The authors are Advocates at Karanjawala & Co. They practice Arbitration as well as before the Hon'ble High Court of Delhi.
If we believe that arbitrators are neutral, then the fact that a third party did not get a chance to participate in the constitution of the arbitral tribunal should not affect the principle of equality between the parties.
The most valued aspect of arbitration is the ability of the aggrieved parties to appoint and choose their own arbitral tribunal.1 The necessity to give a third party the right to participate in the constitution of the tribunal has been considered one of the main problems regarding the participation of third parties in international arbitration.2 In fact, this issue was at the core of the Siemens v Dutco Construction Company Case.3 This judgment gave the status of "public policy"4 to the right of a party to participate in the constitution of its arbitral tribunal.5 Some legal experts have expressed concern that if a third party is deprived of its participation in the constitution of an arbitral tribunal, then the award so rendered may be refused to be enforced on grounds that the arbitral tribunal was not constituted properly or that the parties were not treated equally.6 It has been suggested that the same concern also applies to situations where the arbitration agreement is extended to third parties.7 The question that has been examined in this article is whether participation of third parties in international arbitration should be recognised given the effect it has on the third party's right to constitute the arbitral tribunal and eventually on the enforceability of the arbitral award.
One of the most troubling issues in the realm of international arbitration is the participation of third parties in international arbitration, which can manifest itself in many forms.8 For the purpose of this article, the authors have examined the participation of third parties in the case of joinder or intervention of third parties to an arbitration. The problem exists because traditionally, courts have held, and commentators have argued, that a third party has no right to intervene in or join an already existing arbitration proceeding.9 However, since the frequency with which multi-party contracts are entered into and the frequency with which multi-party disputes arise is on a constant increasing, it is important to examine the need for allowing a third party to intervene or join an existing arbitration proceeding.
Before delving into the research question, it is important to understand what exactly joinder or intervention of a third party to an arbitration is:
- a) Joinder/extension is a term used to describe a situation where a third party is asked to join either a pending arbitral proceeding, i.e. where the arbitral tribunal has not been constituted and the proceeding has not yet commenced or where a third party is asked to join an arbitral proceeding at a later stage of the arbitration, i.e. where the arbitral tribunal has been constituted and the arbitration has commenced.10
- Intervention on the other hand, entails a situation, where a third party seeks to join the arbitral proceedings, at either before the commencement stage or the post commencement stage, on its own motion,11 i.e. without being requested to do so by either the claimant or the respondent (the original parties to the arbitration proceedings).
For the purpose of this paper, the definition of 'joinder' and 'intervention' is in pari materia to the definition of 'joinder' and 'intervention' in the U.S. federal practice. Under the U.S. federal practice, 'joinder' reflects the practice of an existing party to an arbitration agreement to bring a third party into arbitration and 'intervention' reflects the practice of outsiders or third parties to make themselves a part to the arbitration.12Thus, where an original party to an arbitration agreement wants to add a third party to the arbitration proceedings, that process is called joinder of third parties. Conversely, when a third party wants to rely on the arbitration agreement to make itself a part of the arbitration proceedings, that process is called intervention of third parties.
Even though the processes of joinder or intervention are distinct in terms of the party seeking the joinder and the party seeking the intervention, both processes render the same effect on arbitration agreements and arbitration proceedings. Further, the importance of consent is the same in both these processes vis-à-vis extension and even their effect on the right of the third parties to enforce the arbitral award is same. In light of this, the processes of joinder and intervention have been used throughout this article as one phrase i.e. "joinder or intervention".
However, with respect to intervention, it can be assumed that this issue would be less of a concern where the third party itself wants to intervene in arbitration proceedings. Some legal experts have advocated this view on grounds that by wanting to intervene in an arbitration proceeding on its own motion, the third party, through voluntary actions may have deemed to waive its right to participate in the constitution of the arbitral tribunal.13 It is for this reason that many rules, which permit participation of third parties in on-going arbitrations are limited to issues of joinder and do not deal with intervention.14 For example, the reading of Article 17(5) of the UNCITRAL Model rules, which allows for joinder of third parties, reveals that it excludes intervention from its ambit.15 This understanding is also in line with the purpose and object of this provision as highlighted by the Report of the Working Group on Arbitration and Conciliation in its 49th session. Thus, this discussion only revolves around the third party's right to constitute an arbitral tribunal in case of joinder or extension and not intervention.
At the outset, it is important to make a distinction between two scenarios, in which joinders or extensions can happen; first, where all the parties consent to the joinder of a third party to an arbitration proceeding or extension of the arbitration agreement to the third party and second, where all parties do not consent to the joinder of or extension of the arbitration agreements to the third party (either the third party resists the joinder/extension or one of the original parties resists it).
It has been recognised that where all the parties, i.e. the original parties to the arbitration agreement and the third party consent to the joinder/extension, such joinder/extension should be permitted and that the enforceability of the arbitral award is not under threat.16 However, a more serious concern is when either the third party or one of the original parties is resisting joinder/extension.
Legal experts have expressed their concern by stating that allowing a third party to participate in the arbitration disrupts the principle of equality of parties because it either allows a third party to appoint an arbitrator, thereby violating the contractually agreed upon procedure for appointing the arbitral tribunal or conversely, by taking away the third party's right to participate in the constitution of the arbitral tribunal.17
While the authors of this article recognise the importance of this concern, the authors also recognize that a joinder or an extension should not always be refused merely on this ground. There are certain situations, where exceptions must be made.
First, there are situations where the parties are unable to appoint arbitral tribunals themselves, and the agreed method of appointment of arbitral tribunal is that an appointing authority will appoint an arbitral tribunal. For example, under the Indian Arbitration and Conciliation Act, 1996, where parties fail to appoint an arbitral tribunal as per the agreed method in the arbitration agreement, the parties have the right to approach the appropriate court for such appointment. In such a situation, it can hardly be argued that the third party's right to constitute the arbitral tribunal or the principle of equality is violated, because it is likely that none of the original parties, themselves, participated in the appointment of any arbitrators. In such a case, the arbitral tribunal is constituted through an appointing authority and since none of the original parties participated in such appointment of the arbitral tribunal, the third party is not disadvantaged if it did not get a chance to participate in the constitution of the arbitral tribunal.
Second, there could be cases where the interest of the third party are so aligned with the interest of one of the original parties to the arbitration agreement that the interests of the third party were represented in the constitution of the arbitral tribunal. In fact, an unpublished ad hoc award specifically upheld the claimant's request to join additional respondent parties over the third party's objection on the ground that it did not get to participate in the constitution of the arbitral tribunal, since the interests of the additional parties were so closely aligned with the interests of the respondent.18
Third, there may be cases, where the original party requesting the joinder or extension, may be willing to replace its previously designated party-appointed arbitrator with a jointly appointed new-arbitrator.19 For example, where a respondent seeks to join a jointly and severally liable co-respondent, the respondent may be willing to replace the arbitrator that the respondent had alone appointed, with an arbitrator which both the respondent and the third party appoint together.20 However, it must be kept in mind that this solution is only possible where the joining party and the third party's interests are same.21It is argued that where the requesting party is not at fault in not including the third party in the arbitration, before the arbitral tribunal was constituted, such a joinder should be permitted even at the cost of replacing one of the appointed arbitrators.22 The method suggested for the replacement of one of the party-appointed arbitrators is a balancing test i.e. if the necessity of joining a third party could have been determined before the constitution of the arbitral tribunal, then such a joinder should be allowed at the cost of replacing a party-appointed arbitrator if it does not change the course of the proceedings drastically.23
Fourth, in cases where the interests of the requesting party and the third party are not aligned, it is argued that the entire arbitral tribunal may have to be replaced, except the chair person (if the chair person has been appointed by the party appointed arbitrators),24 where the third party would also get a chance to appoint an arbitrator. However, in the view of the authors of this article, this measure is very drastic and maybe considered unfair in light of the burden it poses on the non-requesting parties in terms of the additional costs and delays in the arbitration proceedings.25 Thus, this option, even though is a possibility in theory, is not the most viable option because of how contrary it is to the goal of procedural efficiency and the burdens on the non-requesting parties.26
Fifth, on a theoretical level, it could be argued that refusing joinder on grounds of third party's right to appoint the arbitral tribunal is based on the belief that a party may only get just and fair results from the arbitrator that they have appointed.27 If this argument is taken to be true, it completely goes against the idea of arbitration being a neutral dispute resolution mechanism.28 It has been recognised that most neutral arbitrators will not let their appointment by one party in the dispute, influence the outcome of the dispute.29 If we believe that arbitrators are neutral, then the fact that a third party did not get a chance to participate in the constitution of the arbitral tribunal should not affect the principle of equality between the parties.
It is therefore the authors' view that a joinder or an extension should not always be refused merely because of its effect on the third party's right to constitute the arbitral tribunal and there are methods to overcome this concern. On these grounds, the authors maintain the view that participation of third parties in international arbitration should be recognised.
1.Laurie A. Kamaiko, Reinsurance Arbitrations, 557 PLI/Lit 201, 234-35 (1997).
2. ROLPH A. SCHUTZE, Institutional rbitration: A Commentary 472 (Bloomberg Publishing, 2013).
3. Siemens AG v. Dutco Construction Co. (Cass. 1992) (France).
4. This judgment declared that the right of a party to participate in the constitution of its arbitral tribunal was considered so important, that it was given the status of public policy, such that where a party's right to constitute the tribunal is taken away, the award of the arbitral tribunal may be overturned on that ground alone.
5. Eric A. Shwartz, Multi-party Arbitration and the ICC; In the Wake of Dutco, 15 AM REV INTL ARB 133.
6. TOBIAS ZUBERBÜHLER ET AL., SWISS RULES OF INTERNATIONAL ARBITRATION 66 (Uris Publishing, Inc., 2013).
7. Nathalie Voser, Multi-party Disputes and Joinder of Third Parties, in 50 YEARS OF THE NEW YORK CONVENTION 343, 386 (International Council for Commercial Arbitration Congress, Series No. 14 2009).
8. James M. Hosking, The Third Party Non-Signatory's Ability to Compel International Commercial Arbitration: Doing Justice without Destroying Consent , 4 Pepp. Disp. Resol. L.J. Iss. 3, 469, 468 (2004).
9. Charles S. Baldwin, IV, Protecting Confidential and Proprietary Commercial Information in International Arbitration, 31 TEX. INT'L L.J. 451, 467 (1996); John Milligan-Whyte & Mary Cannon Veed, Bermudian, English and American Reinsurance Arbitration Law and Practice and Alternative Dispute Resolution Methods, 25 TORT & INS. L.J. 120, 139 (1989); Alan Scott Rau & Edward F. Sherman, Tradition and Innovation in International Arbitration Procedure, 30 TEX. INT'L L.J. 89, 91 (1995); Thomas J. Stipanowich, Arbitration and the Multiparty Dispute: The Search for Workable Solutions, 72 IOWA L.REV. 473, 506 (1987).
10. Nathalie Voser, Multi-party Disputes and Joinder of Third Parties in 50 YEARS OF THE NEW YORK CONVENTION 346 (International Council for Commercial Arbitration Congress series no. 14, 2009).
11. Nathalie Voser, Multi-party Disputes and Joinder of Third Parties in 50 YEARS OF THE NEW YORK CONVENTION 357 (International Council for Commercial Arbitration Congress series no. 14, 2009).
12. GENE R. SHREVE & PETER RAVEN-HANSEN, UNDERSTANDING CIVIL PROCEDURE 261 (2nd ed. 1994).
13. ER ET AL., SWISS RULES OF INTERNATIONAL ARBITRATION 66 (Uris Publishing, Inc., 2013).
14. LCIA Rules 22.1 (h); ICC Rules, art. 7. 117.
15. James E. Castello & Rocio Digon, Maximizing Possibilities for Joinder in International Arbitration, in CONTEMPORARY ISSUES IN INTERNATIONAL ARBITRATION AND MEDIATION 104,117 (Fordham papers, 2012).
16. TOBIAS ZUBERBÜHLER ET AL., SWISS RULES OF INTERNATIONAL ARBITRATION 66 (Uris Publishing, Inc., 2013).
17. Christine Lecuyer-Thieffry & Patrick Thieffry, Negotiating Settlement of Disputes Provisions in International Business Contracts: Recent Developments in Arbitration and Other Processes, 45 BUS. LAW. 577, 609 (1990).
18. Matthieu de Boisseson, Joinder of Parties to Arbitral Proceedings; Two Contrasting Decisions, in ICC INT'L. CT. ARB. BULL. SPECIAL SUPP.: COMPLEX ARBITRATIONS 19, 23(2003).
19. See Nathalie Voser & Andrea Meier, Joinder of Parties or the Need to (Sometimes) be Inefficient, Austrian Arb. Y.B. 115, 121-122 (2008).
20. James E. Castello & Rocio Digon, Maximizing Possibilities for Joinder in International Arbitration, in CONTEMPORARY ISSUES IN INTERNATIONAL ARBITRATION AND MEDIATION 104, 118 (Fordham papers, 2012).
21. Nathalie Voser, Multi-party Disputes and Joinder of Third Parties, in 50 YEARS OF THE NEW YORK CONVENTION 343 (International Council for Commercial Arbitration Congress, Series No. 14 2009).
22. B. BERGER & F. KELLERHALS, INTERNATIONALE UND INTERNE SCHIEDSGERICHTSBARKEIT IN DER SCHWEIZ 170-171 (Stampfli, 2006).
23. Nathalie Voser, Multi-party Disputes and Joinder of Third Parties, in 50 YEARS OF THE NEW YORK CONVENTION 343, 388 (International Council for Commercial Arbitration Congress, Series No. 14 2009).
24. See Nathalie Voser & Andrea Meier, Joinder of Parties or the Need to (Sometimes) be Inefficient, Austrian Arb. Y.B. 115, 121 (2008).
25. Jens Kleinschmidt, Die Widerklage gegen einen Dritten in Schiedsverfahren, 4 Schieds VZ (2006, no. 3), 150; BERNARD HANOTIAU, COMPLEX ARBITRATIONS, MULTIPARTY, MULTICONTRACT, MULTI-ISSUE AND CLASS ACTIONS (Kluwer Law International, 2005).
26. Whiteshell & Silva-Romero, Multiparty and Multicontract Arbitration: Recent ICC Experience, in COMPLEX ARBITRATIONS, PERSPECTIVES ON THEIR PROCEDURAL IMPLICATIONS 7, 11 (ICC Ct. Bull., Special Supp. 2003); Reinhold Geimer, Dritte als weitere Parteien im Schiedsverfahren, in Hans-Eric Rasmussen-Bonne, et al., eds., balancing of interests, Liber amicorum Peter Hay Zum 70.
27. S. I. Strong, Third party Intervention and Joinder as of Right in International Arbitration: An infringement of Individual Contract Rights or a Proper Equitable Measure?, 31 VAND. J. TRANSNAT'L. 915, 928 (1998).
28. Alan Scott Rau & Edward F. Sherman, Tradition and Innovation in International Arbitration Procedure, 30 TEX. INT'L. L.J. 89, 92-93 (1995).
29. ALAN REDFERN & MARTIN HUNTER, LAW AND PRACTICE OF INTERNATIONAL COMMERCIAL ARBITRATION 221 (2nd ed. 1991).
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