Pulling at the lead

One of the well-recognised selling
points of arbitration over court litigation is the ability of the parties to tailor the dispute resolution procedure to the specific requirements of their dispute.

This is all the more attractive in the context
of disputes between international parties who may come from differing legal backgrounds
and so may wish to blend aspects of the civil
and common law procedural systems into the
way in which their dispute is resolved.

Changing needs

The flexibility to do this comes from the fact
that arbitration is founded on the consent of the parties. As recognised in the English Arbitration Act 1996, a fundamental principle of arbitration law is that the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest. However, as arbitration has increased in popularity, and evolved in order to meet the changing needs of its users, the underlying concepts of party autonomy and consent have also had to adapt.

When lawyers discuss the basis on which arbitral jurisdiction is founded, they use the language
of the law of contract. To this end, at the heart
of any procedure there has to be an arbitration agreement, which is initially between the parties to the dispute, and then, once it is appointed, with the tribunal. This leads to a three-way contract, binding both the disputants and those they have appointed to decide their dispute.

Similarly, the common law’s analysis of arbitration awards is that they contain an implied term that the parties will abide by the outcome. However, the concept of consent in arbitration is
not identical with the concept of agreement and
this explains its elasticity, and how it has been able to develop independently of the law of contract.

As a result, it is not the case that everything in an arbitration must proceed according to the parties’ agreement. If that were the case, difficulties might arise as the need for agreement on a particular point came up against the antagonistic stance of parties locked in a dispute.

The role of the tribunal is to progress the arbitration, where needed, within the confines of the procedure which the parties have agreed at the outset. One of the difficulties often faced by a tribunal, though, is where to draw this line. If it adopts an overly laissez-faire attitude (in the name of party autonomy), the arbitral reference may simply drift, whereas if it intervenes too often or too soon, the parties may feel they are being deprived of their ability to tailor their procedure. What is clear, though, is that a party should not mistake the principle of consent as giving it a free say about every step of the process.

Sometimes a party may even feel that it is being compelled to arbitrate without having actively agreed to do so at all. An example arises in the context of international trade. A consignee of goods pays for and receives a bill of lading, only to find that the contract of carriage to which it has now become a party incorporates an arbitration agreement from another contract, often a charterparty. Any dispute arising under that contract of carriage will have to be determined by arbitration, but the consignee
has had no input into the terms of the arbitration agreement or even into where that arbitration is to take place. Can it really be said that it has consented to arbitration in those circumstances?

Controls imposed

The law’s answer to this lies in the controls imposed over the terms of the arbitration agreement.
The consignee is only bound if the agreement
is in a form which is usual in the trade. In effect, therefore, the law finds the consignee’s consent
to arbitration in its participation in the trade in question. At best this is only an imputed consent.

Similar questions arise in relation to the use of arbitration in the context of sports disputes.
The rules of governing sporting bodies often provide that disputes involving the sport’s participants are to be resolved by arbitration. However, in circumstances where the player can only play that sport professionally after having signed up to the rules in question, can it really be said that the player has consented to arbitration? It has been argued that any consent in this context is at best only an ‘induced’ consent, the player having no realistic alternative open to him or her.

This point has given rise to human rights arguments on the basis that such rules are an impermissible derogation from the player’s article 6 European Convention on Human Rights (ECHR) right to a fair and public hearing by an independent tribunal established by law, which must pronounce its judgment publicly.

However, the stance of English law is that such arbitration clauses are enforceable; it is only where arbitration is required by law that it can be said to be compulsory and so to amount to an impermissible derogation.

This was the view expressed by the Court of Appeal in Stretford v the Football Association in finding that Paul Stretford, a football agent, validly waived his article 6 rights in favour of arbitration when he had agreed to be bound by the FA’s rules. Yet, that finding was based on the court’s view that Stretford’s agreement to the arbitration clause was not achieved by duress, undue influence, or mistake. That is hardly the same thing as saying that he had consented to arbitration.

Another area in which the principle of
consent has been stretched is that of multi-party arbitrations. As commercial arrangements and structures have increased in complexity, so
have the disputes that potentially can arise
out of them.

Such disputes are no longer just between two parties to a single contract. A joint venture may involve a number of parties to a single contract,
a construction project is likely to involve a series
of inter-connected contracts, and chains of contracts are common in the commodities sector. This upturn is illustrated by the caseload at the International Chamber of Commerce. While in
1998 about one-fifth of the cases handled involved multi-party disputes, this now totals one-third.

Unless a multi-party dispute can be determined within a single procedure, the risk of inconsistent decisions and increased time and costs looms large. It is therefore no surprise that the commercial users of arbitration have called for the arbitral institutions to adapt their rules better to cater for such disputes. While the institutions have generally reacted to such calls, the way in which they have done so has differed, sometimes consciously as they seek to differentiate themselves in a competitive market.

Arbitral consent

The impact of this on arbitral consent is most stark
in some of the rules devised for the joinder of parties. Joinder generally goes against the roots
of arbitration as a bilateral, confidential dispute resolution procedure. Nevertheless, some institutional rules (for example, those of the London Court of International Arbitration (LCIA)) lay
down a scheme whereby a third party can be joined on the application of only one of the parties to the arbitration provided the third party consents.

This power even authorises the tribunal to join someone who may not even be party to the original arbitration agreement on which the reference is founded. While the power is discretionary, it obviously gives rise to the possibility that a party may find itself participating in an arbitration with a third party it did not anticipate ever arbitrating against.

Unsurprisingly, joinder of this sort has been described as a ‘forced’ joinder. How can it be reconciled with the idea that arbitration is a consensual process? The answer is that the power exists in the institutional rules which the parties have agreed to incorporate into their arbitration agreement. As a result, a party who agrees to LCIA arbitration, without making a caveat about the joinder of third parties, is taken to have consented in advance to the possibility that the tribunal will exercise that power during the reference both for or against it. In other words, while a party may not consent to a particular outcome, it has consented to the framework within which its dispute will be resolved.

Consent remains at the heart of arbitration law. It explains the jurisdictional basis of the process, but it is also one of its unique selling points. Accordingly, as the above examples illustrate,
the concept has had to become an elastic one as arbitration has evolved into new areas and the necessary consent has sometimes had to be found in a more indirect way. SJ

Henry Byam-Cook is a barrister at 20 Essex Street