bratschi arbitration blog: Nomination of arbitrators in multi-party arbitration – convergence of rules
With globalization and technological advancement on the rise, complex M&A deals, multi-party contracts (several parties to one contract, or several parties to several contracts), chains of contracts, joint ventures and consortiums have become more and more popular. Statistics published by the International Chamber of Commerce (ICC) show that in about 28% of the ICC arbitration cases more than two parties are involved. In many situations, a coordination between the dispute resolution clauses, or even an umbrella arbitration agreement (i.e., an overarching agreement that provides arbitration rules for disputes arising out of subordinate agreements) would be helpful, but are all too often not thought of by the parties. States and arbitration institutions have therefore installed their own rules for cases where the parties have not provided for a procedure to nominate the arbitrators.
Let's take for example Switzerland and Sweden, two countries with strong and long-standing arbitration traditions and arbitration friendly arbitration laws. On 1 March 2019, the revised Swedish Arbitration Act (SAA 2019) came into effect, aiming at adapting to new developments in international arbitration and therefore at increasing its attractiveness to potential arbitration stakeholders. This is a good opportunity to look more closely at how different arbitration regimes regulate the nomination of arbitrators in multi-party arbitrations.
The starting point in the SAA 2019 is party autonomy: Unless agreed otherwise by the parties, section 12(1) SAA 2019 gives precedence to the parties' joint choice of an arbitrator. If they cannot reach an agreement, section 14(3) SAA 2019 provides that «if arbitration has been requested against several parties and these parties are unable to jointly appoint an arbitrator, the District Court shall, upon the request of a respondent party (...) appoint arbitrators on behalf of all parties, and simultaneously also release any arbitrator already appointed» (emphasis added).
In Switzerland, the constitution of the arbitral tribunal is ruled by article 179 of the Swiss Private International Law Act (SPILA). Similar to section 12(1) SAA 2019, article 179(1) SPILA leaves the manner in which the arbitrators shall be nominated to the parties. In the absence of such agreement, the judge at the seat of the arbitral tribunal may be called upon; he shall apply the provisions of the Swiss Civil Procedure Code (CPC regarding the appointment, removal or replacement of arbitrators by analogy (article 179(2) SPILA). And as in the SAA 2019, if the parties cannot agree on the procedure to appoint the arbitrators in multi-party arbitrations, article 362(2) CPC provides that the «ordinary court (...) may appoint all the arbitrators» (it may also solely appoint the «missing» arbitrator instead). This provision, like sect. 12 SAA 2019, helps to break a deadlock in the nomination of arbitrators which may occur in multi-party settings. Article 179(2bis) of the draft bill to the SPILA, which is currently under revision, explicitly provides that in multi-party arbitrations, the competent state court («juge d'appui») may appoint all arbitrators, too.
On the institutional side, the Swiss Rules of International Arbitration and the International Chamber of Commerce Arbitration Rules 2017 (ICC Rules) exemplify the different approaches to multi-party arbitrations:
In accordance with the examined state laws, article 8(3) of the Swiss Rules of International Arbitration of 2012 (Swiss Rules) allows the parties to decide on the method whereby the arbitral tribunal shall be constituted in multi-party settings. In absence of an agreement by the parties, article 8(4) Swiss Rules provides that the Swiss Arbitration Court (SCAI) shall set the claimant, then the respondent a 30 day deadline in order to appoint its own arbitrator. It should be noted that these time limits are granted regardless of whether each party consists of an individual party or a group of parties. If a party fails to duly designate an arbitrator, article 8(5) Swiss Rules provides that SCAI may appoint all of the arbitrators, including the presiding arbitrator. As the legal text suggests, SCAI may limit itself to appointing only the arbitrator for the party who fails to meet the obligations of article 8(4) Swiss Rules. The option for SCAI to appoint the entire arbitral tribunal, however, allows to set a level playing field between the parties in the appointment of the arbitrators: It is a cardinal principle in arbitration that all parties must be treated equally, which includes the appointment of the arbitrators, and therefore in this situation trumps the principle of party autonomy.
According to the ICC Rules, where there are multiple claimants or multiple respondents, and where the dispute is to be referred to three arbitrators, the multiple claimants, jointly, or the respondents, jointly, shall nominate an arbitrator for confirmation pursuant to article 13 in connection with article 12(6) ICC Rules. Where an additional party has been joined, and where the dispute is to be referred to three arbitrators, however, the additional party may, jointly with the claimant(s) or with the respondent(s), nominate an arbitrator for confirmation. In the absence of a joint nomination pursuant to articles 12(6) or 12(7) ICC Rules and where all parties are unable to agree on a method for the constitution of the arbitral tribunal, the International Court of Arbitration (ICC Court) may appoint each member of the arbitral tribunal and shall designate one of them to act as president. This does not preclude the ICC Court from setting a deadline to the parties to agree on the method for the constitution of the arbitral tribunal before taking it into its own hands. The Arbitration Rules of the Singapore International Arbitration Centre 2016 (SIAC Rules) in their sect. 12.2 and the London Court of International Arbitration 2014 (LCIA Rules) in their sect. 8.1 contain a similar provision.
As we can see from the short analysis of these different sets of rules, the constitution of an arbitral tribunal is first and foremost left to the agreement of the parties. This follows the logic that arbitration proceedings are based upon the consent of the parties and are therefore largely parties-driven (this rule contrasts with the rule of the German Arbitration Institute (DIS), where every arbitrator is appointed by the DIS even when such arbitrator has been nominated by a party or by the co-arbitrators; see article 13.1 DIS Rules).
However, absent a party agreement to this effect and to avoid the dead-lock that could ensue, arbitration laws and rules contain a fallback provision which allow the state court («juge d'appui») or the arbitration institution to appoint the arbitral tribunal, be it in whole or only the «missing» arbitrator. Both approaches are efficient. And whether all - or only the «missing» arbitrator should be appointed by the state court or the arbitration institution is a matter of preference and taste: Whereas the first emphasizes the level playing field, the second gives more leeway to the parties' choice. At the end of the day, both approaches lead to a complete arbitral tribunal. And this is what counts in dead-lock situations.
In conclusion, in view of newer arbitration laws and rules, there seems to be a consent and a convergence of the rules to the effect that absent an agreement between the parties to the nomination of the, or some, arbitrators in multi-party settings, efficiency prevails over party autonomy, allowing the state court or arbitration institutions to nominate all arbitrators. To keep the nomination procedure efficient, clear instructions and sufficiently short deadlines should be set by the institutions. Then, despite their complexity, multi-party arbitrations get a good start.