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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
I. Introduction
Multiparty disputes represent a significant portion of the cases administered by the ICC International Court of Arbitration (the 'Court'). Over the past ten years, 30 per cent of the Court's caseload has involved more than two parties. This trend has been acknowledged in the new ICC Rules of Arbitration (the 'Rules') through the inclusion of comprehensive provisions dealing with multiparty arbitrations.1
When more than two parties are involved in a dispute, the procedural steps in the arbitration may become more complex. One of these is the constitution of the arbitral tribunal in cases where the arbitration agreement calls for three arbitrators and multiple claimants or respondents are required to make a joint nomination.
The Secretariat of the Court regularly receives questions from parties wishing to know what happens when multiple claimants or respondents are unable to nominate an arbitrator jointly.2 For instance, what happens to the co-arbitrator nominated by a sole claimant if multiple respondents cannot agree on a joint nomination? Will the Court still confirm the claimant's co-arbitrator or, instead, disregard that choice and appoint the entire arbitral tribunal? How will a three-member tribunal be constituted when one of the respondents is unable to participate in the proceedings because it is owned in significant proportions by at least one claimant and one respondent? When a party is joined to the proceedings but the parties have not indicated where it stands in relation to the existing parties, to which side should that party be considered to belong when it comes to nominating an arbitrator?
These are exactly the types of situations that were foreseen in Article 10(2) of the 1998 Rules and now in Article 12(8) of the 2012 Rules. To enlighten parties and counsel on the background and application of these provisions, we will first put them into context by summarizing Dutco,3 the seminal decision in this field by the French Court of Cassation. We will then set out Articles 10(1) and 10(2) of the 1998 Rules (now Articles 12(6)-12(8) of the 2012 Rules), which-in response to Dutco-give the Court the power to appoint the entire arbitral tribunal in cases where multiple claimants or respondents are unable to nominate a co-arbitrator jointly. The article will then examine six cases from recent years in which the Court decided to use that power to appoint the entire tribunal, and four in which it decided instead to confirm the co-arbitrator already nominated by the other side. Particular attention will be given to the criteria the Court takes into account when making such decisions.
At the time of writing, all cases relevant to our discussion had been decided under the 1998 Rules. However, given that Article 10(2) of the 1998 Rules remains intact as Article 12(8) of the 2012 Rules, the observations with which we will conclude remain equally relevant to cases decided under the 2012 Rules.
II. Dutco: equal treatment and enforceability
When multiple parties on one side of a dispute are required to nominate a co-arbitrator jointly, there is a danger that their right to equal treatment in the constitution of the arbitral tribunal-an important component of due process-may be violated, especially if they have diverging interests. This was the issue at the heart of the Dutco case.4Dutco, BKMI and Siemens entered into a consortium agreement for the building of a cement plant in Oman, which provided for the submission of disputes to a three-member arbitral tribunal under the ICC Rules. Dutco brought claims for breach of the consortium agreement against both BKMI and Siemens in the same proceedings and nominated an arbitrator in its Request for Arbitration pursuant to the Rules. BKMI and Siemens, whose interests diverged, objected to the claims being dealt with in the same proceedings, arguing that there should be separate proceedings to allow each respondent party to nominate an arbitrator.5 In keeping with its Rules and practice at the time, the ICC asked BKMI and Siemens to make a joint nomination in the same case. They did so, albeit reluctantly, and the Court then confirmed the co-arbitrators. The arbitral tribunal rendered a partial award in the case in which it held, among other things, that the arbitral tribunal had been properly constituted. [Page31:]
BKMI and Siemens subsequently applied to the French courts to have the award set aside on the ground that the tribunal had been irregularly constituted.6 The court of appeal rejected this argument, focusing on the arbitration clause and the intent of the parties evidenced therein. The parties had agreed to the Rules, which provided that each side in the dispute should nominate an arbitrator. The court of appeal held that it was foreseeable that a dispute involving all of the parties might arise and that each side of the dispute would have to nominate an arbitrator. However, the Court of Cassation took a different view. It decided that, as part of public policy, the principle of equal treatment could not be waived by a party before a dispute arises7 and accordingly overturned the appeal court decision.
The ruling of the Court of Cassation does not necessarily imply that each party has the right to appoint its own arbitrator in any multiparty arbitration. As Fouchard, Gaillard and Goldman observe, the Dutco decision 'simply requires that all the parties should have the same rights with regard to the appointment of the arbitrators, not that they should all have a right to appoint "their" arbitrator'.8
III. The ICC Rules post Dutco
The ICC Rules were amended in 1998 to take account of the Dutco situation. Article 10 of the 1998 Rules reads as follows:
1 Where there are multiple parties, whether as Claimant or as Respondent, and where the dispute is to be referred to three arbitrators, the multiple Claimants, jointly, and the multiple Respondents, jointly, shall nominate an arbitrator for confirmation pursuant to Article 9.
2 In the absence of such a joint nomination and where all parties are unable to agree to a method for the constitution of the Arbitral Tribunal, the Court may appoint each member of the Arbitral Tribunal and shall designate one of them to act as chairman. In such case, the Court shall be at liberty to choose any person it regards as suitable to act as arbitrator, applying Article 9 when it considers this appropriate. (Emphasis added)
As previously stated, the 2012 Rules have retained the same provisions unchanged in Articles 12(6) and 12(8), respectively. It is interesting to note that the 2012 Rules also introduced a new provision in Article 12(7) to ensure harmony with the new provisions on multiparty arbitration. This new provision logically extends Article 12(6)'s approach to joint nomination to additional parties that have been joined to the proceedings in accordance with Article 7 of the 2012 Rules.9
The conditions required for Article 12(6) of the 2012 Rules and Article 10(2) of the 1998 Rules to apply are twofold: (1) the absence of a joint nomination by either the multiple claimants or multiple respondents; and (2) the absence of agreement among all parties on a method for constituting the arbitral tribunal.10 Only when both conditions have been met may the Court decide to exercise the power granted to it by this provision. That power is discretionary rather than mandatory as in some other arbitration rules.11
We will now examine recent cases that have come before the Court in order to identify the factors it has taken into account when deciding whether to exercise its discretion.
IV. The cases
A. Cases in which the Court directly appointed the entire arbitral tribunal
Claimant and Respondents 2 and 3 entered into a consortium agreement out of which Respondent 1 was created. Claimant alleged that the agreement had been breached and filed claims against all three Respondents. Respondent 1 did not participate and Respondent 2 did so only sporadically. The arbitration agreement did not specify the number of arbitrators. The Court fixed the number of arbitrators at three.
Respondents did not jointly nominate a co-arbitrator in this case and the parties did not agree on a method for constituting the arbitral tribunal. The wishes of Claimant and Respondent 3 in this regard were incompatible and Respondents 1 and 2 remained silent on the matter. Furthermore, Respondent 3 stated that its interests conflicted with those of Respondents 1 and 2 and that it planned to file cross-claims against them. The Court applied Article 10(2) of the 1998 Rules and appointed all members of the arbitral tribunal. [Page32:]
Claimant and Respondent 1 entered into agreements in which the assets of a company owned by Claimant were assigned to Respondent 1. Respondent 1 also agreed to substitute for Claimant in any ongoing and future lawsuits pertaining to those assets. Claimant and Respondent 1 later agreed to assign their agreements to Respondent 2. Respondents 1 and 2 were to remain jointly and severally liable towards Claimant. Respondents 1 and 2 subsequently entered into an agreement under which all rights and obligations under the previous agreements were assigned to Respondent 2. Claimant asserted that some court decisions had found it liable for payments in relation to the assets and that Respondents had failed to substitute for those payments.
The arbitration agreement provided for a three-member arbitral tribunal. Claimant nominated a co-arbitrator. Respondents objected to Claimant's nomination and could not agree between themselves on their own nominee. They requested that the Court apply Article 10(2), to which Claimant objected arguing that Respondents had convergent interests since they were jointly and severally liable. The Court found that Respondents' interests in the arbitration were in fact clearly divergent as they had made different allegations and taken contrasting positions on the merits of the case. Accordingly, the Court decided to appoint all three members of the arbitral tribunal directly.
This case involved five claimants and six respondents. The claims pertained to an escrow agreement, which provided that certain documents were to be delivered to the escrow agent, Respondent 6. The documents were to remain in escrow until Respondent 1 had paid certain monies. Claimants alleged that Respondents 1(5 failed to pay these monies and Respondent 1 asked Respondent 6 not to release the documents. Respondent 6 informed the parties that it would refrain from taking any action with regard to the documents until it received joint instructions from the parties or a copy of an arbitral award. Respondent 6 did not participate in the arbitration proceedings.
The arbitration agreement provided for a three-member arbitral tribunal. Claimants jointly nominated a co-arbitrator. Respondents 1(5 also jointly nominated a co-arbitrator. They argued that Respondent 6 had no right to appoint an arbitrator because it was not foreseen as a 'party' to the dispute according to the agreement. The Court gave consideration to Respondent 6's role as escrow agent in the transaction, as a result of which its interests were unlikely to be aligned with those of the Claimants or the other Respondents. The Court decided to exercise its power under Article 10(2) of the 1998 Rules and directly appointed the entire arbitral tribunal.
Claimant and Respondent 1 entered into a joint venture and shareholders' agreement to create Respondent 2 (also a signatory to the agreement). Under the agreement, Claimant owned 51 per cent and Respondent 1 owned 49 per cent of the shares in Respondent 2. Claimant alleged that Respondent 1 breached the agreement by acting against the interests of Respondent 2. Respondent 2 did not deny that breach and agreed that it had been harmed by the Respondent 1's actions. Indeed, Respondent 2 filed cross-claims against Respondent 1.
The arbitration agreement provided for a three-member arbitral tribunal. Claimant nominated a co-arbitrator and asked that the Court appoint the second co-arbitrator on behalf of Respondents. Respondent 1 objected to having to nominate a co-arbitrator jointly with Respondent 2, arguing that the latter was on the same 'side' as Claimant, and requested the application of Article 10(2).12 The parties had not agreed upon a procedure for constituting the arbitral tribunal and Respondents' divergent interests were evident from the facts. In particular, Respondents took conflicting positions on the merits; Respondent 2 filed cross-claims against Respondent 1; and Respondent 2 requested that it be added as 'co-defendant' to Respondent 1's counterclaims, so that it would have the opportunity to defend itself. It was also clear that Claimant, as the majority shareholder in Respondent 2, had interests that converged with those of Respondent 2. [Page33:]
Interestingly, in deciding to apply Article 10(2) in this case, the Court also considered the fact that the law at the place of the arbitration, which was in a European country, contained a provision almost identical to Article 10(2) of the Rules.
A joint venture between Claimant and Party A entered into an agreement with Respondent for the supply of equipment. Claimant alleged that Respondent breached the agreement. Respondent filed counterclaims against both Claimant and Party A, as members of the joint venture, whereupon Party A was joined to the arbitration.
The arbitration agreement provided for a three-member arbitral tribunal. Claimant and Respondent each nominated a co-arbitrator. Party A objected to Claimant's nomination on the grounds that it had not participated in the nomination process and the individual nominated 'represented' only Claimant's interests in the arbitration. Claimant subsequently requested that the Court apply Article 10(2). The Court considered that Claimant and Party A had clearly divergent interests at stake in the arbitration, that they had failed to nominate a co-arbitrator jointly and that they had made different allegations and taken contrasting positions on the merits of the dispute. In addition, Claimant and Party A had not filed the Request for Arbitration together, despite being part of the same joint venture. The Court found it appropriate to apply Article 10(2) and appointed the entire arbitral tribunal.
As previously mentioned, Article 12(7) of the 2012 Rules expressly extends to additional parties joined pursuant to Article 7 the principle of allowing each side of the arbitration to nominate a co-arbitrator. The additional party may choose to align itself with either the claimant's or the respondent's side for the purposes of nominating a co-arbitrator.13 However, even if this provision had been in existence at the time of the case just discussed, it would not have made any difference since the additional Party A did not wish to nominate an arbitrator jointly with either of the existing sides in the arbitration.
In a very recent decision, the Court decided to exercise its discretion and appoint the entire arbitral tribunal even though there was no evidence of diverging interests. In this case, Claimants 1 and 2 and Respondent had concluded a contract under which Respondent was to provide certain services to Claimants 1 and 2. Respondent alleged that Claimants 1 and 2 had breached their obligations, while the latter sought a declaration stating that the contract was terminated and that they had complied with their obligations. Claimant 3, a non-signatory party, was joined to the proceedings at Respondent's request. Claimants 1 and 2 nominated a co-arbitrator, as did Respondent. Claimant 3 merely indicated that, since it was not a party to the contract, it was not in a position to comment on the constitution of the arbitral tribunal.
This case can be distinguished from the five cases discussed above in that it did not contain any indicators of divergent interests. Indeed, (i) the Claimants all seemed to be part of the same group of companies; (ii) there was no evidence suggesting conflicting interests; (iii) none of the parties requested the Court to appoint the arbitral tribunal; and (iv) Claimant 3 did not object to the nomination of the arbitrator by Claimants 1 and 2, but merely stated that it did not wish to submit comments on the constitution of the arbitral tribunal. Interestingly, the Court nonetheless decided to exercise its power to appoint the entire arbitral tribunal. The seat of arbitration in this case was Paris and the Court seems to have followed a 'better safe than sorry' approach in light of the Dutco decision. It considered that the refusal of Claimant 3 to comment on the constitution of the arbitral tribunal could be viewed as a refusal to recognize its legitimacy. Furthermore, the Court considered that since jurisdictional objections had been raised, the arbitral tribunal would first have to rule on its jurisdiction. In this context, the Court's application of Article 10(2) of the 1998 Rules would protect the award in that Claimant 3 would be precluded from challenging such an award in the French courts on the ground that the arbitral tribunal had been irregularly constituted. [Page34:]
B. Cases in which the Court confirmed the co-arbitrators
Respondent 2 was the principal of Respondent 1. Claimant and Respondent 1 entered into a sales agreement, which Claimant accused both Respondents of breaching. The arbitration agreement provided for a three-member arbitral tribunal. Claimant nominated a co-arbitrator. Respondent 1 did not participate in the arbitration.
After contacting Respondent 1 to agree on a joint nomination and receiving no response, Respondent 2 requested that the Court apply Article 10(2) and appoint all three members of the tribunal. The Secretariat informed the parties that any nomination they made would be considered by the Court. Respondent 2 nominated a co-arbitrator. The Secretariat invited Respondent 1 to indicate whether it objected to that nomination. Respondent 1 did not respond and no comments were received from any of the other parties. The Court decided to confirm both co-arbitrators rather than apply Article 10(2).
Why did the Court not appoint the arbitral tribunal directly in this case, as in case 3 above where one of the Respondents likewise did not participate? The main reason was likely to have been that, here, Respondents were part of the same corporate structure and there was no evidence whatsoever of diverging interests. Respondent 1 was expressly given an opportunity to object to the nomination, which it did not. While this is not surprising since it was not participating, it could nonetheless have objected to the nomination if it had wanted to. Accordingly, the Court chose not to exercise its discretionary power and confirmed the nominated co-arbitrators.
This case involved one Claimant and three Respondents. Respondent 1 was the owner of Respondent 2, which in turn owned Respondent 3. Claimant and Respondent 2 entered into an agreement under which the latter sold a substantial stake in Respondent 3 to Claimant. Pursuant to this agreement, Respondent 3 and another company owned and controlled by Respondents 1 and 2 were to be operated as a joint venture between Claimant and Respondent 2. Claimant filed claims against all three Respondents. Respondent 3 did not participate.
The arbitration agreement provided for a three-member arbitral tribunal. Claimant nominated a co-arbitrator. Respondents 1 and 2 jointly nominated a co-arbitrator and argued that they should not be forced to nominate an arbitrator jointly with Respondent 3, in which Claimant had a shareholding. They argued that if the Court were to apply Article 10(2) in this case they would still consider their fundamental right to choose an arbitrator to have been violated due to Claimant's incorrect designation of Respondent 3 as a respondent.
Indeed, Respondent 3 was jointly owned by Claimant and Respondent 2, and Respondent 1 was the sole owner of Respondent 2. The parties agreed that this created a gridlock situation in which it was impossible for Respondent 3 to participate. Given that Respondent 3 did not object to the joint nomination by Respondents 1 and 2, and that Claimant indicated that it would not object to the confirmation of the arbitrator nominated by Respondents 1 and 2, the Court decided to confirm the co-arbitrators and not to exercise its discretionary power under Article 10(2) of the 1998 Rules. It is interesting that the Court did not consider whether the Respondents had divergent interests. It was conceivable that the interests of Respondent 3 were not aligned with those of Respondents 1 and 2. However, such an analysis would probably not have been meaningful in this case since Claimant and Respondents 1 and 2 all owned Respondent 3 and they all agreed that Respondents 1 and 2 should be able to nominate a co-arbitrator. [Page35:]
This case is very much in line with case 8. Here, Respondents 1, 2, and 3 were, along with Claimant, members of the body that governed the operations of Respondent 4. Together, they owned Respondent 4. Claimant alleged that it had been barred from obtaining information pertaining to Respondent 4 and filed claims in this regard against all four respondents. Respondent 4 did not participate in the arbitration.
The arbitration agreement provided for a three-member arbitral tribunal. Claimant nominated a co-arbitrator. Respondents 1(3 jointly nominated a co-arbitrator. Given that Claimant and Respondents 1(3 agreed to the nomination of this co-arbitrator on behalf of Respondent 4, and that Respondent 4 did not object to this nomination despite being given the opportunity to do so by the Secretariat, the Court decided to confirm both co-arbitrators.
Respondent 3 was a joint venture, owned fifty-fifty by Claimant and Respondent 2, each of which nominated two of the four directors of Respondent 3. Respondent 2 was fully owned by Respondent 1. Claimant filed claims against all three Respondents. Respondent 3 did not participate.
The arbitration agreement provided for a three-member arbitral tribunal. In accordance with Article 10(1) of the Rules, Claimant nominated a co-arbitrator. Respondents 1 and 2 jointly nominated a co-arbitrator. Respondent 3 remained silent. Claimant and Respondents 1 and 2 all objected to the application of Article 10(2) and had agreed on a method for constituting the arbitral tribunal. As Respondent 3 did not object to the nomination made jointly by Respondents 1 and 2 and, as in cases 8 and 9 above, seemed not to be in a position to make any decisions given its ownership, the Court decided to confirm the co-arbitrators nominated by Claimant and Respondents 1 and 2.
V. Observations and conclusions
We have identified certain factors that the Court considers when deciding whether to use the power available to it under Article 10(2) of the 1998 Rules, now Article 12(8) of the 2012 Rules. First and foremost, the Court will exercise that power where the parties called upon to make a joint nomination have divergent interests. Indicators of divergent interests include:
- cross-claims between respondents;14
- multiple claimants or respondents taking contrasting positions on questions of jurisdiction or the merits;
- no corporate relationship between parties unable to make a joint nomination;
- the parties' role in the transaction, to the extent that it may suggest diverging interests; and
- parties required to make a joint nomination represented by different counsel.
The recent decision of the Court in case 6 above seems to suggest that, even in the absence of any signs of divergent interests, the Court may nonetheless exercise its power to appoint the entire tribunal in cases where the seat of the arbitration is in France, so as not to risk a rerun of Dutco.
Where, on the other hand, there is a corporate relationship among all the parties in the arbitration, which creates a gridlock situation preventing one of the parties from participating, the Court may decide to confirm the co-arbitrators and not to appoint the entire arbitral tribunal directly. This is particularly likely in cases where all of the parties, save the non-participating party, agree that the Court should confirm the co-arbitrators.
The cases discussed above also show-and this may not be surprising-that the Court will be more ready to appoint the entire arbitral tribunal in cases where at least one of the parties requests it to do so than in cases where the parties object to the exercise of that power.
As emerges from the case scenarios outlined in this article, the Court strives to respect the autonomy of the parties by taking into account their positions on the application of its discretionary power. However, it ultimately seeks to protect the parties' right to equal treatment in the constitution of the arbitral tribunal and thereby the enforceability of the award.
1 See Articles 7 et seq. of the 2012 Rules.
2 Multiple respondents are more likely to be unable to agree on a joint nomination than multiple claimants.
3 Cass. civ. 1re, 7 January 1992, B.K.M.I. v. Dutco, 1992 Bull. civ. I, No. 2 [Dutco].
4 Ibid.
5 E.A Schwartz, 'Multi-Party Arbitration and the ICC in the Wake of Dutco' (1993) 10:3 Journal of International Arbitration 5 at 14.
6 Y. Derains & E.A Schwartz, Guide to the ICC Rules of Arbitration, 2d ed. (The Hague: Kluwer Law International, 2005) at 179.
7 'Attendu que le principe de l'égalité des parties dans la désignation des arbitres est d'ordre public ; qu'on ne peut y renoncer qu'après la naissance du litige' Dutco, supra note 3.
8 E. Gaillard & J. Savage, eds., Fouchard Gaillard Goldman on International Commercial Arbitration (The Hague: Kluwer Law International, 1999) at 469.
9 J. Fry, S. Greenberg, F. Mazza, The Secretariat's Guide to ICC Arbitration: A Practical Commentary on the 2012 ICC Rules of Arbitration from the Secretariat of the ICC International Court of Arbitration (Paris: ICC, 2012) at 148.
10 Where the parties agree to a method for constituting the arbitral tribunal, but the method agreed upon is pathological, Article 10(2) of the 1998 Rules/Article 12(8) of the 2012 Rules will still apply, as the parties will be regarded as not having agreed on an effective method.
11 For example, while the CEPANI Rules (Article 9(3), subparagraph 4) and Swiss Rules of International Arbitration (Article 8(5)) also contain discretionary language for the application of similar provisions, the LCIA Arbitration Rules (Article 8.1), the AAA's ICDR International Dispute Resolution Procedures (Article 6(5)), the SCC Arbitration Rules (Articles 13(4)) and the SIAC Rules (Article 9.1) formulate such provisions in mandatory terms. The 2010 UNCITRAL Arbitration Rules (Article 10(3)) likewise provide for the mandatory application of the relevant provision.
12 This was not Respondent 1's principal suggestion, which was to have Claimant and Respondent 2 jointly nominate a co-arbitrator. As there were no provisions in the Rules to accommodate such a request, the Court proceeded with the application of Article 10(2).
13 J. Fry, S. Greenberg, F. Mazza, supra note 9 at 148.
14 It is unlikely that claimants will have cross-claims.