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May 29, 2011

Joinder of Parties Under UNCITRAL Rule 17(5): An Important Efficiency Advance

(This is a condensed Arbitration Commentaries version, without citations, of what may become a longer and more formal article on joinder of new parties in an ongoing international arbitration. The source material for this Commentary consists of the various reports of the UNCITRAL Working Group and the notes of the UNCITRAL Secretariat, which may be found on the UNCITRAL website.)

 

The joinder of persons as new parties to an ongoing international arbitration, before an arbitral tribunal already appointed by the original parties or confirmed by an appointing authority, has presented difficulties that have not yet yielded to a unifying transnational practice principle.

The problems unique to joinder are not exclusively those associated with arbitration involving non-signatories to the arbitration agreement. Those challenges are present even if the non-signatory is named in the original Request for Arbitration.  The unique problems arise from the conceptual difficulty of requiring New Party C to arbitrate before a tribunal that has been selected only by Original Parties A and B.

UNCITRAL Rule 17(5), an entirely new provision in the 2010 UNCITRAL Rules,  is the product of several years of debate in the UNCITRAL Working Group that was charged with giving birth to the 2010 Rules. The 1976 version of the Rules had no provision on joinder, so the adoption of any measure was an important new development.  As first introduced as a proposal in 2006, the text would have read:

The arbitral tribunal may, on the application of any party, allow one or more third persons to be joined in the arbitration as a party and, provided such a third person and the applicant party have consented, make an award in respect of all parties involved in the arbitration.

But some questioned whether this was a new development at all. After all, the 1976 Rules did not expressly forbid joinder. If the new party and the existing parties consented, joinder could and presumably did occur.

The challenge was to have a rule that would permit a third person to be joined, and for the joined person to be regarded as having consented that its rights and duties should determined by the award of an arbitral tribunal that it had no role in selecting.

To meet this goal, new text of the proposed Rule emerged:

The arbitral tribunal may, at the request of any party, allow one or more third persons to be joined in the arbitration as a party provided such person is a party to the arbitration agreement, unless the arbitral tribunal finds, after giving all parties, including the person or persons to be joined, the opportunity to be heard, that joinder should not be permitted because of prejudice to any of those parties.  The arbitral tribunal may make a single award or several awards in respect of all parties so involved in the arbitration

 

Proponents of this text urged the view that if the newly-joined person were already a party to the arbitration agreement, that person could be said to have consented in advance to the prospect of being joined to an arbitration already pending between other parties to the same agreement, before a tribunal chosen by or for those original parties, provided of course that the arbitration to which the third person was being joined was pursuant to that agreement.

Opponents of this text argued that an award against the joined person would be vulnerable to challenge under Article V(1)(d) of the New York Convention as having been made according to procedures that varied from the agreement of the parties. They sought to re-insert the requirement that all parties should consent to the joinder at the time of joinder.

But the proposed reinsertion of such specific consent language was rejected. Consent, said the proponents of 17(5) as adopted, was adequately addressed by the requirement that the joined person be a party to the arbitration agreement.

After nearly four years of gestation, including comments elicited from major arbitral institutions, the proponents prevailed and this major new development in international arbitration procedure came into force in the 2010 UNCITRAL Rules.

To my knowledge no court has yet been required to decide whether an award against a party joined under Rule 17(5) violates the New York Convention. But the case for such a violation would seem to be unpersuasive. The Convention does not elevate equality of the parties in selection of the Tribunal to the status of an independent principle. That principle is enshrined to an extent in virtually all modern arbitration rules and laws, but is sometimes qualified due to the need to serve other important interests.

For example, the ICC Rules do not provide for strict equality of all original parties in selecting a tribunal in all cases. If a Claimant names four Respondents in the Request for Arbitration, and there will be three arbitrators, the Claimant is expected to nominate one arbitrator and the Respondents are to nominate one arbitrator jointly. The four Respondents are only treated equally with Claimant if they fail to make a joint nomination, whereupon the ICC Court will appoint the entire tribunal. (ICC Rule 10).

Of course, joinder under UNCITRAL Rule 17(5) might not save the award against the joined party from vacatur in the courts at a seat of arbitration whose arbitration law does enshrine a principle of strict party equality in choosing the tribunal. But that is not the case in UNCITRAL Model Law countries, where vacatur standards are co-extensive with grounds for refusal of enforcement under the Convention. Nor is it the case under the US Federal Arbitration Act.

Where issues of consent are most likely to arise in joinder practice under Rule 17(5) is in the realm of non-signatories to the arbitration agreement. The drafters of Rule 17(5) obviously selected the phrase “party to the arbitration agreement” with considerable deliberation. Perhaps a person that is required to arbitrate because a signatory signed the contract as her agent is a “party.” But what about a person against whom the arbitration clause may be enforced under the doctrine of arbitral equitable estoppel? Whether that person is a 17(5) “party” to the arbitration agreement probably depends on the view under law applicable to determine who is required to arbitrate under the agreement. No guide to a drafters’ interpretation of “party to the agreement” is to be found in the UNCITRAL drafting history (travaux préparatoires). So joinder practice will still be marked by some variation depending upon the applicable arbitrability law.

That said, Rule 17(5) is a major accomplishment. It may become the transnational standard to which major arbitral institutions gravitate as they review and update their rules on joinder.  Such a rules review at the ICC is in progress (although this writer has not involvement or knowledge of the position the revised ICC Rules will take). An important advance in the efficiency of arbitral proceedings should be the result if Rule 17(5) is widely emulated, and this should be seen as wan improvement that does not give serious offense to the consensual basis for arbitration.