A A RBITRATION WARDS AND T P HIRD ARTIES « Res inter alios arbitrata aliis neque nocet neque prodest? » K C RISTOF OX Doctoral Dissertation Katholieke Universiteit Leuven promotor: prof. dr. Hans Van Houtte to Carolien Summary Table of Contents GENERAL INTRODUCTION Chapter 1 Complexity, darkness and light PART I RATIONALE AND CONCEPTS Chapter 2 Rationale and public policy character Chapter 3 Defining parties and third parties – the enforcement perspective Chapter 4 Which awards and parts of the award? PART II EFFECTS IN FAVOR OF THIRD PARTIES Chapter 5 Mutuality Chapter 6 The imperfect analogy between arbitration and litigation Chapter 7 Contractual approach PART III EFFECTS AGAINST THIRD PARTIES Chapter 8 Refutable presumption against third parties Chapter 9 Irrefutable presumption against third parties GENERAL CONCLUSION Chapter 10 Res inter alios arbitrata, allis nocet et prodest G ENERAL I NTRODUCTION CHAPTER 1 COMPLEXITY, DARKNESS AND LIGHT I. Complexity 1.01 II. Darkness 1.05 III. Light 1.07 I. COMPLEXITY 1.01 There were times when life was simple. In those times scholars wrote that for third parties a decision between others is like a white sheet of paper. Article 1022 of the Belgian Code of Civil Procedure provided that: “Les jugements arbitraux ne pourront, en aucun cas, être opposés à des tiers.”. You could put away this book, not bothering to read it, ascertained that arbitration awards have no effect vis-à-vis third parties. However, if you would consider doing so now, you should know that life is not that simple anymore. Many things have changed, the abolishment of Art. 1022 in 1972 being just one of those things.1 Moreover, even before 1972 Art. 1022 probably was already inaccurate. In any event, it covered only half of the problem treated in this study, thus neglecting the question whether and how third parties may invoke arbitration awards against the parties. 1.02 Today, life is all but simple. Modern industrial and commercial transactions have reached such a degree of complexity, that the classic one-contract-two-parties model is threatened with extinction. Rather, multiple parties enter into multiple contracts for the completion of a single economic transaction. The cooperation of multiple parties is necessitated by the evolution of modern trade and industry, most importantly by its tremendous increase in scale. Industrial, as well as consumer goods are produced and traded in greater variety and at higher volumes than ever before. This increase in scale is both cause and consequence of the globalization of trade and industry. Commodities and finished goods pass through sophisticated distribution networks with various intermediaries before they reach the end user. These goods are transported in ships that are chartered and sub-chartered.2 Public and civil infrastructure – necessary to support this globalized trade - can no longer be constructed by a single contractor, but require 1 The new Articles on arbitration, introduced into the Code of Civil Procedure in 1972, did not contain a provision similar to Art. 1022; the legislator was of the opinion that the matter could be governed by “general principles”; 2 [Cohen 1997] p. 471; CHAPTER 1 – COMPLEXITY, DARKNESS AND LIGHT contractors uniting in consortia and joint ventures, as well as the intervention of many specialized subcontractors, suppliers, engineers and other design professionals. Since these projects and transactions float on large sums of money, finance is sought externally. The high risks involved call for insurance, reinsurance, sureties and guarantees. Each of these elements adds extra parties to the transaction.3 Moreover, the niceties of corporate and tax law lead to the creation and interposition of numerous legal and corporate entities with varying degrees of (in)dependence.4 Mothers, daughters, sisters and affiliates may assume diverse roles in the transaction. Thus, the economic transaction resembles a complex piece of machinery, in which each party functions as a cogwheel, driven by other cogwheels and in turn setting more cogwheels in motion. The rights and obligations of the parties are factually and legally linked, crossed and interdependent. Therefore, one event in a multi-party, multi-contract transaction – causing a breakdown in the machinery - may give rise to multiple disputes between different combinations of parties.5 1.03 Ideally, such multi-party disputes would be resolved by one decision maker, in one decision. Ideally indeed, since another side-effect of the growing complexity and globalization of trade and industry is that parties progressively opt for arbitration, attracted by its many advantages. Arbitration is particularly fit to deal with highly sophisticated international transactions. Among its qualities are the flexibility of the procedure, expertise of the arbitrators, efficiency, confidentiality, finality and worldwide enforceability of awards on the basis of the New York Convention. Therefore, it is not surprising that industries like construction, shipping and commodity trade have their disputes almost invariably resolved by arbitrators. The choice for arbitration as such would not create a problem if parties would coordinate their (arbitration- and other) dispute resolution clauses. Unfortunately, they rarely manage to do so. In one transaction, parties A and B may opt for CEPANI-arbitration with three arbitrators sitting in Brussels; parties B and C for ICC-arbitration with a single arbitrator sitting in Paris; parties C and D for ad hoc arbitration under the UNCITRAL- rules and maybe D and A select the courts of New York. Even if all parties to the transaction are bound by the same arbitration agreement, the inherent difficulties of multi-party arbitration – not in the least the appointment of the tribunal – may lead to the splitting-up of the dispute. In litigation, related disputes may be brought before one court through consolidation of proceedings and the joinder and intervention of third parties. However, given the contractual basis of arbitration and the strategic choices parties and third parties tend to make, it is mostly impossible to bring all parties involved in a multi-party dispute together before one and the same arbitral tribunal. As a result, the multi-party dispute is spread over several parallel and subsequent proceedings between partially overlapping parties. 3 [Brekoulakis 2005] p.187; 4 [Mohan and Teck 2005] p.161; 5 [Nicklisch 1994] p. 59; 2