By: Nidhi Ngaihoih
[1] INTRODUCTION
Consolidation refers to the ability to combine multiple arbitral proceedings, initially commenced separately, often against the same respondent State, into a single proceeding.[1] It mainly takes place between parties when there is an existence of a relationship, the subject matter of the dispute is common, and the underlying agreements between the various parties are referable to one single economic transaction.[2]
Lacking legal recognition, there is a dire need for the Indian courts to promote consolidation solely for the reasons that [1] it avoids inconsistencies in the arbitral award, [2] removes the need for initiating parallel proceedings, and [3] it saves time and resources. Courts have chosen consolidation as the preferred method in various cases like that of Gammon India Ltd. v. NHAI,Global Infonet v. Lenovo And Ors. and Chloro Controls(I) P.Ltd v. Severn Trent Water Purification. The court has observed several times that the Arbitration and Conciliation Act, 1996 allows for disputes to be raised at various stages, and it is possible to have multiple arbitrations related to a single contract. The court time and again has emphasized that it is preferable to avoid multiple arbitrations.
In this article, various landmark judgments on the consolidation of arbitration proceedings –both Indian and foreign will be analyzed. Further, certain suggestions to bring consolidation under proper legal ambit will be provided.
[2] FOREIGN JURISPRUDENCE
When it comes to exploring foreign jurisprudence(s), courts are moving toward consolidation of agreements over invoking separate proceedings:
1. The case of Easybiz Investments v. Sinograin (The Biz) in England and Wales established that a solitary appeal for arbitration was considered legitimate for commencing an arbitration process under ten distinct agreements, each with its unique arbitration terms.
2. In Hong Kong, Chun Wo Building Construction and China Merchants Tower Co et al. were involved in a legal case where one party sought to merge three arbitration procedures without the consent of all parties. The court allowed the consolidation because the disputes share common issues, involved the same transactions, and were in the early stages of the proceedings.
3. In a similar vein, the case of Compania Espaola de Petróleos, S.A. v. Nereus Shipping in the United States saw a court interpreting the Federal Arbitration Act broadly to allow district courts to combine cases involving the same legal and factual issues, even in the absence of consent from all parties.
4. In the landmark case of Vigo Steamship Corp. v. Marship Corp. of Monrovia, the Court of Appeals declared that state courts could order the consolidation of separate arbitration procedures in suitable circumstances, illustrating New York courts’ embrace of compulsory consolidation.
Based on the above examples, it is clear that countries support consolidation even to the extent that the consent of parties may be ignored. Stage of consolidation also plays a major role; it is easier to consolidate proceedings at a nascent stage than at a later stage, and it is important for both the proceedings to be at the same stage while consolidating. This reflects how consolidation is a blooming concept and a pragmatic method of dealing with multiple similar invocations of arbitration agreements in a singular transaction.
[3] INDIAN SCENARIO
While courts around the world have acknowledged the importance of the principle of avoiding multiple proceedings and contradictory rulings, there is no legal recognition of this principle in India. However, there have been some recent developments and legal decisions that point to the growing need for this concept.
In the case of Panipat Jalandhar National Highway 1 Tollway Pvt Ltd v. NHAI, the Delhi High Court ruled that parties should not submit the same dispute to arbitration more than once. The court in this case referred both matters to a second arbitral tribunal and consolidated them. The reasoning given by the court was that: “in any agreement or contract, an arbitration clause is maintained with the object to a speedy resolution of disputes and in cases where the disputes are of larger magnitude and multiple in number, to avoid any confusion or infirmity, should be referred to the same arbitral tribunal.”
According to the court’s reasoning in Gammon India Ltd. v. NHAI, having to go to arbitration over and over again and having different arbitral tribunals weigh in on the matter is detrimental to the integrity of the arbitration process. The court in Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan and Ors. ruled that the general arbitration clause in the main agreement (in this case, Clause 39) should be used to refer all disputes to the same arbitral tribunal whether they relate to the main agreement or to “other matters” connected to the subject matter of the main agreement.
Based on the direct relationship with the party who signed the arbitration agreement, the direct commonality of the subject matter, and the agreement being a composite transaction, the Supreme Court ruled in Chloro Controls(I) P.Ltd v. Severn Trent Water Purification that a non-signatory or third party could be subject to arbitration in exceptional cases. Ultimately, the Supreme Court of India ruled in M/S Tantia Constructions Limited v. Union of India that the same contract or transaction cannot be the subject of two separate arbitration proceedings.
However, there exists no provision in the Arbitration Conciliation Act, 1996 dealing with the consolidation of agreements. Under Section 11, the conditions under which an arbitrator has to be appointed are included in various provisos. By amendment, some specific power of the arbitrator can be included in this section so as to give the arbitrator liberty to consolidate the proceedings. Prima facie satisfaction of the Arbitrator should be enough for him to consolidate agreements following the principle of kompetenz-kompetenz.
This would give the Arbitral Tribunal an option to issue either a combined or separate award(s) based on the details of each case. The judicial intent towards consolidation is evident from the principles outlined in Order 2 Rule 2 of the Civil Procedure Code, Section 10 of the Civil Procedure Code (‘CPC’), and the principle of Res Judicata, which have been part of the Civil Procedure Code, so there should be statutory provision protecting the same intent.
[4] CHALLENGES TO CONSOLIDATION
Agreements needing consolidation are usually multi-party and multi-contract transactions, and in such cases, it is normal for parallel proceedings to arise. Parallel proceedings are most pronounced in the energy industry due to the involvement of multiple actors and agreements.[3] These proceedings, when consolidated, require the consent of all the involved parties. Such consent is hard to get, and with different jurisdictions, the requirement of consent starts to vary. For example, the Court of Queen’s Bench of Alberta recently ordered the consolidation of arbitration proceedings without the consent of all parties, whereas in other parts of Canada, consent is needed for the purpose of consolidation. This variation in law decreases uniformity and creates confusion, which acts as a challenge. Consolidation contrary to parties’ consent would negate party autonomy and risk the enforceability of any award delivered by such a tribunal.
Another issue is that arbitration clauses are not always coordinated, making consolidation difficult. Sometimes, the purpose of consolidation is defeated when parties who have not consented to consolidation end up litigating their disputes in domestic courts. This makes the whole process more complicated and expensive. Sometimes agreements are governed by different investment treaties making consolidation nearly impossible.
The involvement of distinct facts can also impede consolidation, like in the case of DLF Home Developers Limited v. Rajapura Homes Private Limited and Ors., where it was held that though interlinked and connected, the two agreements are still separate agreements as their object and field of operation were different, and therefore consolidation is not possible. Another important factor can be the lack of legal relationship between parties.
In Laxmi Civil Engineering Services Limited v. GAIL (India) Limited, the dispute was whether ancillary contracts could also be referred to arbitration under the main contract, the court held that it cannot construe a composite transaction as there is no Arbitration Agreement between GAIL and the Sub-Contractors.
[5] OVERCOMING CHALLENGES
When parties and arbitral tribunals are trying to accomplish similar goals, but the rules and treaties governing arbitration and investments do not provide for consolidation of cases, or when it is impractical to consolidate cases because of differences between the governing instruments, they can take pragmatic approaches. When the same arbitrators are responsible for deciding on multiple arbitrations and coordinate their decisions in terms of content and timing, it is referred to as quasi-consolidation, which can serve as an alternative approach.
For instance, even if two similar disputes are being arbitrated under separate investment treaties, the arbitration institution or parties may agree to use the same arbitrators for both. The arbitral tribunal may coordinate with parallel processes. A party may also strive to avoid consolidation or quasi-consolidation by scheduling proceedings in such a way that it would be impractical to consolidate. This is due to the fact that employing such procedures presupposes that the cases to be merged are at an equivalent stage. Such actions require checks and balances.
It should also be noted that a more appropriate strategy of consolidation would be to only permit consolidation with the approval or consent of all parties concerned. This is mostly due to the fact that arbitration as a dispute settlement method is in the first place a product of the parties’ choice.
If consolidation is challenging, a party should consider requesting a temporary hold on one of the parallel processes until a decision has been made in another. This pause can be beneficial, particularly if the outcome of one proceeding depends on the other, such as when the associated contracts include clauses like indemnification or flow-through clauses that link relief in one contract to certain relief being granted in another contract.
[6] CONCLUSION
The idea of mixing different but related arbitration cases has become a generally accepted practice in arbitration, both in Indian and International settings. The Indian judiciary has also somewhat recognized this idea and has rendered judgments on different elements of consolidating arbitral processes. For lending clarity and consistency to this already established legal principle, it is recommended that the government considers amending Section 11 of the Arbitration Act to allow courts to order consolidated resolution of multi-party and multi-contract disputes, as courts have already started interpreting consolidation in Section 11 of the Arbitration Act.
Indian Courts must also realign their focus on determining relatedness and the end goal of composite transactions, instead of putting them in rigid boxes of separate agreements. For making consolidation an umbrella practice, the courts must base their judgment on factors such as the existence of a relationship, the subject matter of dispute being common and the underlying agreements between the various parties being referable to one single economic transaction.
[1] Kinnear, M. and Mavromati, C., Chapter 15: Consolidation of Cases at ICSID, in Neil Kaplan and Michael J. Moser (eds), Jurisdiction, Admissibility and Choice of Law in International Arbitration: Liber Amicorum Michael Pryles, Kluwer Law International, 2018, Section 15.02.
[2]Cheran Properties v. Kasturi and Sons, (2018) 16 SCC 413.
[3]Gary B Born, International Commercial Arbitration, Vol. 2 (The Netherlands: Kluwer Law International, 2009) at 2068.
Author’s Bio:
Nidhi Ngaihoih is a 3rd-year law student at Rajiv Gandhi National University of Law, Patiala.