Hilary Muza 
Oftentimes, when parties enter into commercial agreements, they are fixated on what they stand to gain from the contract and never what happens in the event of a dispute.
For this reason, lawyers always emphasise the need for solid dispute resolution clauses in any agreement. This is particularly so when multiple parties are involved in a transaction.
The varying rights and interests at play make it necessary to have a watertight dispute resolution mechanism in place, lest the deal falls apart or some parties become too exposed to risk. In this piece, I will discuss multi-party arbitration clauses and how to structure them for maximum legal protection of all parties involved.
Multi-party arbitration
Arbitration is a consensual dispute resolution process. An arbitration agreement binds only those parties who have agreed to it. It differs from litigation in that it is not a process played out before the courts but before an arbitrator who is an independent person, selected by the parties mutually to decide the case. An arbitral tribunal, deriving its power from the terms of the agreement, only has jurisdiction to resolve a dispute between the parties to the arbitration agreement and then only to the extent that this is provided for in that agreement. Where multiple parties are involved, the arbitration agreement needs to be comprehensive. As a result, one of the major drawbacks of arbitration, as compared to litigation, is the need to expressly provide for a mechanism to join third parties to arbitral proceedings (joinder), as well as mechanisms that allow for related disputes to be resolved together (consolidation and concurrent hearings), so as to avoid the possibility of conflicting arbitral awards.
Issues arising out of multi-party disputes
The types of issues that might arise in relation to multi-party disputes include:
• Whether a defendant may join a third party in order to claim a contribution or an indemnity — this would be useful if, say, a party’s defence to a claim is that they were indemnified by a third party and that party’s joinder is required for the defence of indemnity to succeed.
• Whether a third party may intervene to bring claims which overlap with those in the arbitration — for instance, a sub-contractor may bring a claim for payment of outstanding invoices where the main issue in arbitration is non-payment of invoices generally.
• Whether two sets of parallel proceedings, which raise similar or overlapping issues, can be consolidated or heard concurrently.
• How a tribunal is to be appointed where there are more than two parties and, in particular, how equal treatment of the parties in this regard can be attained.
General considerations
First, the parties will need to consider whether, given the complexities involved in multi-party and multi contract cases, arbitration is the best choice for any future dispute resolution. The alternative is litigation, which is often an onerous process especially where a multi-party or multi-contract case is involved. The time and costs considerations involved with litigation make arbitration a more prudent option. However, multi-party dispute resolution clauses must be water tight or else the advantages of arbitration will be lost. In particular, if the parties are unable to agree to a uniform arbitration clause or, at least, compatible arbitration clauses, there will potentially be an increased risk of parallel arbitration proceedings or litigation before various judicial authorities and potentially in different jurisdictions.
If arbitration is the preferred choice of dispute resolution, a carefully drafted arbitration clause is essential and provides the best means of ensuring the efficient consolidation of disputes or joinder of, or intervention by, third parties. Drafting such a clause will take some time and, where other jurisdictions are likely to play some part in the proceedings, one or more of the parties may need to seek foreign law advice on the use of joinder and consolidation provisions. Therefore, the earlier legal representatives of the parties are able to be involved in the drafting and negotiating of the dispute resolution clause, the better.
Essential requirements of any arbitration clause
The aim of an arbitration clause is to facilitate a cost-effective and speedy resolution of a dispute. The clause itself should not become the source for a costly and time-consuming dispute. Therefore, it needs to be drafted carefully and clearly. It can also be a major deterrent against breach of contract. The minimum requirements that are necessary to ensure that an arbitration agreement fulfills its objective and is able to facilitate an effective dispute resolution procedure are as follows:
• The agreement should state whether, and if so which, institutional rules should govern the dispute. These rules must include provisions on how to deal with multi-party disputes. If the parties choose ad hoc arbitration (that is, arbitration that is not administered by an institution), then using the UNCITRAL Rules 2013 is recommended.
• The agreement should provide for the number of arbitrators to be appointed to the tribunal and the method of selection of the tribunal. In the case of ad hoc arbitration, the parties should select an appointing authority.
• The agreement should provide for the “seat” or “place” (legal home) of the arbitration. An express choice of seat will normally dictate what the procedural law governing the arbitration will be. In addition, parties are also often influenced by the need to select a neutral venue for any arbitration proceedings.
It is also essential to choose a country, which is a party to the New York Convention to take advantage of its beneficial provisions on enforcement.
If the parties wish to add an express provision that hearings may be held at a place other than the “seat”, it should be clear that this is a choice of hearing venue only so as not to create any ambiguity in relation to the express choice of seat. The arbitration clause should specify the governing law of the arbitration agreement itself.
• The contract containing the arbitration agreement should also contain a clause specifying the system of law governing the contract and any disputes arising out of or in connection with the contract.
In next week’s instalment, I will deal with contractual mechanisms for dealing with multi-party and multi-contract situations and how to structure an arbitration agreement.
Muza is a duly admitted lawyer with expertise in business advisory, labour law and commercial litigation. He writes in his personal capacity. For feedback, email him at hilarykmuza@gmail.com or call on +263719042628.
