Joinder of parties in arbitration proceedings
Juris Corp, Mumbai
Juris Corp, Mumbai
Juris Corp, Mumbai
Arbitration is all about contract and is required to be conducted within the four corners of an arbitration agreement. A persistent problem faced by construction litigators is corralling multiple parties into a single arbitral proceeding despite the parties having separate, independently-negotiated contracts, each one containing its own arbitration or dispute resolution clause. Disputes arising out of such connected contracts have more than a ripple effect and often lead to separate but related actions.
We have seen in our previous IBA Asia Pacific Regional Forum articles, one way of effectively dealing with this troubling issue of multiplicity is by consolidation of arbitral proceedings accruing on the same cause of action. The other tool is joinder and intervention of third parties which is required especially in view of globalisation of business and classic two-party arbitral concept being undermined by the realities of global multiparty transactions. However, this tool is more complicated than joinder of arbitrations as it allows entry to ongoing arbitral proceedings to such parties that have never been a part of the contractual arrangement.
Bringing such absent parties into a case will not only alleviate the risk of multiple legal actions relating to the same dispute but also mitigate the risk of inconsistent awards/findings of different arbitrators. At the same time, it poses a challenge to arbitrator to balance the scales between party autonomy and parallel proceedings.
One may contend that allowing joinder of parties may upset the dispute resolution mechanism bargained for by the parties and would be similar to rewriting the contract. Furthermore, in view of defective arbitration clauses, do arbitrators possess such powers to connect the disputes, except where parties themselves impliedly/explicitly agree to arbitrate.
Nonetheless, it is time for arbitration to develop, emerge and find progressive solutions to stumbling blocks. The arbitrators can absorb court systems’ vast experience with multiparty disputes and adopt rules of joinder similar to those under the 1908 Civil Procedure Code which apply to court proceedings.
Filling the gaps
If all parties to an agreement agree explicitly or impliedly to the joining of third parties, there is no legal impediment. More often than not, obtaining agreement among parties becomes strenuous as a party might perceive itself to be in a disadvantaged position. Moreover, most of the controversy arises when either a court or arbitral tribunal orders other parties to be joined over the objection of one or more parties, trampling over party autonomy, the very bedrock of arbitration.
Nevertheless, the time may be ripe to consider whether there should be a right for third parties to intervene or be joined in an arbitration proceeding. Ensuring such an availability of right will help in eradicating possibility of piecemeal litigation which ultimately puts unequal pressures and limitations on different participants. The external forces such as cost of subsequent litigations, possibility of inconsistent results, etc, go a long way in acting as a hindrance to the efficacy of arbitration. Apart from cost issue, one or more parties may also experience difficulties in marshalling evidence for their case from third party sources.
It is also very important to balance the equities in cases involving requests for third parties to intervene or be joined in an arbitration. They may frequently not be granted opportunity in view of considering arbitration as strictly contractual, which may result in civil litigation. However, with constant developments in manner of performing business, the mechanism should introduce more equitable, common sense remedies into business disputes.
‘Group of Companies’ doctrine
India’s courts approach towards adopting ‘Group of Companies’ doctrine is indeed interesting and perhaps is reflective of a pro-arbitration demeanour. It does however constitute another instance of (not lifting) the corporate veil.
‘Group of Companies’ doctrine could be applied to cases where there is a tight group structure with strong organisational and financial links, so as to constitute a single economic unit, or a single economic reality. In effect, treat the group as a single entity and disregard the distinct legal existence.
If there is no justification to pursue two independent arbitrations which would only result in multiplicity of proceedings, the law must seek to remove this difficulty where possible. The Bombay High Court accordingly referred disputes under the two agreements jointly to arbitration, despite a party being part of only one agreement and not to the other. In doing so, court relied on the landmark judgment passed by the Supreme Court of India.
In another case while determining joinder of CEO to arbitral proceedings pending against a company, the Supreme Court held that lifting the corporate veil could ascertain his role to adjudicate the disputes.
Joinder by implied consent
The parties’ intention plays a very important role in arbitration and the same can be culled only after a thorough reading of all the terms of the agreement. If the intent of the parties was to consolidate all disputes relating to the project and, refer the same by mutual agreement to the same panel of arbitrators and get resolved through arbitration, the same would be given due regard to by the court.
Joinder of third parties
Where a third party has a direct relationship to the party which is a signatory to the arbitration agreement, a direct commonality of the subject matter and where composite reference of such parties would serve the ends of justice, third parties may be joined to the arbitration.
With constant evolution of law, modern business transactions are often effectuated through multiple layers and agreements. There may be transactions within a group of companies and the circumstances in which they have been entered into may reflect an intention to bind both signatory and non-signatory entities within the same group.
The effort is to find the true essence of the business arrangement and to unravel from a layered structure of commercial arrangements, an intent to bind someone who is not formally a signatory but has assumed the obligation to be bound by the actions of a signatory. This is treated as implied consent.
Conclusion and recommendations
Joinder of parties is not allowed in every case, even where a party maybe a necessary or a proper party for adjudication of proceedings. The party autonomy principle is to be respected. Yet, where intervening or joining a third party is relevant to the issue in hand, then it is necessary to balance the desires of some parties against the requirements of law and equity.
A narrow interpretation of arbitration agreements may uphold party autonomy and limit the ability of third parties to join or intervene but may not serve the ends of justice.
In case of connected contracts, here are some steps parties may explore at contracting stages. If a party wishes to avoid being joined, then it should explicitly withhold its consent to such joinder or consolidation attempts in future. Creating an overarching agreement which consists of arbitration rules for disputes arising out of subordinate agreements may be extremely useful in construction contracts, joint ventures, and investment transactions as there is high probability of related disputes between multiple parties.
An analysis of the three topics (multiple arbitrations, joinder of arbitrations and joinder of parties) does highlight the fact that these concepts are interwoven.
First, on the premise of breach of confidentiality, ranking higher in case of joinder of parties as compared to joinder of arbitrations and almost negligible in multiplicity.
Second, the consent of both parties plays a significant role in joinder of arbitrations and parties, while not so in case of multiplicity. This is relevant given the need to respect the principle of party autonomy.
Third, based on limitations of parties to participate in arbitral proceeding, it can be said that in joinder of parties and arbitrations, disputes are to be bound by common agreement and connected with each other. In exceptional cases ‘non-signatory’ may also be considered. Multiplicity does not involve third parties.