This article was first published on the Practical Law Arbitration Blog on 1 April 2021, here.
Where a number of disputes arise between the same parties under different contracts or between related contracts and different parties, the courts have a number of procedural and legal mechanisms to ensure that, as much as possible, there is a “one-stop shop” for resolution of all issues at the same time. This is commonly encountered in a shipping context where a single shipment can give rise to disputes under multiple bills of lading or charterparties. However, where one or more of the contracts in a multi-contract scenario contains an arbitration clause, procedural complications can arise.
It is well-known that each contract containing an arbitration clause is a separate arbitration agreement and therefore, absent the consent of all parties, requires a separate reference (Easybiz Investments v Sinograin (The Biz)). Similarly, one result of the confidentiality of arbitration is that tribunals cannot order consolidated or concurrent hearings without the consent of all parties or express provision in institutional rules (see Oxford Shipping Co Ltd v Nippon Yusen Kaisha (The Eastern Saga) (No.2) at paragraph 379). When it comes to evidence, the starting point is that parties are only entitled to use documents disclosed or generated in an arbitration for the purposes of that arbitration, and cannot disclose what evidence has been given by witnesses in an arbitration (see Michael Wilson & Partners Ltd v Emmott at paragraphs 79 to 81). The potential for delay and duplication of effort (as well as inconsistent decisions) is obvious.
In a multi-contract scenario, the more the parties can co-operate (for example, by agreeing to a particular forum or an ad hoc arbitration for all disputes), the better. One recent case where the court held that the parties had agreed a consolidated ad hoc arbitration pursuant to a Protection & Indemnity Club Letter of Undertaking (LOU) is Lavender Shipmanagement Inc v Ibrahima Sory Affretement Trading SA. In that case, Calver J had to determine whether claims under five different bills of lading required five separate arbitrations using the LMAA Small Claims Procedure to be commenced. The court held that, on construction, the LOU was an agreement to consolidate all claims in respect of the cargo before a single tribunal, albeit constituted in accordance with the arbitration clause incorporated into the various bills. This is therefore a potential route to simplify matters, but the clearer the language the better.
Furthermore, in many references, there are ways to avoid or minimise procedural problems. Some institutional rules, such as the LMAA Terms 2017, provide for related arbitrations to be conducted and heard concurrently with disclosure and evidence served in one arbitration to be admissible in another as appropriate. Such powers can allow parties in the middle of contractual chains to, in effect, drop out where the real issues are between those at the top and the bottom of the chain, leading to significant costs savings.
In terms of disclosure and witness evidence, it is often in the interests of all parties to agree to evidence being disclosed in related proceedings, for example, where claims are being passed up and down contractual chains by way of indemnity. Otherwise, there are exceptions to the confidentiality obligation, in particular, where disclosure is reasonably necessary for the establishment or protection of an arbitrating party’s legal rights (see Ali Shipping Corp v Shipyard Trogir) or where an order requiring disclosure is made in subsequent court proceedings.
During the currency of an arbitration, the tribunal can be asked to determine issues arising as to the scope of the parties’ obligations of confidentiality and whether the “reasonable necessity” test has been met in the case of any particular piece of evidence. Once the arbitration has ended, Flaux J in Westwood Shipping Lines Inc v Universal Schiffahrtsgesellschaft mbH suggests that applications can be made under section 44 of the English Arbitration Act 1996 for liberty to rely upon arbitration materials in other proceedings. Similarly, if the parties to English court proceedings are not the same as the parties to the arbitration, the court may have jurisdiction over the issue of what use can be made of arbitration material in the court proceedings (Sarah Lynette Webb v Lewis Silkin LLP). Otherwise, the better view is that, in an ongoing arbitration, this is an issue for the tribunal to determine.
Another issue is set-off. The respondent to a claim in an arbitration under contract X may have a counterclaim under contract Y that it wishes to set-off. In broad terms, and absent a contractual right of set-off or provision in institutional rules, the tribunal will have no jurisdiction to allow a set-off unless there is what is known as a “transaction set-off”, which requires that the counterclaim is very closely connected to the claim (Ronly Holdings Ltd v JSC Zestafoni). Even then, the availability of a set-off depends on the true construction of the arbitration agreement and relevant institutional rules. The law in this regard is complex and fact-specific.
In the last resort, both the claim and any counterclaim references can be progressed to awards and then an attempt can be made to set-off at the enforcement stage. For instance, the English courts set off mutual debts under enforceable awards to arrive at a “net result” (Glencore Grain Ltd v Agros Trading Co Ltd).
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