The Limits of Consent in Multi-Party Arbitration Agreements

This article first appeared on Global Arbitration News by Baker McKenzie, here.

Certain arbitration rules, such as Article 22.1(vii) of the London Court of International Arbitration Rules (“LCIA Rules 2014”), provide for a “forced joinder.” This empowers an arbitral tribunal to order a consenting third party to be joined to extant arbitration proceedings, provided that an existing party also consents to the joinder, even if the other parties to the arbitration proceedings object. However, what constitutes the requisite “consent” and how may such “consent” be established?

In the recent decision in CJD v CJE and another [2021] SGHC 61, the Singapore High Court took the opportunity to consider the element of “consent” in a “forced joinder” and issues revolving around the proper interpretation and ambit of Article 22.1(vii) of the LCIA Rules 2014.

Importantly, the High Court made it clear that simply being a signatory and party to a multi-party contract containing the arbitration agreement was not sufficient in and of itself to constitute consent by a third party to being joined in any arbitral reference involving any of the other parties to the multi-party contract. The High Court emphasised that as a “forced joinder” in the context of arbitration is a drastic one, in a multi-party contract, the wording of the relevant institutional arbitration rule and the arbitration agreement must be clear and unambiguous in empowering an arbitral tribunal to allow a forced joinder and containing or evidencing the express consent in writing to such joinder by the third person proposed to be joined.

Background

In this case, the Plaintiff entered into a joint venture agreement with the First Defendant, Second Defendant (which owned 100% of the issued shares in CJE), and three other parties (“Joint Venture Agreement”). A joint venture company was subsequently established pursuant to the Joint Venture Agreement (“Joint Venture Company”).

The Joint Venture Agreement provided that any dispute arising out of, or in connection with the Joint Venture Company would be resolved by way of an arbitration seated in Singapore in accordance with the LCIA Rules 2014 (Clause 36.3).

Subsequently, the First Defendant commenced arbitration proceedings in Singapore against the Plaintiff under the auspices of the LCIA (“Arbitration”), and the Plaintiff filed inter alia, an application to the Tribunal to join the Second Defendant as a party to the Arbitration (“Joinder Application”).

The Tribunal rejected the Joinder Application:

  • From the wording of Article 22 of the LCIA Rules 2014, the Tribunal considered that it had the power to allow a third party to be joined in the arbitration if an existing party applies for joinder and if the third party consents in writing to be joined. The Tribunal also considered that such consent may be given in the arbitration clause itself, or in a document made after the arbitration has commenced.
  • However, the Tribunal did not accept that the Second Defendant had consented to be joined into the present arbitration merely because it signed the Joint Venture Agreement. The Tribunal expected express wording to have been used if the Second Defendant was agreeing to be joined. On the facts, there also appeared to be no consent given after commencement of the Arbitration. As the Plaintiff had not satisfied the requirement of showing that the Second Defendant had agreed in writing to be joined, the Joinder Application failed.

The Plaintiff then filed an Originating Summons in the High Court asking that the Tribunal’s decision be reversed and/or wholly set aside. The High Court held that the Tribunal had not erred in declining to join the Second Defendant to the Arbitration.

  • The Plaintiff challenged the Tribunal’s decision on the ground that the Tribunal did have jurisdiction to permit the joinder of the Second Defendant to the Arbitration. The Plaintiff argued that the Second Defendant had consented to being joined by: (a) signing the Joint Venture Agreement which, by virtue of the arbitration agreement in clause 36.3, incorporated Article 22.1(viii) of the LCIA Rules 2014; and (b) through its conduct in behaving as if it was already a rightful party to the Arbitration. The Plaintiff also contended that the intention behind the Joint Venture Agreement was that every party to it could be joined to any arbitration arising from the Joint Venture Agreement.
  • The High Court found that the requisite consent in Article 22.1(vii) of the LCIA Rules 2014 may be established in the following three situations:
    • where the third person and applying party have consented to such joinder in writing after the Commencement Date (defined in Article 1.4 of the LCIA Rules 2014 as the date on which the Registrar of the LCIA receives the Request for Arbitration from the party wishing to commence the arbitration);
    • where the third person and applying party have consented to such joinder in writing earlier in the arbitration agreement; or
    • where the written consent of the third person and the applying party to such joinder involves applying a combination of (a) and (b) above.
  • In this case, the crux was whether the Second Defendant, by virtue of it having signed the Joint Venture Agreement and being a party to the arbitration agreement in Clause 36.3, had also thereby consented in writing to being joined as a party to the Arbitration. The High Court answered this question in the negative.
  • The High Court disagreed with the Plaintiff’s contention that simply being a signatory and party to the Joint Venture Agreement and therefore, the arbitration agreement, was sufficient in and of itself to constitute consent by the Second Defendant in writing to being joined in any arbitral reference involving any of the other parties to the Joint Venture Agreement:
    • First, the plain wording of Article 22.1(viii) does not lend itself to such an interpretation. The provision refers to the consent by the third person “to such joinder in writing…” being contained “in the Arbitration Agreement” if such consent was given earlier than the Commencement Date. There is no mention in the rule of the requisite consent in writing being found simply by being a party to an arbitration agreement no matter how generally worded.
    • Second, whilst it is possible and consistent with the freedom conferred by party autonomy, that an arbitration agreement could be drafted in terms that clearly and unambiguously stipulate that a third person (by being a party to the contract and the arbitration agreement contained therein) thereby also signifies its consent in writing to being joined as a party in any arbitral reference between any of the other parties to the arbitration agreement, Clause 36.3 of the Joint Venture Agreement did not contain the necessary clear and unambiguous consent in writing of the Second Defendant to being joined to the Arbitration between the Second Defendant and the Plaintiff.
    • The High Court also agreed that for Article 22.1(viii) to be triggered, the consent of the third person to being joined must be express and in writing. Therefore, even assuming, arguendo, that consent could be implied or inferred in this case by virtue of the Second Defendant being a party to the Joint Venture Agreement and the arbitration agreement, it would still not be enough to meet the threshold requirements of Article 22.1(viii) of the LCIA Rules 2014. For the same reasons, the High Court rejected the Plaintiff’s contention that the Second Defendant’s conduct could be taken as suggesting that it had consented to the joinder.
  • The High Court also found the Defendant’s argument based on the doctrine of double separability to be persuasive. This doctrine distinguishes between the original arbitration contract between the parties and the separate contract that arises between the arbitrants to a dispute in a particular arbitration reference. This is because the third person (who may be a party to the original arbitration contract) is a stranger to the second contract that arises between the arbitrants in the arbitration reference that the third person’s consent to being joined is required and essential. Applying this to the present case, despite the Second Defendant already being a party to the arbitration agreement, the Second Defendant’s consent to being joined in an arbitration between the Plaintiff and the First Defendant would still be required. Merely being a party to the arbitration agreement contained in Clause 36.3 of the Joint Venture Agreement was not, in and of itself, sufficient to signal consent in writing from the Second Defendant to being joined and being made party to that second contract between the First Defendant and Plaintiff arising out of the arbitration reference in the Arbitration.

Key takeaways

  • It should be remembered that whilst the fundamental principles of party autonomy and consent lie at the heart of arbitration, the mere fact that a party has signed a multi-party contract would not be sufficient in and of itself to constitute consent to being joined to extant arbitral proceedings.
  • On the contrary, whether there is the requisite consent would depend on a proper interpretation of the wording of the rules of the selected institutional arbitration and whether the wording of the parties’ arbitration agreement is sufficiently clear and unambiguous.
  • At the time that multi-party contracts are drafted, there is sometimes a misplaced assumption that all parties will cooperate in the event that a dispute subsequently arises. This is rarely the case in practice and so obtaining any kind of consent after a dispute has crystallised is often impossible.
  • Parties to a multi-party contract should therefore take care to review the rules of their selected arbitral institution and include appropriate wording in their arbitration agreement, if their intention is to allow a “forced joinder.”
author

Nandakumar Ponniya

Nandakumar (Kumar) Ponniya heads the Dispute Resolution Practice of Baker & McKenzie in the Asia-Pacific. Kumar is listed as a leading international arbitration lawyer in the Legal 500 Asia Pacific 2021 and was also named a Litigation Star in the Benchmark Litigation Asia Pacific 2020. Chambers Asia Pacific 2021 quotes…

author

Richard Allen

Richard is a local principal in Baker McKenzie’s Dispute Resolution and International Arbitration Practice Groups. Having trained and practised in the London office of Baker McKenzie for eight years, Richard moved to the Firm's Singapore office in 2016. Richard is a member of Baker McKenzie's Energy, Mining & Infrastructure and…

author

Nicholas Tan

Nicholas Tan is an associate in the Dispute Resolution practice group of Baker & McKenzie Wong & Leow in Singapore. Nicholas acts for clients mainly on civil disputes relating to a wide range of commercial contracts. He regularly advises on a variety of corporate and commercial transactions, among other things,…

Featured Arbitrators

Results from: Virginia, United States
ad
View all
ad

Read these next

Category

CETA List Project Demonstrates Gender Disparities in Arbitral Appointments for Trade & Investment Disputes

The Canada–European Union Comprehensive Economic and Trade Agreement (CETA) List project demonstrated that there are occasions where appointing bodies have failed to give women the same opportunities to obtain arbitral appointments...

By Benjamin Davis
Category

FINRA DRS Postpones In-Person Hearings through April. Are Virtual Hearings Driving Down Customer Recoveries? These Researchers Say “Yes”

This article first appeared on the Securities Arbitration Alert ('SAA') blog, here. FINRA’s Office of Dispute Resolution Services (“DRS”) has again administratively postponed all in-person arbitration and mediation hearings, and...

By George Friedman
Category

New AAA Consumer Fee Schedule Addresses Mass Arbitration Costs

This article first appeared on Consumer Finance Monitor, here. A litigation phenomenon that has recently surged is the simultaneous filing of hundreds or even thousands of individual arbitration demands against...

By Mark Levin

Find an Arbitrator