With arbitration becoming increasingly popular for resolving commercial disputes, more parties are agreeing on specific procedure matters in their arbitration clauses, including the composition of the arbitral tribunal. When there are multiple parties in a case, misunderstandings and even disputes may arise during the implementation of the parties’ agreement on the composition of the arbitral tribunal.
For example, an arbitration clause in an asset transfer agreement signed by the transferor (party A) and the transferee (party B) and the guarantor (party C) stipulates that: “Disputes arising from the contract shall be subject to the jurisdiction of the arbitration commission, XX. The arbitral tribunal shall be composed of three arbitrators, with party A appointing one arbitrator, party B appointing one arbitrator, and the third arbitrator, i.e. the presiding arbitrator, being appointed by the chairman of the arbitration commission.”
Later, when a dispute arose over the performance of the contract, party C, as the claimant, applied for arbitration against party B, as the respondent, and then applied to join party A, as the additional party, in accordance with the arbitration rules.
The parties each had a different understanding of the composition of the arbitral tribunal. Party A and party B argued that they should each appoint an arbitrator regardless of their status in the case. Party C argued that the arbitration clause in the contract did not provide for how the arbitral tribunal should be constituted when party C was the claimant, therefore the arbitration rules on the composition of the arbitral tribunal shall apply.
In the event that there is a joinder of an additional party, and if the additional party cannot jointly appoint the arbitrator with the claimant or the respondent, all members of the arbitral tribunal shall be appointed by the chairman of the arbitration commission.
As one can see from the above-mentioned case, even if the parties have agreed on the specific procedures for the composition of the arbitral tribunal in their arbitration agreement, inconsistencies in their understanding still occur due to the performance of the contract, which brings risks to the conduct of the arbitral proceedings. Therefore, the specific agreement on the composition of an arbitral tribunal in a multi-party arbitration agreement is a problem worthy of discussion.
In the author’s opinion, if the parties agree in the contract that arbitration is the way of dispute settlement, and have a specific agreement on the composition of the arbitral tribunal, they may take into consideration the following aspects:
First, the right to appoint arbitrators is an essential and fundamental procedure right of the parties, which also differentiates arbitration from other forms of dispute resolution.
Therefore, the parties need to specify, in clear language, the method for composition of the arbitral tribunal if they intend to set specific procedures. A clear expression of intention is required to grant or deprive a party’s right to appoint an arbitrator.
Second, in a multi-party arbitration agreement, the commercial transaction arrangements and the legality, fairness and economic efficiency of the proceeding should all be taken into consideration. The parties’ special agreement on some procedural issues in an arbitration clause is often related to the relevant transaction background and transaction structure.
However, mandatory legal norms should not be violated when reaching such an agreement. At the same time, the cost and effect of implementing the arbitration agreement should also be taken into account. If an arbitration agreement cannot be enforced, or the cost of enforcement is too high, it is not conducive to the protection of the rights and interests of the parties.
Finally, the composition of an arbitral tribunal in a multi-party arbitration agreement needs to consider the co-ordination between the arbitration rules of different arbitration institutions. In the case of multiple parties or additional parties, given the rules of different arbitration institutions are not all the same, the parties need to understand the relevant rules of different arbitration institutions in order to reach an agreement suitable for contractual transactions.
Meanwhile, arbitration institutions should realise that the parties’ agreement on the composition of the arbitral tribunal in the arbitration clause shows that they trust arbitration and choose it with prudence.
When interpreting the relevant agreement, the arbitration institution should accurately understand the parties’ true intention, and at the same time take into account the mandatory provisions of law, and the fairness and reasonableness in conducting the arbitration. Only when the multi-party agreement on the composition of an arbitral tribunal is carefully treated can the arbitral proceedings be conducted with due process, and the rights and interests of the parties be protected.
Zhao Ke is a case manager at the Beijing Arbitration Commission/Beijing International Arbitration Centre (BAC/BIAC)