Solving multi-party disputes
By PATRICK BOURKE and AMANDA GREENWOOD
This article addresses the advantages of multi-party arbitration and the difficulties that can arise, while providing guidance in drafting dispute resolution clauses.
CONSTRUCTION projects involving multi-national parties, multi-layered legal obligations, consortia and other joint relationships are common in the UAE.
In such multi-party transactions, it is imperative that parties consider at the outset whether related disputes between them can be resolved in the same forum and at the same time.
This is particularly important where parties elect to resolve their disputes by arbitration (which is often the case in transactions of this nature).
Advantages of arbitration
There are two principal advantages of multi-party arbitration:
• It is significantly more efficient for related disputes between multiple parties to be heard together, in the same forum and with the same applicable laws; and
• Multi-party arbitration reduces the risk of conflicting decisions on issues of law and/or fact and thus preserves two of the main objectives of arbitration – finality and certainty.
Difficulties in achieving arbitration
Multi-party arbitration, however, is not a straightforward matter. Some of the difficulties that can arise are outlined below.
Arbitration is a creature of contract: It has its basis in the law of contract. Parties can only arbitrate if they agree to do so, either by including an express agreement to arbitrate in the contract that governs their relationship, or by agreeing to arbitrate as and when any dispute arises.
Given that parties may be unwilling to reach agreement on how their dispute is to be resolved once they are in dispute, there is a benefit to agreeing to arbitrate in the initial contract documents. This is particularly important in a multi-party context, where the consent of more than two parties will be required.
The procedural law (or ‘seat’) of the arbitration: Few jurisdictions make provision in their arbitration laws for the joinder and/or consolidation of disputes in arbitration.
The UAE does not at present have a stand-alone federal arbitration law(i). While the UAE Ministry of Economy published draft federal arbitration legislation in February 2008, it is currently uncertain as to whether (and if so, when) it will be enacted. Neither the existing law, nor the draft arbitration legislation currently provides for multi-party arbitration.
The Dubai International Financial Centre’s (DIFC) arbitration law makes only limited provision for the appointment of a tribunal in a multi-party context(ii).
In most jurisdictions (including the UAE), therefore, the procedural law of the arbitration will not fully address the issue of multi-party arbitration and parties will need to include appropriate express joinder and/or consolidation provisions in their contracts.
Arbitral rules: Multi-party arbitration may be ordered by an arbitral institution (or a tribunal appointed under an institution’s rules) where the parties agree that institutional rules will apply.
Article 22.1(h) of the London Court of International Arbitration (LCIA) Rules gives the tribunal power to join one or more third parties to an arbitration, on the application of a party. This power, however, is subject to the consent (in writing) of both the applicant and the relevant third party. Article 8 of the LCIA Rules provides a mechanism for the appointment of arbitrators where there are multiple parties. The same Rules apply where parties opt to require their disputes to be resolved in accordance with the DIFC-LCIA Rules.
Article 10 of the International Chamber of Commerce (ICC) Rules allows multiple claimants and multiple respondents to jointly nominate an arbitrator for confirmation. If the claimants and/or the respondents cannot agree on a joint nomination then the ICC Court has jurisdiction under the rules to appoint each member of the arbitral tribunal and designate one member as chairman. Article 4(6) of the ICC Rules also provides a consolidation mechanism in relation to claims between the same parties. This, however, is a limited mechanism and once the terms of reference have been signed, is only available at the arbitral tribunal’s discretion.
Article 11 of the Dubai International Arbitration Centre (DIAC) Rules deals with the appointment of the tribunal where there are multiple parties in the same manner as the ICC Rules.
While the above rules do make some provision for multi-proceeding disputes, none of them deals with the situation where multiple related disputes under different contracts between different parties arise. The rules themselves, therefore, are no substitute for provisions drafted by experienced legal advisers recording the various parties’ consent to joinder and consolidation and dealing with other issues that may arise in the context of an individual construction project.
Key drafting considerations
While simplicity is important in any dispute resolution clause, brevity may well be difficult to achieve in a multi-party and/or multi-contract arbitration provision. The following three factors are of particular importance and ought to be considered even if they give rise to a longer clause:
• Where there are more than two parties to arbitration proceedings, individual selection of arbitrators by each party will invariably be impractical. Any unfairness in the selection process may also give rise to issues when it comes to enforcement of an award. As noted above, some of the institutional rules and the DIFC Law address this point already;
• Where several parties are involved in a project, it is impossible to predict which of those parties will become a party to a dispute. The arbitration provisions will accordingly need to make provision for both bilateral and multilateral arbitration;
• It is often not possible to ascertain when any given party may need to be involved in multi-party arbitration proceedings. Consideration, therefore, needs to be given to the timing of any joinder or the consolidation of proceedings.
Where a multi-party situation arises out of multiple contracts, the use of an “umbrella agreement” (incorporated by reference into each of the agreements relating to the project) may be the best way to obtain the necessary consent from all the potential parties to a multi-party arbitration.
(i) Its arbitration legislation is set out in three chapters of the UAE Civil Procedure Code (Federal Law No 11 of 1992).
(ii) Article 17(3)(c) of the Dubai International Financial Centre (DIFC) Arbitration Law (DIFC Law No1 of 2008) provides that where an arbitration agreement entitles each party to nominate an arbitrator but there are more than two parties to the dispute (and such parties have not agreed in writing that they represent two sides for the purposes of forming the arbitral tribunal) then the DIFC Court of First Instance shall appoint the arbitral tribunal without regard to any party’s nomination.
Gulf Construction

By PATRICK BOURKE and AMANDA GREENWOOD

This article addresses the advantages of multi-party arbitration and the difficulties that can arise, while providing guidance in drafting dispute resolution clauses.

CONSTRUCTION projects involving multi-national parties, multi-layered legal obligations, consortia and other joint relationships are common in the UAE.

In such multi-party transactions, it is imperative that parties consider at the outset whether related disputes between them can be resolved in the same forum and at the same time.

This is particularly important where parties elect to resolve their disputes by arbitration (which is often the case in transactions of this nature).

Advantages of arbitration

There are two principal advantages of multi-party arbitration:

• It is significantly more efficient for related disputes between multiple parties to be heard together, in the same forum and with the same applicable laws; and

• Multi-party arbitration reduces the risk of conflicting decisions on issues of law and/or fact and thus preserves two of the main objectives of arbitration – finality and certainty.

Difficulties in achieving arbitration

Multi-party arbitration, however, is not a straightforward matter. Some of the difficulties that can arise are outlined below.

Arbitration is a creature of contract: It has its basis in the law of contract. Parties can only arbitrate if they agree to do so, either by including an express agreement to arbitrate in the contract that governs their relationship, or by agreeing to arbitrate as and when any dispute arises.

Given that parties may be unwilling to reach agreement on how their dispute is to be resolved once they are in dispute, there is a benefit to agreeing to arbitrate in the initial contract documents. This is particularly important in a multi-party context, where the consent of more than two parties will be required.

The procedural law (or ‘seat’) of the arbitration: Few jurisdictions make provision in their arbitration laws for the joinder and/or consolidation of disputes in arbitration.

The UAE does not at present have a stand-alone federal arbitration law(i). While the UAE Ministry of Economy published draft federal arbitration legislation in February 2008, it is currently uncertain as to whether (and if so, when) it will be enacted. Neither the existing law, nor the draft arbitration legislation currently provides for multi-party arbitration.

The Dubai International Financial Centre’s (DIFC) arbitration law makes only limited provision for the appointment of a tribunal in a multi-party context(ii).

In most jurisdictions (including the UAE), therefore, the procedural law of the arbitration will not fully address the issue of multi-party arbitration and parties will need to include appropriate express joinder and/or consolidation provisions in their contracts.

Arbitral rules: Multi-party arbitration may be ordered by an arbitral institution (or a tribunal appointed under an institution’s rules) where the parties agree that institutional rules will apply.

Article 22.1(h) of the London Court of International Arbitration (LCIA) Rules gives the tribunal power to join one or more third parties to an arbitration, on the application of a party. This power, however, is subject to the consent (in writing) of both the applicant and the relevant third party. Article 8 of the LCIA Rules provides a mechanism for the appointment of arbitrators where there are multiple parties. The same Rules apply where parties opt to require their disputes to be resolved in accordance with the DIFC-LCIA Rules.

Article 10 of the International Chamber of Commerce (ICC) Rules allows multiple claimants and multiple respondents to jointly nominate an arbitrator for confirmation. If the claimants and/or the respondents cannot agree on a joint nomination then the ICC Court has jurisdiction under the rules to appoint each member of the arbitral tribunal and designate one member as chairman. Article 4(6) of the ICC Rules also provides a consolidation mechanism in relation to claims between the same parties. This, however, is a limited mechanism and once the terms of reference have been signed, is only available at the arbitral tribunal’s discretion.

Article 11 of the Dubai International Arbitration Centre (DIAC) Rules deals with the appointment of the tribunal where there are multiple parties in the same manner as the ICC Rules.

While the above rules do make some provision for multi-proceeding disputes, none of them deals with the situation where multiple related disputes under different contracts between different parties arise. The rules themselves, therefore, are no substitute for provisions drafted by experienced legal advisers recording the various parties’ consent to joinder and consolidation and dealing with other issues that may arise in the context of an individual construction project.

Key drafting considerations

While simplicity is important in any dispute resolution clause, brevity may well be difficult to achieve in a multi-party and/or multi-contract arbitration provision. The following three factors are of particular importance and ought to be considered even if they give rise to a longer clause:

• Where there are more than two parties to arbitration proceedings, individual selection of arbitrators by each party will invariably be impractical. Any unfairness in the selection process may also give rise to issues when it comes to enforcement of an award. As noted above, some of the institutional rules and the DIFC Law address this point already;

• Where several parties are involved in a project, it is impossible to predict which of those parties will become a party to a dispute. The arbitration provisions will accordingly need to make provision for both bilateral and multilateral arbitration;

• It is often not possible to ascertain when any given party may need to be involved in multi-party arbitration proceedings. Consideration, therefore, needs to be given to the timing of any joinder or the consolidation of proceedings.

Where a multi-party situation arises out of multiple contracts, the use of an “umbrella agreement” (incorporated by reference into each of the agreements relating to the project) may be the best way to obtain the necessary consent from all the potential parties to a multi-party arbitration.

(i) Its arbitration legislation is set out in three chapters of the UAE Civil Procedure Code (Federal Law No 11 of 1992).

(ii) Article 17(3)(c) of the Dubai International Financial Centre (DIFC) Arbitration Law (DIFC Law No1 of 2008) provides that where an arbitration agreement entitles each party to nominate an arbitrator but there are more than two parties to the dispute (and such parties have not agreed in writing that they represent two sides for the purposes of forming the arbitral tribunal) then the DIFC Court of First Instance shall appoint the arbitral tribunal without regard to any party’s nomination.

Gulf Construction

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