[The Viewpoint] Consolidation of Arbitral Proceedings: A Critical Analysis

Arbitration being a creature of contract, the domain of arbitration is one of consent. Since the past decade, a large number of commercial contracts entered into, especially where giant conglomerates are involved, are multi-dimensional with various sub-transactions. Parties enter into multiple independent contracts under the principal contract. Therefore, a dispute between two parties to an ancillary contract may lead to a request for a ‘composite reference to arbitration’.

Consolidation refers to the merger or amalgamation of entire arbitral proceedings which are about to be initiated arising or initiated into a single composite arbitral proceeding.  Arbitration by composite reference or consolidating arbitral proceedings is where one of the parties insists on referring such a dispute to the same arbitral tribunal that is adjudicating the dispute arising from the principal contract. Generally, in such a scenario, the non-agreeable party argues against a composite reference as the parties are non-signatories to the principal contract and have entered into a distinct and independent contract. The practice of arraying non-signatory parties belonging to a Group of Companies into an arbitration and the evolving jurisprudence thereof is also one of the most contemporary areas of discourse under the ambit of Arbitration Law. It may be perceived from one viewpoint that solving all related issues in a single proceeding will typically be more efficient, economical and would also reduce the costs. Further it also eliminates the possibility of conflicting awards, as different arbitral tribunals may decide differently, even on the basis of similar fact situation. Moreover, resolving disputes in a single proceeding may allow the Arbitral tribunal to have a better understanding of the underlying facts/ issues/ claims, which may improve the quality of the final award that will be rendered.

Although the courts worldwide have recognized this principle to avoid the multiplicity of proceedings and conflicting decisions, they do not enjoy any statutory recognition in India. A suggestive attempt is put forth for an amendment under the Indian Arbitration & Conciliation Act, 1996 (“hereinafter the Act”) for consolidation and composite adjudication of disputes.

In order to avoid complications due to multiple arbitrations and awards, many common law countries have a specific statutory provision in their statutes allowing the consolidation of arbitral proceedings or single arbitration arising out of multiple contracts. As rightly observed by Lord Hoffman, “The construction of an arbitration clause should start with the assumption that parties, as rational businessmen, are likely to have intended that any dispute arising out of their commercial relationship should be decided by the same tribunal.” There are some governing laws which provide for consolidation in limited circumstances. In United Kingdom, The English Arbitration Act, 1996 provides for consolidation of various arbitral proceedings with the consent of the parties. However, the tribunal is not bestowed with the power to consolidate proceedings on its own accord. Similarly, in Australia, the Commercial Arbitration Act, 2017 deals with the consolidation of Arbitration. It states that the court, on an application by the parties, can consolidate the “related arbitral proceedings” if,

i.  A common question of law or fact arises in all those proceedings; or

ii. The rights to the relief claimed in all those proceedings are in respect of, or arise out of, the same transaction or series of transactions; or

iii. It is desirable that an order be made under this section for some other reason.

In United States, consolidation of Arbitration proceedings takes place on the interpretation of case to cases basis, and it varies at State and Federal level. Although the Federal Arbitration Act (FAA) is silent on the consolidation and does not directly address the issue for composite reference in Arbitration proceedings. However, the courts in the federal jurisdiction have favoured the position where there is an express provision under the contract which ultimately draws attention towards the consent between the parties. Further, in British Columbia, Canada, the Arbitration Act [SBC 2020], empowers the Supreme Court to order consolidation of proceedings but only when the parties agree to such consolidation. Similarly, in Ontario, Canada, the Arbitration Act, 1991 provides for consolidation of arbitral proceedings on the application of the parties. Furthermore, the Arbitration Act, 2001 empowers the Tribunal in Singapore to order consolidation but only when the parties agree to confer such power on the arbitral tribunal. In Hong Kong, Article 2 under Schedule 2 of the Hong Kong Arbitration Ordinance (Cap 609) provides that the Court on the application of a party, may consolidate arbitral proceedings on similar grounds as the Australian Commercial Arbitration Act, 2017. Although there is no statutory provision allowing consolidation by composite reference in India, the Courts in India have allowed it on a case-to-case basis.

Apart from the statutory provisions, there are rules for various arbitral institutions throughout the world which also empowers the tribunals to consolidate the arbitral proceedings or allow the parties to make a composite reference.  On the other hand, there are still Arbitration rules which do not provide any mechanism for composite reference or consolidation of arbitral proceedings without the consent of the parties. In situations where the Arbitration rules have already evolved to the extent of incorporating the procedures may not be always efficacious. To begin with, the UNCITRAL Arbitration Rules do not provide for consolidation of arbitration proceedings with or without consent of the parties. In Europe, the London Court of International Arbitration Rules (LCIA) 2020 and International Chamber of Commerce (ICC) Arbitration Rules, 2020 allow the Tribunal to consolidate the proceedings under multiple arbitrations with the consent of the parties. They also allow the filing of a composite request for arbitration. Similarly, the LCAM Arbitration Rules, 2021 also allows the Board to consolidate new claims with pending proceedings after consulting the parties and the Arbitral Tribunal.

Further, the rules for arbitral institutions like the HKIAC Administered Arbitration Rules, 2018; the Arbitration Rules of the Stockholm Chamber of Commerce (SCC), 2017; the China International Economic and Trade Arbitration Commission (CIETAC) Arbitration Rules, 2015; the Australian Centre for International Commercial Arbitration Rules, 2021, the ICDR International Dispute Resolution Procedure, 2021; the SIAC Rules, 2016 and the Delhi International Arbitration Centre (DIAC) Rules, 2018 allows the Tribunal to consolidate proceedings under Multiple Arbitrations at the request of the party, where either:

a) All parties agree to consolidation;

b) All claims are made under the same arbitration agreement;

c) The arbitration agreements are compatible, and the disputes arise out of:

(i) The same legal relationship.

(ii) Contracts comprising of a principal contract and ancillary contracts.

(iii) The same or a series of transactions

The notion of consolidation of arbitration proceedings is not always backed by any statutory provision across the arbitral framework for the majority of nations. So, the judiciary places heavy reliance, in that case, on the arbitration agreements as the basis. For instance, in the recent case of Cox & King v. SAP, there were a total of three transactions under a principal agreement pertaining to the formation and development of an e-commerce platform of the applicant company by the two respondent companies. After initiation of dispute, the applicant approached the Tribunal under Section 16 of the Indian Arbitration and Conciliation Act, 1996 to rule on its own jurisdiction by assessing the three sub-agreement (transactions) and allow for a consolidated proceeding by composite reference.  Although the Supreme Court refrained from adjudicating upon this issue and the issues relating to the Group of Companies doctrine as laid down in the Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., by referring the matter to a larger Bench, for further clarification. This case also recognised the significance of consent (both explicit and implied) as being essential to make a composite reference to arbitration. In a recent judgment, Simran Sodhi v. Sandeep Singh the Delhi High Court has held that the Group of Companies Doctrine cannot be used to compel a non-signatory third party to arbitrate a dispute between partners relating to the partnership business. The Court further held that a partnership cannot be equated with a company in order to invoke the Group of Companies Doctrine.

In the case of Lavender Shipmanagement Inc. v. Ibrahima Sory Affretement Trading SA, one of the questions before the Hon’ble English Wales High Court (EWHC) was to determine the jurisdiction of the tribunal for an arbitration arising out of five bills of lading. It was held that according to the LOU, the parties agreed to merge five distinct bills of lading into a single ad hoc arbitration. The court concluded that when a notice of arbitration purported to begin a single arbitration for two claims under two different contracts, it must interpret the articles based on the substance of the notice, not its form. Similarly, in Easybiz Investments v. Sinograin (The Biz), it was held that a single request for arbitration was valid to initiate an arbitration under ten separate contracts, each one containing a different arbitration agreement.

Further, in consonance with Section 35(2) of the English Arbitration Act, 1996, the EWHC, in the case of Guidant LLC v. Swiss Re International SE, held that it is not possible to have a single common pre-trial conference in all the arbitrations nor to have a single hearing of common issues without the consent of the parties. The EWHC further ruled that neither a tribunal nor the court has the power to consolidate two arbitral proceedings without the consent of the parties. This was also affirmed in Oxford Shipping Co. Ltd. v. Nippon Yusen Kaisha, where it was specifically held that an arbitrator has no power to order the consolidation of hearings of disputes arising out of separate, though related, agreements without the consent of all parties to the arbitration. Similarly, the Court of Appeal, in Abu Dhabi Gas Liquefaction Co. Ltd. v. Eastern Bechtel Corp., held that proceedings could not be consolidated and referred to a single tribunal without the consent of all parties.

The Indian judiciary, in a plethora of judgements has recognised and favoured the principle of consolidating arbitrations where arbitration clauses existed in separate contracts between three different parties. The Supreme Court of India in PR Shah, Shares and Stock Brokers Private Limited v. B.H.H. Securities Private Limited observed that where a party-A has separate arbitration agreements with two separate parties – B & C and if Party A needs to bring two separate claims against them, there is no bar on consolidating the two claims and referring them to the same arbitral tribunal. The court reiterated that consolidation prevents multiplicity of proceedings, conflicting decisions and injustice.

The Supreme Court of India read the principle of making a composite reference to arbitration into Section 11 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), as applicable, before one Arbitral Tribunal, in order to avoid multiplicity of proceedings in Chloro Controls India Private Limited v. Severn Trent Water Purification Inc. The Court held that it would allow a single arbitral proceeding in cases on the request of the parties where:

1. A single economic transaction is involved.

2. Contracts that include a main contract and an ancillary contract.

3. When the doctrine of “group of companies” can be used.

Thus, the courts in certain cases have followed this principle for compelling the non-signatories to arbitrate in circumstances where it was observed that such non-signatories to be alter ego of signatories. Furthermore, the Delhi High Court in Gammon India Ltd. v. National Highways Authority held that the principles of res judicata enshrined in Order II Rule 2 Civil Procedure Code, 1908 (“CPC”) Sections 10 and 11 of CPC are applicable to arbitral proceedings, and therefore, courts must always endeavour to consolidate arbitrations to avoid multiple proceedings. The court observed by relying on the judgment of the Supreme Court of India in Dolphin Drilling Ltd. v. ONGC that though multiple arbitrations are permissible, it would be completely contrary to public policy to permit parties to raise claims as per their own convenience. It was further held that it was impermissible to refer claims arising from a series of contracts that bind the parties in a legal relationship to multiple tribunals.

The practice of composite reference for consolidation of proceedings may also be perceived to have a negative effect on those non-signatories that have been dragged into arbitration by the opposite party relying on Group of Companies doctrine. Non-signatories may or may not be arrayed in an arbitration agreement by the opposite party, and the same differs from case to case basis. In Ameet Lalchand Shah v. Rishabh Enterprises, a dispute involving allegation of fraud and misrepresentation under the sale and purchase agreement arose between the parties. In four separate agreements entered into between Rishabh Enterprises with three separate companies the court observed that parties to the agreements were also the parties to the main agreement - Equipment Lease Agreement and all four agreements were interconnected. The issue before the Supreme Court of India was whether non-signatories to arbitration can be impleaded in those arbitration proceedings and whether the principle laid down in Chloro Control case could be applied to refer non-signatories to domestic arbitration under Section 8 of the Act. The Supreme Court of India observed that when multiple parties are involved in a single commercial deal executed through multiple agreements, then all the parties can be made amenable to arbitration.

However, the Supreme Court of India in Duro Felguera, S.A. v. Gangavaram Port Ltd propounded one exception to the general rule of Chloro Control. Although the disputes in question involving multiple parties and contracts were inter-related, the court held that there would be two separate arbitral tribunals to adjudicate them. This was done because one dispute was a domestic arbitration while the other was an international commercial arbitration, thereby giving rise to separate grounds of challenge for the two arbitral awards under Section 34 of the Arbitration & Conciliation Act, 1996. Similarly, in Libra Automotives Pvt. Ltd v. BMW India Pvt. Ltd, the Delhi High Court held that overlapping disputes between the parties due to interconnected agreements cannot be the sole ground for the court to/direct parties to go for a composite transaction contrary to the arbitration clauses provided under different agreements.

Consolidation of disputes cannot be the norm in every case. For instance, it is also commonly observed that in large scale construction projects which involve multi-parties indulging into interrelated contracts, it needs to be seen whether it was the Employer or the Main Contractors that entered into a privity contract with the Sub-contractors and thereby admitting its liability to pay. The Supreme Court of India in Zonal General Manager, IRCON Int Ltd. v. Vinay Heavy Equipments has clarified that in absence of any covenant in the main contract, for instance the rules in relation to privity of contract would mean that the jural relationship firstly between the employer and the main contractor and secondly between the sub-contractor and the main contractor which would be distinct and separate. Furthermore, even if there were meetings/correspondences exchanged between the non-contractual party with the sub-contractor would not lead to a Tripartite contract and would depend on case to case basis. The most important factor to be considered is that an admission made by the party for an unconditional contractual liability to pay the sub-contractors. Recently, in the case of Laxmi Civil Engineering Services Ltd. the Delhi High Court dealt with an issue whether to construe contracts between the Main Contractor and Sub-Contractors as a single composite transaction where the Employer was not even a party to the said contract. The court concluded by holding that since there was no existence of an Arbitration Agreement between the Employer and the Sub-Contractors, thus the Employer cannot be compelled to arbitrate with the Sub-contractors.

A pertinent issue also emerges where the cause of action has arisen or continues after the constitution of an Arbitral Tribunal, here the Delhi High Court in Panipat Jalandhar NH 1 Tollway Private Limited v. National Highways Authority Of India was apprised by the fact that the arbitral proceedings before the second Arbitral were in progress though not complete. The Court observed that since the members of the Second Arbitral Tribunal were well conversant with the facts and disputes raised between the parties, having dealt with the same Concession Agreement (in this case) and notice of dispute, it would enable it to expedite the resolution of disputes rather than delaying it. The court has taken a progressive step in ensuring that there can exist multiple arbitrations if the cause of action continues or has arises after the constitution of an Arbitral tribunal.

A thorough consideration of such cases decided by Indian Courts emanate an idea that a majority of large-scale commercial transactions in the current business hemisphere involve multiparty agreements.

In such circumstances, it is indispensable for parties to have multiple sub-contracts within the ambit of the principal contract. Owing to contractual arrangements of such nature, the practice of consolidation of arbitration proceedings by composite reference / consolidation of arbitral proceedings may not be a norm in every case and thus non-consolidation should be made an exception.

The principle of consolidating separate yet related arbitration proceedings has become an accepted norm in the arbitration arena, domestically and internationally. As has been deliberated, numerous countries and arbitration institutions have already codified the consolidated arbitration proceedings. The Indian judiciary has also favoured reading the principle into Section 11 of the Arbitration, along with rulings on different aspects of consolidation of arbitral proceedings. Therefore, it is suggested to bring clarity and uniformity on the law that has already been laid down through precedents, the legislature can consider to codify the principle of composite adjudication of disputes in arbitration under the Act.

From the analysis made, it can be inferred that the general consensus for the applicability of this principle requires:

a) the consent of the parties to the dispute to refer to a single Arbitration;

b) that the arbitration agreements should be arising out of a single transaction; and

c) the Arbitral tribunal does not have the power to consolidate the proceedings on its own accord.

The recent jurisprudential developments in the practice of Arbitration in India through various court decisions have restored the faith in Indian judiciary vis-à-vis best international practices worldwide. The post 2014 regime in the Arbitration and Conciliation Act, 1996 sets the remarkable milestone change in India to create a vibrant cost effective and speedy mechanism for domestic and international commercial arbitration. The Indian Arbitration Act, 1996 may have a clause that consists of the applicability of the above-mentioned principle, for willing parties to directly approach the arbitration tribunal to consolidate its proceedings under separate arbitration agreements/clauses. Thus, consolidation may not be the norm in every case but should be left for the Arbitral Tribunal to decide/adjudicate whether consolidation is required on case-to-case basis, subject to the consent of the parties keeping in view the broad principles set by the courts till any concrete amendment is brought into force by the legislature under the Act.

Prashant Pakhiddey is a Partner & Byron Sequeira is an Associate at DSK Legal.