The article has been written by Pooja Gandhi, pursuing a Certificate Course in International Commercial Arbitration and Mediation from LawSikho. It has been edited by Prashant (Associate, LawSikho).
It has been published by Rachit Garg.
Arbitration has become the most preferred method to resolve disputes in international commercial transactions and transactional contracts. This is the result of the flexibility provided by this method regarding the choice of the forum that provides control to both parties and provides them an equal opportunity to be heard. It is also an attempt to avoid potential national bias as possible in litigation. More importantly, it’s easier to enforce an international arbitral award as it is well regulated in comparison to a judgment of a domestic court. The other factors that make arbitration a widely preferred dispute resolution mechanism are neutrality, faster procedures, reduction in costs, and confidentiality.
In the realm of increasing multi-party transactions, the effect of the proceedings on the third party is becoming an increasing problem. This issue was considered in the case of Siemens v. Dutco Construction Company wherein third-party was given the right to intervene in the constitution of the tribunal and it was given the status of “public policy” wherein refusal to include the third party could be a sole ground to overturn the arbitral award. However many commentators have argued that third-party intervention defeats the principles of “procedural party autonomy” as promised by arbitration.
The objective of this article is to provide an insight above joinder and intervention of third parties and its benefits in spite of the barriers associated with it.
Joinder & intervention
In the case of a multi-party contract, several parties are involved in the subject matter of the dispute. The arbitration arising out of such a contract affects the rights of all the parties involved in it. This will result in concurrent arbitration or non-compliance of arbitration proceedings arising out of an underlying transaction. Therefore it is important to recognize the right of the third party in a multi-party contract. They can be involved in the proceedings either through joinder or intervention.
Joinder of the third party refers to a situation where the third party is asked to join the proceedings and Intervention of a third party is a situation when the party seeks to join the proceedings on its own motion. This can be either before the commencement of the proceedings or after it. This definition is in pari materia to the definitions in U.S federal practice. It is now clearly understood that joinder is when the existing party involves the third-party in the proceedings in contrast to intervention where the party to the agreement involves itself in the proceedings.
While the distinction in both the scenarios can be clearly understood, the effect rendered on the proceedings by third-party involvement is the same as they enjoy similar rights over enforcement of the arbitral award, i.e.; third-party rights. In both these cases, the third party does not participate in the constitution of the arbitral tribunal. In case of intervention, the party on its own will waive the right but in case of a joiner, the third-party is left with no option, thereby defeating one of the important features of arbitration of actively participating in the constitution of the tribunal.
Barriers to joinder and intervention
Constitution of the arbitral tribunal
The foremost barrier comes at the stage of the constitution of the arbitral tribunal. One of the important features of arbitration is the appointment of the arbitral tribunal by the parties which is done as per the agreed method in the contract. Parties argue that joinder of third-parties can prejudice their right to appoint an arbitrator, and thereafter, their chances of equality and fair decision, since the new party doesn’t get a right to participate in the constitution of the arbitral tribunal.
It is important to understand that such a conservative belief disrupts the confidence of the public at large from arbitration. Irrespective of the appointing authority, the arbitrators provide an unbiased decision towards the dispute, which is also why it is legally enforceable. The arbitrators rule on the fact of the issue and its legal principles and not in accordance with their relationship with the parties. More importantly, in certain scenarios like institutional arbitration, the parties are obligated to limit their choice from a list of arbitrators provided. Therefore the process of joinder or intervention must not be disregarded for this reason.
The costs associated with the arbitration, including the cost of arbitrators, are borne by parties. When the parties are joined or intervened- in the absence of any contract, an issue arises whether the cost of arbitrators is split among them or not and up to what extent. The question is easier to answer in case of intervention as it is done by their-party at its own will, thereby cost can be split to the extent of their proceedings. However, the cost in case of joining a third party can prove to be a scrupulous burden cast on them, without their will. In such a scenario, the party joining them must bear the cost of the proceedings up to their extent.
Confidentiality is a key feature of arbitration as most parties choose arbitration to resolve their dispute in a private sphere. And protect their trade secrets, revenue, sensitive data, etc. It is argued that when a third=party joins or intervenes in the proceedings; they become privy to such information that might be private to companies. However, it is important to understand that the parties subject to the proceedings already have knowledge of such information or the affairs at issue ab initio. Alternatively, the third party can be excluded from such proceedings as required by disputing parties.
Third-party right over challenging the final award passed by the tribunal is one of the major challenges. Enforcement of arbitral awards is strongly recommended by most states and vacating or challenging the award by disputing parties is not encouraged. It can only be challenged in specific conditions, where misinterpretation of law or fact in issue can be proved or if the award is passed by unfair means.
To identify such misinterpretation, the parties need to be actively present in the arbitration proceedings, which is not possible by third parties in case of joinder and misinterpretation. Their role is limited to the extent of subject matter involving them, however the award rendered is for the issue at large. In such a case, questioning the award cannot be effective although the award irrevocably affects their interest.
Passing an award that visibly affects the rights and interests of third-party without involving them in the proceedings is not just and equitable. Arbitration awards directly affecting the third party cannot be passed as per accepted international law and practice. The problem arises when they are indirectly affected by it.
The arbitrators are restrained from involving third parties to produce documents or witnesses. However, this precedent must be restrained to involving unwilling parties. It is important to understand that if the tribunal is considering a third-party’s interest in discovering evidence or documents, they must also consider their interest in the outcome of the proceedings. If the third parties are willing to participate in the proceedings and the award will subsequently affect their interest- directly or indirectly, they must be given an equal chance for representation of their case.
Participation of third parties in the arbitration proceedings is not necessarily a negative thing. It can be very fruitful if the basic legal principle such as the principle of equity is rightly followed. There are barriers associated with it, some of which are covered in this article. However it can be rightly interpreted that there is a way out for every problem and there are methods that can be used to overcome them. A creative solution is all that is required to make the proceedings efficient and successful with third party involvement. After all, doing justice is its core principle and if the same is done, there is no scope for objection and all the parties get a happy ending, as deserved.
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