On 19 December 2017 SIAC released a Proposal on a Cross-Institution Consolidation Protocol. The proposal involves the adoption of a protocol permitting the cross-institution consolidation of arbitrations subject to different institutional arbitration rules.
The SIAC Proposal
The proposal addresses a significant issue in relation to consolidation in institutional arbitration. Most of the major arbitral institutions have introduced provisions that allow for the consolidation of related disputes and/or the joinder of additional parties. However, the existing consolidation provisions of these rules do not allow for the consolidation of arbitrations that are subject to different institutional rules. This prevents disputes which might otherwise meet the criteria for consolidation from being heard together. The proposal recognises that there is limited statistical data on how frequently related disputes arise under different institutional rules. However it is an issue that can arise in practice, particularly in complex transactions, and, when it does, it can give rise to significant problems.
The SIAC Proposal would involve a cross-institution approach to consolidation through a consolidation protocol. The key element of the proposed protocol are as follows:
- The protocol would set out a new, standalone mechanism for cross-institution consolidation.
- Applications for consolidation would be decided by a joint committee appointed from members of the Courts or Boards of the concerned arbitral institutions.
- The arbitral institutions’ rules would be amended to incorporate the consolidation protocol, giving the protocol the same contractual force as other provisions of the institutional rules.
- By expressly selecting the institutional rules, the parties consent to the application of the consolidation protocol.
- Institutions have the option of making the protocol applicable only to arbitration agreements concluded after the date the protocol enters effect or making the protocol an opt-in mechanism for a transition period.
The proposal recognises that there are a number of key issues that the protocol must address including:
- Whether any constituted tribunal should play a part in the decision-making or whether the joint committee should have exclusive decision making power.
- The standards for consolidation.
- The timing of applications for consolidation.
- The status of existing tribunal appointments.
- Partial consolidation.
- Whether reasons will be given for decisions on consolidation applications.
Another key issue is how consolidation arbitrations will be administered and which institutional rules will apply. The proposal is that, based on objective criteria, one institution will then administer the consolidated proceedings under its own rules. However, determining which criteria should apply is not straightforward. The proposal outlines a number of possible criteria including: number of cases, aggregate value of disputes, time of commencement, and nationality or domicile of the parties. However, the proposal also recognises difficulties in the practical application of each of these criteria and so determining the applicable criteria is likely to be the focus of much debate between the various arbitral institutions over the coming months.
SIAC is keen to consult on the proposal and has invited users of arbitration as well as other international arbitral institution to submit comments on the proposal by 31 January 2018.
The SIAC Proposal is to be welcomed as a step towards addressing the lack of any mechanism for cross-institutional consolidation of arbitrations and potentially improving the efficiency of arbitration.
However, as the proposal recognises, there are a number of key issues that will have to be addressed and the biggest stumbling block is likely to be the issue of consent.
When parties choose institutional arbitration and adopt the arbitration rules of a particular arbitral institution it is because they want those arbitration rules to provide a procedural framework for an arbitration. Parties may find it difficult to accept that, simply by selecting institutional rules that have the consolidation protocol attached to them, they have agreed that an arbitration under, for example, the HKIAC rules might end up being run as a consolidated arbitration under the LCIA rules with a completely different fee structure.
Indeed, the courts in either the seat of the arbitration or the country in which enforcement is sought may be unwilling to uphold such an award. At the very least, it can be expected that lawyers seeking to challenge enforcement may attack the award as being unenforceable using the grounds listed in Article V of the New York Convention or for public policy reasons and other provisos often seen in arbitration legislation. Often, and particularly in jurisdictions where the court system is less arbitration friendly or simply less sophisticated and slow, such challenges can be an excuse to delay enforcement. But in this case, it may be a real threat to the effectiveness of the award itself.