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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
Introduction
In a classic dispute, one party to a contract (the claimant) is opposed to the other party to the same contract (the defendant). If the contract in question contains an arbitration clause referring to the ICC's Rules of Arbitration, normally each of the parties will nominate its own arbitrator. The two arbitrators selected in this way, will nominate the chairman of the arbitral tribunal.
However, it is evident from arbitration practice that very often a dispute involves more than two parties. Thus, some 25% of new Requests for Arbitration recorded by the Secretariat of the ICC International Court of Arbitration over the past few months involved more than two parties.
Business relationships are complex and frequently put multilateral interests at stake. If a disagreement arises in such a context it is bound to lead to the emergence of multiparty disputes which - provided there is an arbitration clause in the contracts concerned - will have to be resolved by the implementation of either multiparty or related arbitrations.
In practice, a distinction can be drawn between two different types of situations:
(1) Multiparty arbitrations in the strict sense of the term, which arise in the event of disputes between several parties to the same contract, all linked by the same arbitration clause (a joint venture or consortium agreement, for instance). In this case, the arbitrators will in fact have to settle a dispute between parties that are all bound one to the other by a common legal link.
(2) Arbitrations arising between parties who are linked together in the context of a set of related contracts, where there is no single contract or single arbitration clause linking all the parties (the most typical example of this is no doubt the case of relationships between an employer and its main contractor and between the latter and its subcontractor or subcontractors). In this type of case, the arbitrators are faced by factual circumstances common to several procedures although the parties are not linked by a common legal tie.
These are not multiparty arbitrations in the strict sense of the term, but rather "parallel arbitrations".
These two categories of arbitrations involving the interests of several parties, stem from different legal situations (a single contract or a set of contracts). The constitution of tribunals in each of these categories gives rise to separate problems that the International Court of Arbitration has to resolve.
I. Constitution of the arbitral tribunal in a multiparty arbitration
Multiparty arbitrations have the reputation of engendering insoluble problems for the various parties involved in such procedures, in particular as regards the constitution of the arbitral tribunal.
In the decisions that it takes, the International Court of Arbitration is committed to respecting fundamental principles, in particular: respecting the will of the parties and ensuring they are treated on an equal footing.
As regards the particular issue of the constitution of the arbitral tribunal in a multiparty relationship, the well-known judgement delivered by the Cour[Page46:] de cassation (French Supreme Court) on 7 June 1992 in the Dutco case, has obviously somewhat modified the International Court of Arbitration's customary practice.
A. International Court of Arbitration's practice in the constitution of tribunals
1 Arbitration has a contractual basis first and foremost and this has to be respected throughout the whole course of the procedure, even though on certain occasions the International Court of Arbitration has to act as a substitute for the parties ex officio in accordance with the provisions of the ICC Rules of Arbitration.
It is important that the parties to the arbitration have agreed to submit their dispute to an arbitral tribunal constituted in accordance with the Rules of Arbitration of the International Court of Arbitration and that they have also agreed to submit their dispute to a single tribunal. In this connection, the International Court of Arbitration verifies the attitude of a claimant that would wish to commence a single procedure against two defendants linked to him by two different contracts each of which contains an arbitration clause. If the defendants fail to agree to a single procedure there is no doubt in the mind of the International Court of Arbitration that the claimant will have to commence two separate arbitral procedures, against each of the defendants, even if the arbitration clauses are drafted in identical terms.
However, even in the case of a single contract linking several parties, it is not guaranteed that the arbitral tribunal constituted will acknowledge that it has jurisdiction.
An example is provided by a case where a consortium agreement had been concluded between three parties.
This agreement contained a classic arbitration clause drafted in the following terms:
Any dispute relating to this agreement that is not settled amicably between the parties may be finally settled in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce by three arbitrators appointed in accordance with the said Rules.
One of the three parties commenced an arbitration procedure against the two others. This procedure was set in motion by the International Court of Arbitration. However, the arbitral tribunal constituted in accordance with the arbitration clause decided in a preliminary award that there could not be a multiparty arbitration in this case, as, in the arbitrators' opinion, the clause on its own did not constitute a sufficiently clear agreement between the parties on this point. The arbitral tribunal took the view that the arbitration clause has to denote clearly that all the parties have agreed to submit their dispute to a single arbitral tribunal. Accordingly, the claimant was asked to commence two separate procedures. No doubt, criticism can be levelled at this decision, which is an isolated example for the moment, but it does highlight the importance of the way in which arbitration clauses are drafted.
If multiparty arbitration is agreed to, the different parties then have to reach agreement on the constitution of the tribunal. Failing this, the International Court of Arbitration will act in place and stead of the defaulting parties, for the purpose of constituting the tribunal.
In multiparty arbitrations, the International Court of Arbitration's practice is to ask the defendants to nominate a common arbitrator.
However, in such a case, it is not unusual to find that the defendants decline to nominate a common arbitrator, as they then discover that their interests do not coincide, or are even diametrically opposed. Such a refusal may also be motivated by a tactical desire to complicate or hinder the process of settlement of the dispute. [Page47:]
The International Court of Arbitration may, by substituting itself for the defaulting parties, nominate an arbitrator in their stead.
It has been maintained that this type of ex officio intervention by the International Court of Arbitration constitutes an infringement of the contractual nature of arbitration.
This viewpoint goes too far in that it is on the basis of the parties' agreement that their dispute is submitted to an arbitral tribunal constituted in accordance with the Rules of Arbitration of the ICC International Court of Arbitration.
Accordingly, the intervention by the International Court of Arbitration in place and stead of the defaulting parties is merely an application of rules that were defined in the contract (Article 2(4) of the Rules of Arbitration).
In carrying out this task, the International Court of Arbitration takes great care to comply with the fundamental principles of any process, in particular, that of equality of treatment of the parties.
Thus, when the defendants fail to reach agreement on the nomination of a common arbitrator, the International Court of Arbitration will nominate an arbitrator of its own choice for all the defendants irrespective of each party's proposals. In this way, the equality of the parties is respected at least with regard to the defendants as a group.
One example is provided by a case where one of the defendants had nominated an arbitrator while the other two defendants, who had been invited to make a proposal, had refrained from doing so.
In this situation, the International Court of Arbitration could have taken the view that the parties' silence constituted a waiver of the opportunity given them to take part in the constitution of the arbitral tribunal. Nonetheless, it preferred to opt for appointing an arbitrator of its own choice thus fully respecting the equality of treatment of the defendants.
Lastly, when it thus appoints an arbitrator on behalf of several parties, the Court also checks that the appointment in question complies with the national laws of the various parties so as to avoid any problem arising with regard to any enforcement procedure relating to the subsequent award.
B. Impact of the Dutco case judgement on practice at the International Court of Arbitration with regard to the composition of tribunals
The solution laid down by the French Cour de cassation in its judgement on 7 January 1992 in the Dutco case was worded as follows: 2
The principle of equality of treatment of the parties in the appointment of arbitrators is a matter of public policy; this principle cannot be waived until after the dispute has arisen.
It appeared that this solution might call into question the rules that until then had been applied by the International Court of Arbitration in its constitution of arbitral tribunals in cases of multiparty arbitration.
In the Dutco case, a contract for the supply of a cement works on a turnkey basis had been signed in 1981 between the German company BKMI and a company in the Sultanate of Oman.
At the time of this contract a so-called "undisclosed consortium" agreement was concluded between BKMI and the companies Siemens and Dutco. This agreement specified that BKMI was the leader of the consortium and, so far as the Employer was concerned, the only company bound by the contract.
Dutco claimed that its German co-contractors BKMI and Siemens had not performed their obligations correctly and commenced an arbitration procedure before the ICC International Court of Arbitration in accordance with the arbitration clause contained in the consortium agreement. [Page48:]
The defendants objected to the fact that they had been called before the same tribunal, but nonetheless appointed a common arbitrator as a conservatory measure.
In an interim award, the arbitral tribunal thus constituted held that it had been duly constituted and that it had to decide in a multiparty context.
The arbitral tribunal had recognised that it had jurisdiction after holding that (in its view) the parties had intended to submit their dispute to a single arbitral tribunal, and after ascertaining that the defendants had appointed a common arbitrator.
In its decision, the Cour de cessation criticised this reasoning and held that in principle the equality of treatment of the parties must be assessed in relation to all the parties to the dispute and not simply in relation to claimants or defendants viewed as an autonomous entity. As this was a principle of public policy, it could only be waived by a party after the dispute had arisen.
Accordingly, it would seem that the International Court of Arbitration's customary practice of asking the defendants to nominate an arbitrator jointly or, failing agreement, of appointing an arbitrator on their behalf, no longer accords with French rules of public policy.
There are as yet too few decisions to give a definitive assessment of the consequences of the Dutco decision, not only in relation to practice at the International Court of Arbitration, but also as regards the stand that the French state courts will adopt from now on.
However, two trends can already be observed:
• First of all, the Rules of Arbitration of the ICC International Court of Arbitration are currently in the course of amendment. Among the proposals being envisaged is the inclusion of a new provision in the Rules, whereby if parties to a multiparty arbitration fail to agree on the joint nomination of an arbitrator, the Court will be able to appoint all arbitrators on the arbitral tribunal. Thus the equality of treatment of all the parties to the arbitration will be fully assured, since the tribunal as a whole will have been appointed by the International Court of Arbitration which will have been assigned this task by the parties in the arbitration clause.
• On the other hand, while awaiting the final adoption of the amended Rules, when defendants decline to nominate a single common arbitrator, the International Court of Arbitration might opt for the solution of dividing the case into separate arbitration procedures, so as to enable each of the parties to nominate its own arbitrator.
This was the decision reached in a case where a lender had introduced a single procedure against the principal debtor and the joint guarantors. Since the joint guarantors manifested their intention of nominating a separate arbitrator from the one chosen by the principal borrower, the Court separated the two procedures in the aim of complying with the principle of equality of treatment of the parties laid down in the Dutco decision.
The risk of such a practice is that we shall witness a growth in related arbitrations which can likewise give rise to delicate problems at the time arbitral tribunals are constituted.
II. Constitution of the arbitral tribunal in the case of parallel arbitrations
Practice at the International Court of Arbitration shows that the constitution of an arbitral tribunal in the context of a set of contracts may give rise to a variety of problems.
In numerous cases, the International Court of Arbitration comes up against problems linked to a party involved in a number of related cases nominating one and the same arbitrator in the various procedures, or to the request for an identical chairman of the arbitral tribunal to be appointed for all the related procedures.
Lastly, other problems ensue from the joinder of related arbitrations.
A. Participation of the same arbitrator in several related arbitrations
In the case of related arbitrations (let us take the classic example of two arbitrations arising firstly [Page49:] from a dispute between the employer and the general contractor, and secondly from a dispute between the latter and his subcontractor(s)), it is not unusual to find that the party common to these different arbitrations nominates the same arbitrator.
This practice raises numerous questions with regard to respect of the fundamental principles governing any arbitration procedure.
First of all, once one and the same party systematically nominates the same arbitrator in the set of cases, there is no doubt that the arbitrator's independence vis-à-vis the party in question may be at issue.
In this connection, however, it should be pointed out that in principle this problem should not arise, in that the arbitrator - it must be remembered - is not charged with defending the interests of the party that nominated him. Whatever the circumstances of his appointment, the arbitrator must always remain independent of the party who nominated him.
But, over and above the question of the arbitrator's independence vis-à-vis the party who nominated him - a question which basically depends on the degree of morality of the arbitrator nominated - what needs to be ascertained is that the arbitrator is impartial with regard to issues of law or fact raised in an arbitration when such issues are similar or identical to those raised in other related arbitrations, or have a direct influence on them.
In such a case, the common arbitrator, who would be the only arbitrator participating in several related arbitrations, would a priori be in a position of advantage in comparison with other arbitrators who were members of only one tribunal.
This advantage derives either from information that the arbitrator is unable to communicate to the other arbitrators without infringing the principle of the rules of due process, or stems from the fact that since he has already settled or considered the self-same question of fact or law in a related case he no longer has the openness of mind necessary for deciding in total impartiality.
Lastly, since the arbitrator nominated by one of the parties benefits from the advantage of taking part in all the arbitration procedures, whereas the other arbitrators are members of only one arbitral tribunal, on the face of it there may be a breach of the principle of equality of treatment of the parties. But in fact this problem only exists if it is presumed that the arbitrator is not independent of the party who nominated him.
In the face of the problems arising from the appointment of the same arbitrator in the context of related procedures, the ICC International Court of Arbitration generally adopts a cautious attitude which is akin to that of the Paris Court of Appeal.
When one of the parties to the arbitration objects to the appointment of an arbitrator by an opponent on the ground that the arbitrator in question has already been nominated in one or more other related arbitration procedures, the International Court of Arbitration will not systematically refuse to confirm the appointment of the arbitrator nominated in this way,
When the International Court of Arbitration finds itself faced with this type of difficulty, it is basically committed to determining whether, in the light of his participation in the various related arbitrations, the arbitrator whose possible appointment is challenged will be able to keep an open mind and remain impartial with regard to the issue he has to determine.
In acting in this fashion, the International Court of Arbitration's position is in harmony with the principles laid down by the Paris Cour d'appel (Court of Appeal) in a judgement dated 14 October 1993 Ben Nasser et autres v. BNP et Crédit Lyonnais:
When the same arbitrator rules in two parallel procedures, the rules of due process are not infringed, nor are the rights of the defence; this is not the case if a decision was reached in another [related] case that could constitute an unfavourable preconception on the part of the arbitrator in question, particularly if the arbitrator took part, in the first case, in an award that logically leads to certain consequences with regard to the questions to be decided in the second [Page50:] arbitration; however, the preconception must relate to that inseparable combination of fact and law which constitutes the case submitted to arbitration; indeed, there is neither bias nor preconception when an arbitrator is called to decide on factual circumstances that closely resemble matters examined in a previous case, involving different parties, and even less when he has to settle a question of law on which he has previously made a ruling.3
For this purpose the International Court of Arbitration looks for a number of indications whose convergence is liable to lead to the presumption that in the particular case the arbitrator's judgement cannot be totally free from preconceptions. It goes without saying that each situation is an individual case which has to be examined in the light of its own particular factual circumstances.
The International Court of Arbitration has had occasion to reject applications challenging arbitrators in cases where one and the same arbitrator took part in two arbitrations between the same parties. However, the parties were not opposed on the same question of law in the two cases.
The International Court of Arbitration follows appreciably the same line in constituting the arbitral tribunal when the difficulty relates not to the confirmation of an arbitrator, but to the appointment of the chairman of the arbitral tribunal who is to be nominated in a number of related cases. But in this situation the Court's role is even more important in that, if the parties or the co-arbitrators fail to agree, the Court itself appoints the chairman.
The International Court of Arbitration has to check with even greater rigour and caution that the chairman of the tribunal that it appoints will be able to keep an open mind free of any preconception with a view to deciding each of the disputes he has to hear impartially and independently.
While this attitude corresponds to the abovereferred position of the French courts in this field, certain authors nonetheless consider that the implementation of these arbitrations remains very uncertain and that risks of imbalance within the various arbitral tribunals are not totally excluded.
In an attempt to limit on the one hand the risks linked to the violation of the principle of equality of treatment of the parties, the principle of the rules of due process or again the principal of the independence of the arbitrator, and on the other hand the risks of contradictory awards being handed down in related procedures, certain authors have suggested that problems relating to the constitution of an arbitral tribunal in the case of related arbitrations should be resolved in the following way:
• either by establishing links between the disputes dealt with separately by different arbitrators,
• or by handling disputes submitted to the same arbitrators separately,
• or lastly by submitting all the disputes to the same arbitral tribunal.4
However, from a practical viewpoint, these solutions give rise to numerous other problems each as complex and insoluble as the ones they are supposed to settle.
For instance, the idea of submitting all the related arbitrations to one single arbitral tribunal presupposes at the outset that the parties have agreed on this principle.
If this is not the case, it is uncommon to find one of the parties waiving the right he has been given to nominate his own arbitrator for the purpose of choosing an arbitrator jointly with other defendants with whom he will not necessarily have common or converging interests.
Likewise, the supposition that links can be established between disputes dealt with separately presupposes that any problems relating to rights [Page51:] of joinder of third-party plaintiffs or defendants in connection with related arbitrations will have been settled.
However, over and above the insoluble problems that the constitution of arbitral tribunals in the case of related arbitrations seems to engender, the dangers resulting from the appointment of one and the same arbitrator in case of related arbitrations should be put in perspective, and it should be borne in mind that the International Court of Arbitration's present position satisfactorily reconciles the requirements linked to the basically contractual nature of arbitration and those resulting from the general principles of a good administration of justice.
Indeed, the situation that the common arbitrator finds himself, in the context of related procedures, can similarly occur before the national courts, where it is not disputed that the judge decides each dispute in total independence, apart from the single detail that admittedly the judge is not nominated by one of the parties.
Finally, one may wonder why certain authors or arbitration practitioners seek to impose criteria as regards impartiality on arbitrators that are more restrictive than those applicable to state judges.
B. Joinder of related arbitrations
Under the terms of Article 13 of the International Court of Arbitration's Internal Rules, a Request for Arbitration may be joined to a procedure already in progress when the parties are the same.
However, the joinder may also relate to two separate procedures between different parties, provided this stems from the express and unambiguous intention of the parties who record this in an addendum to the arbitral tribunal's initial terms of reference.
Thus, the International Court of Arbitration has been led, at the parties' express request, to decide on the joinder of two arbitral procedures involving three separate parties.
It is interesting to note that the joinder culminated in a duly constituted arbitral tribunal comprising four arbitrators.
In the case referred to above, two separate subcontracts had been concluded between the main contractor and his two subcontractors.
Initially, two separate arbitration procedures had been commenced by each of the subcontractors against the main contractor.
The parties subsequently agreed on the joinder of the cases. On this basis they drafted an addendum to the initial terms of reference that had been concluded with each of the two arbitral tribunals, the consequence of which was that an arbitral tribunal comprising four arbitrators was constituted.
It would seem that this was the first time that the International Court of Arbitration found itself confronted by a situation of this type.
The problems that arose in relation to the constitution of such an arbitral tribunal fell into two categories:
• on the one hand, it had to be ascertained that the tribunal thus constituted was compatible with the national laws of each of the parties to the case and of the country in which the arbitration was taking place;
• on the other hand, the International Court of Arbitration had to consider whether such a tribunal complied with the ICC Rules of Arbitration.
The International Court of Arbitration accordingly studied whether an arbitral tribunal comprising four arbitrators was compatible with the various different national laws in question.
Thus, to take the example of France, which was concerned in the case as the place of arbitration, it was concluded that an arbitral tribunal comprising four arbitrators was not contrary to French public policy rules in that the issue arose in the field on international arbitration, rather than domestic arbitration, where the Code of Civil Procedure expressly prohibits arbitrations by an even number of arbitrators. [Page52:] In addition, the Court took the view that a four-member arbitral tribunal could accord with the ICC Rules of Arbitration.
It should be pointed out that the rules laid down by Articles 2(2) and 2(5) of the Rules of Arbitration were complied with, in that the arbitral tribunals constituted originally had been constituted in accordance with the said Rules.
Furthermore, no provision of the Rules of Arbitration prevents the joinder of such procedures, provided this results from the parties' express and unambiguous intention.
Lastly, we note that in this case the parties confirmed in writing that the chairman of the arbitral tribunal would in any case have a casting vote if there was no majority, which accords with the spirit of Article 19 of the Rules of Arbitration.
In the light of these various factors the International Court of Arbitration accordingly held that, in view of the circumstances, an arbitral tribunal comprising four arbitrators complied with the national laws concerned on the one hand and with the ICC Rules of Arbitration on the other hand.
This decision by the International Court of Arbitration reveals that the joinder of cases being heard by arbitral tribunals that have been duly constituted under the aegis of the ICC may enable the constitution of arbitral tribunals of at least four arbitrators, provided that the constitution of such a tribunal complies with the national laws concerned and the chairman of the arbitral tribunal thus constituted has a casting vote.
Moreover, as we have seen, in order to take account of the principle laid down by the Dutco decision, in the case of a multiparty arbitration, the International Court of Arbitration could be led to separate two arbitration procedures so that each of the defendants, although linked by the same arbitration clause, could nominate its own arbitrator.
One may wonder the extent to which, by driving the mechanism highlighted by the case referred to above to its extreme limits, it would not then be possible later on to join these two procedures into a single procedure in which each of the parties nominated its own arbitrator. Naturally this presupposes the agreement of all the parties. In this way an arbitral tribunal of four arbitrators would be constituted.
However, there are limits to this type of solution and one cannot envisage its application to situations where there are a great many parties.
Conclusion
The constitution of the arbitral tribunal is a primordial stage in any ICC arbitration procedure.
One of the main reasons why the parties have resorted to arbitration is because they wished to provide themselves with a means of influencing the choice of the individuals who might be called to settle any disputes between them. The parties' intention to accord themselves such a prerogative should be respected as should the principle of treating them on an equal footing in the exercise of this prerogative.
However, the exercise of the prerogative should not lead to an impairment of the arbitral process. The freedom of the parties to choose the arbitrators is not absolute and must be supervised by the ICC International Court of Arbitration, be this only in view of the fact that ICC arbitration is not appealable (Article 24(1) of the Rules of Arbitration); if an arbitrator lacks impartiality this may have serious consequences.
Hence the difficulty is to reconcile respect of the parties' freedom and equality with regard to the choice of arbitrators with the essential requirement of ensuring a healthy arbitral justice.
In multiparty arbitrations, the first matter that may be threatened in view of the circumstances is the freedom (and equality) of the parties in the choice of arbitrators. Hence this will be at the heart of the ICC International Court of Arbitration's concerns. Unfortunately, the effectiveness of arbitration may be reduced if this leads to an increase in the number of arbitration procedures.
In related arbitrations, the situation is reversed. [Page53:] The parties' freedom of choice is not threatened by the factual circumstances, and the issue that the Court will be concerned with, first and foremost, is rather to ensure that the arbitral tribunal operates impartially. This being the case, the Court may obviously be liable to restrict the parties' freedom of choice.
Although in both situations (multiparty arbitration and related arbitrations) the Court's and the parties' first concerns are different, it is interesting to note that multiparty arbitration may engender related arbitrations (to preserve the parties' equality) and that related arbitrations may be joined to constitute multiparty arbitrations (to improve the smooth-running of the arbitral process).
In conclusion, the foregoing teaches us a simple lesson: in order to further the appropriate handling of the difficulties linked to the constitution of arbitral tribunals, it is undoubtedly preferable to specify an institutional arbitration like arbitration governed by the ICC Rules of Arbitration rather than an ad hoc arbitration, Without intervention from an institution or independent organisation, like the ICC International Court of Arbitration, solving the problems would be much more difficult and might even necessitate recourse to the national courts.
1 See the ICC Commission on International Arbitration's Final Report on Multiparty Arbitrations, published in the ICC Court's Bulletin, Vol. 6 No. 1, 1995, p. 31 and fol.; see also the Note from the Secretariat of the ICC International Court of Arbitration on the Constitution of Arbitral Tribunals in Multiparty Cases also published in the ICC Court's Bulletin, Vol. 4 No. 2, 1993, p. 6.
2 French Cour de cassation, civ. 1 Jan. 1992, Revue de l'arbitrage 1992, p. 520, comments by P. Bellet, and Journal du droit international 1992, 707, comments by Jarrosson. In English: Mealey's Int'l Arbitration Report Feb. 1992, p. 20, comments by Mahir Jalili; International Financial Law Review, March 1993, p. 33, comments by C. Seppala.
3 Cour d'appel de Paris 1st Chamber, 14 October 1993, Ben Nasser et autres v. BNP and Crédit National, Revue de l'arbitrage, 1994, No. 2, p. 380 and fol.
4 Tribunal de grande instance de Paris, ordonnance de référé 13 January 1986, SA Setec Bâtiment v. Société Industrielle et Commerciale des Charbonnages, Revue de l'arbitrage, 1987, p. 63 and fol., comments by Pierre Bellet).