Tracing the Resolution of Arbitrations Through Consolidation

Arjun Chakladar and Devanshi Prasad*

Introduction

Consolidation of arbitral proceedings has progressively evolved into a formidable method for the resolution of multi-party and multi-contract disputes. A multi-party arbitration concerns more than two parties and involves two or more separate arbitration agreements, wherein the parties are connected through similar disputes and subject-matters. Multi-party and multi-contract arbitrations can be extremely complex and challenging. In order to avoid complications due to multiple arbitrations and awards, the tribunal can consolidate various disputes through the process of consolidation.

Arbitration is a tool used by disputing parties to avoid vexatious litigation. The consolidation of multi-party and multi-contract arbitrations conjoins disputes with interdependent subject-matters requiring mutual performance and adjudication. Consolidation also allows for consistency and homogeneity of adjudication, throughout the pendency of the said dispute. It permits uniformity in the judicial decision-making process. This article, traces the development of consolidation in arbitral disputes in India as well as its counterparts in the Commonwealth of Nations.

Consolidation of Disputes in India

The first codification of arbitration in India was ushered in via the Indian Arbitration Act in 1899, which was exclusively enforced in presidency towns. Subsequently, a specific arbitration regime was established under the Arbitration Act of 1940. Due to the absence of multiple arbitral rules in the 1940 Act; including rules for private contracts and consolidation among many others, the 1996 Arbitration and Conciliation Act replaced the preceding enactment. The 2015 Amendment ensured non-signatories could seek reference of disputes to domestic arbitration. However, despite the countless revisions and amendments there continues to exist a lacuna with respect to arbitral consolidation. The paucity of such statutory provision is an impediment to the effective disposal of disputes. Furthermore, a judicial qualification provided to a “person claiming through or under” a dispute between parties to the arbitration agreement is notably absent. However, the Indian courts through various rulings have allowed third parties to be consolidated in an arbitration, wherein the dispute included multiple parties conflicting over various contracts. They have actively shaped arbitral consolidation into being despite the prevalent statutory ambiguity surrounding the process.

The Supreme Court of India has time and again elucidated on the persisting question of consolidation in Olympus Superstructure Pvt. Ltd. v. Meena Vijay Khetan & Ors. The Apex Court called for consolidating disputes arising from subsequent interior design contracts, as the initial purchase contract contained an arbitration clause. The Court held that an arbitrator in a consolidation of multi-party and multi-contract arbitration is empowered to decide matters under the original or main agreement as well as subsequent agreements.

Following this precedent, many factually similar landmark Indian arbitration cases rely on the implied consent of parties. Such precedents emphasise on the main agreement’s arbitration clause; empowering the tribunal and arbitrator to adjudicate on interdependent and interconnected matters. Additionally, the preamble or similar facets were seen as indicators of implied consent between the parties in order to consolidate multiple disputes within a single set of proceedings.

The question of whether a single arbitration is permissible in respect of a member or non-member was raised in P.R. Shah, Shares and Stock Brokers Private Limited v. B.H.H Securities Private Limited and Others .The Supreme Court held that in situations where distinct claims over disputes coincide with separate arbitration agreements for the parties concerned; there is no bar as to the consolidation of disputes as per existing arbitration agreement. Furthermore, a non-signatory to the arbitration agreement can have the claim adjudicated jointly to circumvent multiplicity of decisions. The joining of multiple disputes within a single set of proceedings is permissible if the master contract allows it.

In Chloro Controls (I) P. Ltd. v. Severn Trent Water Purification Inc. and Ors, (“Chloro case”) the Supreme Court delivered a similar verdict regarding the legitimacy of consolidating disputes arising from consequential agreements. The case held that parties entering into ancillary agreements are bound by their intent to arbitrate in the initial agreement as all subsequent agreements are interdependent.

Following the Chloro case, under Section 45 of the Act, a “person claiming through or under” means to take within its ambit multiple and multi-party agreements. Therefore, non-signatories to the initial contract can be referred to the same arbitration as they are related parties and such contracts depend on mutual execution of performance.

Continuing this trend, the Supreme Court fostered the Chloro case principles in Ameet Lal Chand Shah v. Rishabh Enterprises. Wherein there are disputes arising out of different agreements, but all the agreements further a single economic contract or undertaking, the disputes may be consolidated into a unitary arbitration proceeding. This is notwithstanding the fact that one such ancillary agreement may lack an arbitration clause, or a connected party might be a third-party to the main contract.

Subsequently, the Apex Court in Cheran Properties Ltd. v. Kasturi Sons Ltd. and Ors upheld the group companies’ doctrine of Chloro case. A non-signatory company, part of a group of companies can be made the party to the arbitration if one of the companies had entered into an arbitration agreement. In an attempt to facilitate the consolidation of disputes, certain tests were laid down for ordering the joinder of separate arbitration proceedings into a singular proceeding. The bare reading of the test provides that, the parties must have some relation (a); the disputes must be connected through some common subject-matter (b) and numerous agreements under the dispute should be retraceable to one single economic initiative or transaction(c).

The Indian Supreme Court has been instrumental in answering questions of consolidation of arbitral disputes over the past few decades through various landmark rulings. These have in turn inspired tests, doctrines and principles. However, the lack of legislative or statutory provisions with respect to consolidation is prevalent and requires a revision of the incumbent statute and inclusion in the same. The paucity of statutory provisions relevant to arbitral consolidation is evident not only in India, but also in its counterparts in the Commonwealth of Nations as well.

Consolidation of Disputes in Commonwealth Countries

Similar to the Indian legal scenario, the notion of consolidation of arbitration proceedings does not possess any statutory provision across the arbitral framework for the majority of nations. Heavy reliance is placed on the arbitration agreements. Tribunals tend to advocate on framing clearer arbitration clauses to make parties’ intention to consolidate and subject third-parties to single proceedings discernible. Let us take a look at pronouncements of prominent arbitral centres regarding consolidation of arbitrations.

Singapore

The current rules of the Singapore International Arbitration Centre (“SIAC”) are silent on the issues regarding the consolidation or joining of arbitration proceedings. The Tribunal can, however, implead or request a third-party or non-signatory to an arbitration agreement to be part of the arbitral proceedings. The Astro v. Lippo decision evaluates the importance of an arbitration clause in contracts of disputing parties and the extension of jurisdiction to non-signatories. The Singapore Court of Appeal ruled that the Tribunal had erred in the joining of the arbitral proceedings as the parties in dispute did not have an existing arbitration agreement. The arbitral awards could not be enforced due to the lack of the arbitration clause in the parties’ contract. Furthermore, it observed that the SIAC rules are silent on the provision for the ‘forced joinder’ of the proceedings.

Oceania

The Supreme Court of New South Wales in John Holland Pty Limited v. Kellogg Brown & Root Pty Ltd elucidated upon the importance of an arbitration agreement. It held that any dispute regarding arbitration should be referred to the legislation on the same, the Commercial Arbitration Act 2010 (NSW). The Court highlighted the importance of a properly constructed arbitration agreement by ruling that it was the only component a dispute should depend on. Irrespective of the multiple contracts or parties involved in the dispute, the existing arbitration agreement would take precedence regarding the involvement of third parties. The same would also determine the inclusion of non-signatories to the dispute. This notion was further sustained by the Court in Michael Wilson & Partners Ltd v. John Forster Emmott.

The New Zealand Court of Appeal in Danone Asia Pacific Holdings Pte Limited v. Nutricia Limited held, that in pursuance to avoid conflict between the Court and arbitration, the dispute must be resolved by a single authoritative body. The reasoning was that the arbitration agreement existed only within the corporate companies and not between the respective holding companies. Therefore, in order to prevent duplication of dispute resolution, one unanimous platform must adjudicate.

United Kingdom

The House of Lords sowed the seed of consolidation in Fiona Trusts v. Primalov. The judgement expounded upon the rule of construction, wherein any commercial dispute must be adjudicated by the same tribunal which had initially constructed the arbitration clause. This paved the way for subsequent landmark rulings such as Egiazaryan v. OJSC OEK Finance. The London Court of International Arbitration (“LCIA”) held that the Tribunal did not have the jurisdiction to adjudicate on torts claims. The High Court overturned the LCIA’s decision affirming that the arbitration clause extended to tort claims and to incorporate both disputes as per the legality of consolidation under Russian Law. This development saw the consolidation of disputes in a unilateral venue, emphasising on its legality whilst widening the jurisdictional purview of the same.

The Supreme Court in Dallah v. Pakistan elucidated on the symbiotic nature of applicable law and the consensual process of arbitration. Furthermore, the Apex Court provided that the legal principle to consolidate non-signatories or third-parties to the arbitration along with the facts of the individual case must be held prevalent.

Conclusion

Multi-party and multi-contract disputes can become extremely convoluted if not adjudicated accordingly as to ensure uniformity and consistency in awards. In addition to parties exercising caution and clearly conveying intent to consolidate though arbitration agreements; categorical sanctions must be made by various jurisdictions via necessary amendments. While considering these amendments, one must account for the differences between the adversarial and alternate dispute resolution process while ordering joinders of disputes. Thereby, consolidations must be limited to the initial stages of disputes. Definitive time frames must be mandated to ensure smooth and simultaneous functioning of both procedures of settlement. Furthermore, careful attention must be paid to the connection or the real basis for consolidating arbitrations between the different disputes requiring joinders. In comparison to the Indian legal plenum, it has been observed that other commonwealth nations have fared marginally better in appreciating and ordering joinders to further the concept of consolidation. In conclusion, various jurisdictions have substantiated the fact that consolidation of disputes is an essential and a requisite need for arbitration’s global growth and recognition.


* Arjun and Devanshi are third year students at National Law Institute University, Bhopal.

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