Towards reducing the complexity, cost and time of arbitral proceedings: SIAC’s proposal on cross-institution consolidation
This article is produced by CMS Holborn Asia, a formal law alliance between CMS Singapore and Holborn Law LLC.
On 19 December 2017, the Singapore International Arbitration Centre (“SIAC”) announced its proposal on cross-institution co-operation for the consolidation of international arbitral proceedings (“SIAC’s proposal”). SIAC’s proposal, which is the brainchild of Mr Gary Born, President of the SIAC Court of Arbitration, is detailed in a memorandum accessible here.
Briefly, SIAC’s proposal involves co-operation among various leading international arbitral institutions for the adoption of a joint protocol that would permit the cross-institution consolidation of arbitrations subject to different institutional rules. We discuss the rationale behind SIAC’s proposal and challenges facing its implementation.
Consolidation provisions are currently found in most leading institutional rules. Such provisions allow for interrelated disputes to be resolved in a single proceeding. However, existing consolidation provisions do not provide a means to consolidate arbitrations that are subject to different institutional rules. Whilst one SIAC arbitration can be consolidated (in the appropriate circumstances) with another SIAC arbitration, this would not be the case if the other arbitration is administered by a different institution.
In its proposal, SIAC seeks to remedy this shortcoming through institutional co-operation, in particular, by proposing the development of a consolidation protocol that arbitral institutions can adopt and incorporate into their arbitration rules for the purpose of administering consolidated arbitrations.
The need for a cross-institution consolidation protocol
Given the increasingly complex nature of contemporary business transactions, SIAC has observed that, in many cases, related contracts in a single project or set of transactions contain agreements to arbitrate under different institutional arbitration rules. As the disputes arising out of these related contracts or transactions cannot be consolidated under existing institutional rules, disputes which are otherwise related are precluded from being heard together. This limitation curtails the ability of arbitration to meet the needs of users seeking an effective and efficient dispute resolution mechanism.
How would the consolidation protocol work?
Any consolidation protocol would need to primarily deal with two (2) matters:
(1) the decision to consolidate; and
(2) the administration of the proceedings and the rules adopted.
I. The decision to consolidate
While consolidation provisions across arbitral institutions share common features, they have significant differences. Given these differences, SIAC has proposed two (2) options for cross-institution consolidation:
Option 1: Arbitral institutions to adopt a consolidation protocol that sets out a new, standalone mechanism for addressing the timing of consolidation applications, the appropriate decision-maker and the applicable criteria to determine if arbitral proceedings are sufficiently related to warrant cross-institution consolidation. SIAC proposes that a joint committee consisting of members of the Courts or Boards of arbitral institutions to be mandated to decide such applications.
Option 2: Arbitral institutions to adopt a consolidation protocol providing that one institution would determine any cross-institution consolidation based on its own consolidation rules. The consolidation protocol would set out objective criteria to determine which arbitral institution would be authorised to decide a particular cross-institution consolidation application.
While Option 2 has the benefit of simplicity (as it would obviate the need to agree on new consolidation provisions), SIAC posits that Option 1 may be more attractive to arbitral institutions and users as it militates against the substantial discretion conferred on a particular institution if a single institution were to decide.
Assuming that a new, standalone mechanism is devised, SIAC has flagged out various matters that the protocol must address:-
- Identifying a decision-maker: SIAC proposes that it would be preferable for the consolidation protocol to vest exclusive decision-making power in a joint committee comprising of one member from each arbitral institution.
- Standard for consolidation: SIAC has invited views on mutually acceptable grounds for consolidation under the consolidation protocol. At present, the leading arbitral rules contain different, albeit overlapping, grounds for consolidation. Additionally, SIAC suggests that the arbitral institutions agree on whether parties would be permitted to commence a single proceeding in relation to multiple contracts.
- Timing of the application and existing tribunal appointments: Whether consolidation would be allowed in cases where different arbitrators have been appointed in separate proceedings. Agreement is also necessary on whether the parties’ ability to appoint arbitrators for consolidated proceedings should be constrained.
- Partial consolidation: Whether partial consolidation of arbitral proceedings should be permissible (presently, SIAC is the only major arbitral institution to provide for this in its 2016 Rules).
- Reasoned decisions: Whether the institutions (either the joint committee or single institution) will issue reasoned decision(s) on consolidation application. Whilst this may increase costs and cause some delay, reasoned decisions would enhance transparency and the legitimacy of decision-making.
II. The administration of consolidated proceedings and the rules adopted
SIAC proposes that arbitral institutions agree on either:
(1) a new set of rules for consolidated proceedings; or
(2) a set of objective criteria to ascertain which institution should administer the proceedings under its own rules.
While acknowledging that the first option would have strategic benefits, SIAC has highlighted the significant practical challenges to devising a new set of rules between institutions.
SIAC goes on to suggest that these complexities can be avoided by adopting the second option (i.e. choosing one institution on the basis of an agreed set of objective criteria). SIAC sets out its suggested criteria as follows:
- Number of cases: where there is an odd number of arbitrations, the institution with the larger number of proceedings will retain administration authority.
- Aggregate value of disputes: the institution with the highest aggregate value of the quantum in dispute will administer the consolidated proceeding.
- Time of commencement of arbitrations: proceedings to be consolidated into the arbitration that commenced first.
- Subject matter of the dispute: institutions could agree on a division of cases based on the type of dispute. SIAC acknowledges that this criterion is likely to be unattractive as it would limit the ability of institutions to expand their respective portfolios.
- Nationality and domicile of the parties: that consolidation be based on the top users for each arbitral institution by nationality (for e.g. SIAC to focus on cases involving parties in Asia whilst ICC focuses on disputes involving American and European parties). That said, SIAC acknowledges that this criterion may be unattractive, as institutions would not want to fetter their geographical reach.
Incorporation of the consolidation protocol
SIAC proposes that arbitral institutions amend their respective rules to incorporate the consolidation protocol, thus giving the protocol the same contractual force as other provisions of institutional rules.
By expressly selecting a set of institutional rules, parties would be consenting to the application of the consolidation protocol.
To ensure that parties are well informed and adapted to the rules, SIAC proposes that the consolidation protocol could be made to apply to arbitration agreements concluded after the date of the protocol and that the protocol could operate as an opt-in mechanism for a transition period.
Benefits of SIAC’s proposal
The benefits of cross-institution consolidation are readily apparent:
- As commercial transactions become increasingly globalised and complex, more parties are now involved in different aspects of a project. This has led to a rise in related contracts which may not have consistent dispute resolution clauses providing for the same arbitral institutions to administer interrelated disputes. SIAC’s proposal tackles this issue head-on and provides a bold solution to a long-standing and unresolved challenge faced by users of arbitration.
- Cross-institution consolidation of arbitrations would be a step forward in reducing the complexity, cost and time of arbitral proceedings.
- Having interrelated disputes resolved together is likely to enhance the overall quality of decision-making.
Challenges with implementation
There are inevitable difficulties associated with the implementation of SIAC’s proposal:
1. The consolidation protocol may be (incorrectly) perceived as an infringement on party autonomy to determine and utilise their institution and arbitration rules of choice.
1.1 In our view, SIAC’s proposal(s) that: (i) arbitral institutions amend their rules to incorporate the consolidation protocol; (ii) the consolidation protocol applies to arbitration agreements concluded after the date of the protocol; and (iii) the protocol operates as an opt-in or opt-out mechanism addresses this.
2. The protocol may introduce uncertainty as to which rules would ultimately apply to disputes arising out of a contract where a party designates arbitral rules incorporating the consolidation protocol. The decision as to how the consolidated proceeding will be administered will not be known to the parties beforehand, as it would be determined by the objective criteria set out above.
3. Practically, it may be in an arbitral institution’s interest to retain the conduct of an arbitration without ceding the same to another arbitral institution.
3.1 That said, from a commercial perspective, SIAC’s proposal offers significant benefits to arbitration users and is a welcome one.
SIAC has invited comments from users and other arbitral institutions on its proposal by 31 January 2018. Comments can be sent to [email protected]