Chapter 15: Arbitration and third parties

15.1 Arbitration arises out of an agreement which is usually contained in a contract between two parties. The arbitrator’s authority derives solely from that agreement. This offers a stark contrast to the much wider inherent and statutory jurisdiction of the High Court which, in relation to court proceedings, enables it to:

1. join additional parties;

2. make costs orders against third parties (i.e., parties who are not privy to the proceedings);

3. order third parties to produce documents; and

4. consolidate separate proceedings.

15.2 The essentially consensual basis of arbitrators’ powers means that they have no inherent powers to make orders binding third parties (i.e., parties who are not privy to the arbitration agreement pursuant to which the arbitrator is appointed). This can make it difficult to ensure a convenient and streamlined procedure in disputes involving more than two parties. In addition, obligations of confidentiality are implied into the arbitration agreement – this may raise difficult issues as to whether an award or evidence disclosed in an arbitration can be shown to third parties. 1

15.3 Multi-party disputes are extremely common in the context of maritime arbitration – there may be several contracts between different parties relating to a particular transaction. Typically, a chain of two or more contracts may be concluded on similar terms: for instance back-to-back charterparties or a string of sale contracts. If a dispute arises between the parties to one of the contracts, then the respondent will usually seek to pass liability up or down the chain. It is also common for two or more claims arising out of the same facts to be asserted by or against the same party (e.g., cargo is damaged at sea and claims are brought against the shipowner by both the bill of lading holder and the charterer). Triangular claims also occasionally arise: e.g. a subcharterer claims against the shipowner and time-charterer, who then assert claims against each other. Multi-party disputes may also arise where there are more than two parties to the relevant contract or arbitration clause, for example in cases of assignment or where the Contracts (Rights of Third Parties) Act 1999 is applicable. Situations can also arise where there are a number of disputes between different parties, all relating to similar facts, for example the US soya-bean embargo.

15.4 The common feature of these types of dispute is that the claims between the various parties will generally raise common issues of fact and law. Justice requires that the outcome of the claims should be consistent as far as possible, particularly where a chain of contracts is on back-to-back terms. Ideally, all the claims should be decided at the same time before the same tribunal to avoid inconsistent findings and to minimise costs. The parties can agree to such a procedure (e.g., where chain claims arise) and arbitration rules sometimes provide (more typically in commodities disputes than shipping) for the parties in the middle to drop out of the arbitral process for practical purposes such as serving submissions. However, procedural problems can arise in multi-party disputes if one of the claims is not referable to arbitration (because it arises in tort or if the contract does not contain an arbitration clause) or one of the parties refuses to co-operate in appointing a common tribunal or in having the claims heard concurrently. The result may be two separate sets of proceedings, with increased costs, difficulties in obtaining evidence and a risk of inconsistent results. 2 This sort of inconvenience is accepted as “a common feature of commercial life” and an “unavoidable consequence of the parties’ choice of arbitration to resolve their disputes”. 3

15.5 The courts have wide powers for streamlining multi-party disputes in court (e.g. by joining third parties to existing proceedings, or ordering separate proceedings to be consolidated or heard concurrently). English courts (unlike those in some other jurisdictions 4 ) do not have any inherent or statutory powers to intervene to make such orders in an arbitration. 5 Arbitrators also have no inherent powers to make orders for consolidated arbitrations or concurrent hearings as their authority is derived solely from the arbitration agreement. “The concept of private arbitrations derives simply from the fact that the parties have agreed to submit to arbitration particular disputes arising between them and only between them.” 6

15.6 The question of whether the courts (or an arbitral tribunal) should have statutory powers to make orders for concurrent or consolidated hearings in arbitration has long been controversial. 7 Such powers would have the immediate attraction of avoiding inconsistent findings and the unnecessary time and expense involved in separate, but related, proceedings. However, the 1996 Act expressly excludes such a power on the part of the tribunal in the absence of consent by the parties and it implicitly excludes court intervention. 8 The DAC considered that the convenience of consolidation and concurrent hearings did not justify the way in which such powers would undermine the consensual and confidential nature of arbitration. “It would amount to a negation of the principle of party autonomy to give the tribunal or the court power to order consolidation or concurrent hearings. Indeed, it would to our minds go far towards frustrating the agreement of the parties to have their own tribunal for their own disputes.” 9 There may also have been fears that court powers of intervention to consolidate arbitral proceedings might make London a less attractive venue for international commercial arbitration.

15.7 It is clear, however, that consolidation and concurrent hearings may be achieved with the agreement of all parties concerned (an agreement between the parties to just one of the arbitrations could not bind third parties). Such agreement may be achieved in the arbitration clause, or the arbitration rules under which the arbitrations are being pursued (see the LMAA Terms below) 10 or by means of an ad hoc agreement between the parties. Section 35 of the 1996 Act provides that:

1. The parties are free to agree –

   that the arbitral proceedings shall be consolidated with other arbitral proceedings, or

   • that concurrent hearings shall be held, on such terms as may be agreed.

2. that the arbitral proceedings shall be consolidated with other arbitral proceedings, or

3. that concurrent hearings shall be held, on such terms as may be agreed.

4. Unless the parties agree to confer such power on the tribunal, the tribunal has no power to order consolidation of proceedings or concurrent hearings.

15.8 The courts may not have the power to consolidate arbitral proceedings but they have other means of influencing the conduct of multi-party disputes. For example, where a court is asked to exercise its powers of appointment it can ensure that common arbitrators are appointed over related references 11 or refuse to appoint an arbitrator where one claim is already being litigated in court. 12 The court may also stay court proceedings pending determination of a related dispute in arbitration. 13