participating in one or several cases covering nearly the same set of facts and same legal relationship. The aftermath of all such events is not merely the harrowing problem of multiplicity but also entails a risk of contradictory rulings on the same matters and parties lowering the esteem of ADR mechanism.
Multiple common parties
Furthermore, there might also be some third parties affected by such parallel proceedings who are willing to be impleaded as party to ongoing proceedings. This calls for arbitrator to rule on joining of ‘less than obvious’ parties. In other words, besides parties who agreed to arbitration in one agreement, there being two or more such connected agreements and not necessarily with identical parties. So do you join the arbitration across different agreements into one? Or do you join parties to other agreement as parties to this agreement? Or allow multiple arbitration to commence / continue with risk of conflicting/inconsistent outcomes?
Overall, it remains largely unresolved as to how far arbitration can and should go in relation to joinder of parties and joinder of arbitral proceedings which is discussed in detail in our next two IBA Asia Pacific Regional Forum articles.
This article discusses one of the chief reasons that has been failing the purpose of arbitration: multiplicity. This encapsulates among others, multiple invocations by parties, multiple references, constitution of multiple arbitral tribunals, multiple awards, and multiple challenges to the awards. All of these arise out of one underlying transaction between same parties.
Multiplicity: a matter of concern
‘Multiplicity’ is an inevitable evil that has been in existence since the dawn of litigation, and arbitration as an ADR mechanism has been no exception. Multiplicity has always been a hurdle in the dispensing justice in an efficient manner. It can and does delay, if not even render the process ineffective.
Parties tend to refer disputes arising out of the same contract to arbitration at intervals to save the disputes from being time barred. This gives rise to multiple arbitration proceedings between the same parties and the exertion intensifies when the parties fail to refer them to the existing tribunal. Consequently, not just the effort of the parties increases, even the amounts spent, and time involved is multiplies. The awards received are also multiple.
Where the parties have approached the court seeking appointment of the arbitrator, but do not appraise the court of existing pending arbitration between the parties, it is only natural for the court to appoint a sole arbitrator/tribunal basis parties suggestions or from the panel list of arbitrators. The consequence is disputes between the same parties arising out of the same contract being referred to different tribunals. Furthermore, this increases the time the second tribunal would require to understand the facts and the underlying technicalities, more so when the arbitration relates to construction.
Following the efforts taken by the tribunal and the parties, the awards passed by the different tribunals on similar disputes arising over different periods of time out the same contract may contradict. Which would further lead to the challenging of such awards by the parties. Once again, the proceedings will only multiply due to filing of separate petitions against separate awards.
The above is the case in ad hoc as well as institutional arbitrations although it is more prevalent in ad hoc. Most institutions have put in place some measures to minimise the impact of multiplicity. This modus operandi has made arbitration a time-consuming and expensive exercise, making it no different from litigation and defeating the very purpose of arbitration.
Courts on multiplicity of proceedings
Courts in India have from time to time given guidance on how to deal with or avoid multiple proceedings. Administration of justice requires that there should not be multiplicity of proceedings and the parties should not be permitted to raise disputes at a later date. Once an award by an arbitrator has been passed, the disputes between parties are said to be settled, held the Division Bench of Delhi High Court in the year 1985. It has also been noted that the power to entertain more claims during the pendency of arbitral proceedings should be exercised by arbitrator similar to power given to a Civil Court under Order VI Rule 17 of the Civil Procedure Code, 1908 (Code).
All disputes which exist at the time of invocation ought to be referred and adjudicated simultaneously. Although it is not feasible to have arbitration as a one-time measure, the same can be remedied by way of suitably amending the arbitration clause to provide for recourse only once, under the agreement, opined the Supreme Court of India in 2010.
It is worth noting the following:
- Dispute/claims as on the date of invocation must be mentioned during the invocation else, such claim ought to be held as being barred/waived, unless permitted to be raised by the arbitral tribunal on justifiable grounds.
- Pending lis out of same contract, should be brought to the notice of the court hearing the parties, to avoid any inconsistent findings/orders.
- Averments disclosing pending lis between the parties to be made in the petition being filed.
- Where one party is common and only the other party changes, and where common/overlapping issues arise, an endeavour could be made to refer the disputes to the existing tribunal.
Res judicata in arbitration proceedings
Res judicata basically means the issue has been or could have been previously determined and now cannot be determined. Intent is to raise all connected issues in one go and not litigate again on any of them. The principle of res judicata is indeed applicable to arbitral proceedings as also ruled by the Supreme Court. However, whether it is attracted in a given case is, an issue of fact and must be decided by the arbitrator concerned. Constitution of another arbitral tribunal to re-litigate the claims already put before the previous tribunal is barred under res judicata.
The Supreme Court has observed that after an award is pronounced, no action can be commenced on the original claim which had been or could have been the subject matter of reference.
The Calcutta High Court, relying on the same principle, refused to allow the plaintiff to agitate a claim for damages as the same was not raised before arbitrator during the proceedings concerned, as hit by principles of constructive res judicata.
Where a second reference is made for disputes arisen after the first reference, then such disputes are, for obvious reasons, not barred by res judicata.
Conclusion and recommendations
While arbitration continues to be a popular means of dispute resolution, there are evident gaps in the law that need to be plainly dealt with to make the process expeditious and affordable in practice. The efficiencies of hearing complicated disputes in a single set of proceedings outweighs the efficacy of having separate arbitration awards based on single agreement.
It is rather astonishing to observe that most of the literature about complex arbitration deals with multiparty arbitration, whereas the situation of parallel proceedings in a single agreement only involving the same parties, has been sparsely addressed.
Some of the points that litigants may bear in mind in the context of multiple arbitrations from same transactions are:
- Multiple arbitrations are permissible. However, parties cannot raise such claims at their own convenience.
- Litigants should disclose before the court, their knowledge of pending proceedings. Also, assist in consolidating of pending proceedings between the parties under the same agreement or transaction. This will not only help in administration of justice but also prevent contradictory awards and orders.
- All parties should explicitly record their consent to consolidation in the contract at the onset, to avoid lack of evidence/arguments around consent at a later date.
- A well-drafted arbitration clause significantly influences the way parties resolve disputes and can go a long way in curbing the menace of multiplicity.
To remain commercially pertinent and effective, arbitration must be able to adapt to the new developments in international commerce by way of incorporating joinder provisions and at the same time stay true to its promise of being a consensual dispute resolution tool.
While this article discusses the risks involved, our other two IBA Asia Pacific Regional Forum articles discuss the remedies.