Consolidation in arbitration: a practical mechanism for disputes arising from multi-party contracts

Consolidation is the procedural mechanism through which an Arbitral Tribunal brings together two or more arbitration proceedings to process them jointly and eventually issue a single arbitration award that is binding on all parties.

This mechanism aims to consolidate procedures that are interconnected, whether by the parties, the subject matter of the contract, or the potential consequences of the award that could affect third parties. Its fundamental purpose is to streamline the arbitration process, reducing time and costs, and avoiding conflicting decisions.

In the economic sector, consolidation has become a necessity and has been used in situations such as: (i) multiple contracts entered into with the same company; (ii) contracts concluded by a company with different parties; or (iii) Repeated contractual relationships between the same parties. In all cases, the goal is to address related disputes jointly, prioritizing procedural consistency and efficiency.

What obstacles must be overcome to successfully consolidate arbitrations?

First, consolidation often faces challenges related to the consent of all parties involved. In essence, consent is also a cornerstone of arbitration consolidation, as all parties involved must express their willingness to consolidate their disputes into a single arbitration proceeding.

However, consent may be compromised if an attempt is made to consolidate procedures with different arbitration clauses derived from different contracts.[1]However, in practice, not all parties are likely to be willing to consent to the consolidation of arbitration. In many cases, a party may have reasons to object, such as limited participation in the dispute or additional complications.

What solutions have been implemented?

Arbitration institutions have adapted their rules to allow for the consolidation of arbitrations. These rules typically require that arbitration agreements be compatible and that there be a connection between the disputes. In this regard, agreements that differ in essential aspects (such as the venue, the number of arbitrators, or the type of arbitration) are considered incompatible, although the distinction between essential and secondary aspects is not always clear.[2].

As an example, in the current Regulations of the International Chamber of Commerce[3] It does allow the consolidation of arbitrations, as established in its article 10:

“Article 10. Consolidation of arbitrations.

The Court may, at the request of a party, consolidate two or more arbitrations pending under the Rules into a single arbitration, where: a) the parties have agreed to consolidation; or b) all claims in the arbitrations are made under the same arbitration agreement(s); or c) The claims in the arbitrations are not formulated under the same arbitration agreement or agreements, but the arbitrations are between the same parties, the disputes in the arbitrations arise in relation to the same legal relationship, and the Court considers that the arbitration agreements are compatible. (…)”

For its part, the London Court of Arbitration also provides for the consolidation of arbitration in its rules in its article 22:

22.7 The Arbitral Tribunal shall have the power to order, with the approval of the LCIA Court, at the request of any party, after giving all affected parties a reasonable opportunity to express their views and on such terms (as to costs and otherwise) as the Arbitral Tribunal may decide:

(i) the consolidation of the arbitration with one or more additional arbitrations into a single arbitration subject to the LCIA Rules where all parties to the arbitrations to be consolidated so agree in writing;

(ii) the consolidation of the arbitration with one or more other arbitrations subject to the LCIA Rules and initiated under the same arbitration agreement or any compatible arbitration agreement and whether between the same disputing parties or arising out of the same transaction or series of related transactions, provided that an arbitral tribunal for such other arbitrations has not yet been formed by the LCIA Court or, if one has been formed, that such arbitral tribunals are composed of the same arbitrators; and

(iii) that two or more arbitrations, subject to the LCIA Rules and initiated under the same arbitration agreement or any compatible arbitration agreement and whether between the same disputing parties or arising out of the same transaction or series of related transactions, shall be conducted simultaneously where the same arbitral tribunal is constituted in respect of each arbitration.

In this regard, the various arbitration institutions around the world have advanced and improved their perspective to provide solutions to dilemmas where arbitration clauses in different contracts must be litigated jointly through the consolidation of arbitrations. This ensures the validity of the arbitral award and guarantees the parties eventual enforcement without any risk of nullity.

Practical recommendations for companies when designing their arbitration clauses

Given the current situation, it is suggested that parties entering into multi-contract agreements with the same entity or that share common agents should standardize their arbitration clauses and draft them in accordance with the same common elements: arbitration institution, arbitration venue, lex arbitri, language, and number of arbitrators.

By designing and implementing a common strategy for this type of transaction, the consolidation of the arbitration is legally viable and operationally effective in the event of a contingency.

This is particularly relevant for all companies that act as global economic agents, since the lack of adequate strategic planning in the drafting of their dispute resolution clauses could not only prevent arbitration consolidation, but, in the worst case, result in the nullity or unenforceability of the corresponding awards.

[1] Vlavianos, G et al. (2019) Consolidation of International Commercial Arbitration Proceedings in the Energy Sector. Global Arbitration Review. Third Edition. Available at: https://www.lexology.com/library/detail.aspx?g=425d0485-ad65-44be-b679-916347209fad

[2] Holman Fenwick Wilan (2021). Core Issues In International Arbitration: Consolidation Of Proceedings – Key Considerations To Be Aware Of. Available in https://www.hfw.com/app/uploads/2024/04/003468-Core-issues-in-international-arbitration.pdf

[3] Regulations in force as of January 1, 2021