Arbitration and third parties is a topic which, over and above its academic relevance, has important practical implications for parties in international arbitration proceedings. The issue of arbitration and third parties may concern situations where a party wishes to refer to arbitration another party that was not part of the main contract and therefore did not sign or consent to the arbitration agreement. Those parties are often referred to as non-signatories. [1]
The complexity of today’s commercial relations and multiparty contract structures has led to the emergence of issues of arbitration and third parties. [2] The non-inclusion of non-signatories to the arbitral process in cases where they should have been associated can lead to a lack of efficiency in the arbitral process and would be contrary to principles of good administration of justice. On the contrary, the addition of third parties that have not consented to arbitrate can be a ground for the refusal of enforcement of an arbitral award. [3]
A significant number of legal theories have been invoked to deal with the issue of third parties, under different national legal systems, so as to bind parties that have not signed or been a party to an arbitration agreement in order to add them to the arbitral proceedings. [4]
Some of the most common are:
Assignment typically concerns issues where a transfer of rights and/or obligations has occurred (subrogation in insurance contracts, a merger, an acquisition, etc.). The question would be whether the arbitration clause included in the assigned contract will bind the non-signatories, i.e., the assignee vis-à-vis the original party in the contract, the transferor. In the majority of jurisdictions, it is accepted that an automatic transfer of the clause to arbitrate to the assignee takes place when the latter assumes the obligations deriving from main contract. [5]
Agency is the situation where an agent executes a contract on behalf of a principal. Here too, the predominant view is that when an agent enters into a contract on behalf of its principal, the latter will be bound by all the obligations provided for by the contract, including the arbitration clause. [6] The clause will thus be extended to the principal, although the principal is a non-signatory of the main contract.
The theory of equitable estoppel in arbitration is especially relied upon by US courts in order to allow or bring third parties to arbitral proceedings, although they did not consent to arbitrate in the first place. The doctrine is based on considerations of fairness and equity which render the exercise of courts and tribunals more complex. [7] In essence, when a non-signatory party intends to avail itself of substantive rights under a contract including an arbitration clause, it will be estopped from denying that it is a party to the arbitration agreement included therein. [8] This theory is, however, rarely applied outside of the US.
Alter-ego, or piercing the corporate veil, is a doctrine applied in cases where, despite the principle of separation between a corporation and its shareholders, directors or officers, the latter will be held accountable for the corporation’s actions as if they were its own. This is applied in cases of bad faith and abuse of rights of the natural or legal persons who have improperly used the company as a shield against liability. [9] As a consequence, courts and tribunals are rather reluctant in applying this doctrine.
The “group of companies” doctrine, or implied consent, emerged with the idea that multinational groups operating through subsidiaries and affiliates should be considered as a whole and not as separate legal entities. [10] Since this theory questions the principle of the separateness of the legal personality of the companies comprising a group, the doctrine remains highly controversial in the field of international arbitration. The landmark case Dow Chemical v. Isover-Saint-Gobain is considered to have introduced the concept into international arbitration. According to this theory, companies of the same group which have participated either in the negotiation, conclusion or termination of a contract that was formally entered into by another company of the group may rely upon or be subjected to the arbitration clause included in said contract. Moreover, the court or the tribunal must examine the “common intention of the parties”, i.e., that the non-signatory behaved as if it implicitly consented to the contract and, therefore, to the arbitration clause. [11] This theory is recognized by French courts, although usually rejected by English courts. [12]
The temptation to look into mechanisms present in litigation before state courts is significant in order to enhance the efficiency of the arbitral process and apply them to arbitration and third parties. This is not without difficulty in the field of international arbitration since the tribunal must abide by the will of the parties, known as the principle of party autonomy. As a result, few national laws include provisions regarding joinder (or intervention). [13]
Nevertheless, under some institutional rules, such as the 2021 ICC Rules, the arbitral tribunal has the power and discretion to decide upon the joinder of a third party where the conditions of Article 7.5 are met. The same applies under Article 6.3 of the 2021 Swiss Rules where the tribunal must take “into account all relevant circumstances” to take its decision on joinder of a third party. The language of the 2023 SCC Rules is more restrictive since the Board, which decides upon the joinder, must first ensure that the SCC “does not manifestly lack jurisdiction over the dispute between the parties, including any additional party”.
As mentioned above, the most problematic issue with arbitration and third parties compelled to arbitrate lies with the enforcement of the award.
If a third party is joined to the proceedings, this may violate the arbitration agreement between the two initial parties. In this regard, the most evident basis for refusal of the enforcement of an award would be the absence of an appropriate arbitration agreement between the parties under Article V(1)(a) of the New York Convention. Alternatively, the recognition and enforcement of the award may be refused based on Article V(1)(c) of the New York Convention, i.e., the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration or contains decisions on matters beyond the scope of the submission to arbitration.
Arbitration and third parties remains one of the most controversial topics in international arbitration as it contradicts the consensual nature of arbitration. As Professor S. Brekoulakis stated, we should try to reach “a more consistent, more inclusive, and eventually, intellectually more honest approach to non-signatories”[14], in order to achieve greater efficiency and coherence of the arbitral process.
[1] S. Brekoulakis, “Chapter 8: Parties in International Arbitration: Consent v. Commercial Reality”, in S. Brekoulakis, J. D. M. Lew, et al. (ed.), The Evolution and Future of International Arbitration, Kluwer Law International 2016, pp. 119-160, p. 120, para. 8.1.
[2] J. D. M. Lew, L. A. Mistelis, et al., “Chapter 16 Multiparty and Multicontract Arbitration”, in J. D. M. Lew, L. A. Mistelis, et al., Comparative International Commercial Arbitration, Kluwer Law International 2003, pp. 377-409, para. 16-1.
[3] J. D. M. Lew, L. A. Mistelis, et al., “Chapter 16 Multiparty and Multicontract Arbitration”, in J. D.M. Lew, L. A. Mistelis, et al., Comparative International Commercial Arbitration, Kluwer Law International 2003, pp. 377-409, para. 16-3.
[4] G. Born, “Chapter 5: International Arbitration Agreements: Non-Signatory Issues”, in Gary B. Born, International Arbitration: Law and Practice (3rd ed.), Kluwer Law International 2021, pp. 113-121.
[5] S. Brekoulakis, “Chapter 8: Parties in International Arbitration: Consent v. Commercial Reality”, in S. Brekoulakis, J. D.M. Lew, et al. (ed.), The Evolution and Future of International Arbitration, Kluwer Law International 2016, pp. 119 -160, p. 120, para. 8.22; see, for example, CMA CGM SA v Hyundai M.I.P.O. Dockyard Co Ltd [2008] EWHC 2791 (Comm); [2008] 2 CLC 687, ¶¶32-33.
[6] G. Born, “Chapter 5: International Arbitration Agreements: Non-Signatory Issues”, in Gary B. Born, International Arbitration: Law and Practice (3rd ed.), Kluwer Law International 2021, pp. 113-121, p. 115.
[7] S. Brekoulakis, “Chapter 8: Parties in International Arbitration: Consent v. Commercial Reality”, in S. Brekoulakis, J. D.M. Lew, et al. (ed.), The Evolution and Future of International Arbitration, Kluwer Law International 2016, pp. 119 -160, p.130, para. 8.56.
[8] G. Born, “Chapter 5: International Arbitration Agreements: Non-Signatory Issues”, in Gary B. Born, International Arbitration: Law and Practice (3rd ed.), Kluwer Law International 2021, pp. 113-121, p. 118; see also, for example, Tepper Realty Co. v. Mosaic Tile Co., 259 F. Supp. 688, 692 (S.D.N.Y. 1966).
[9] B. Hanotiau, “Chapter 1: Who Are the Parties to the Contract(s) or to the Arbitration Clause(s) Contained Therein? The Theories Applied by Courts and Arbitral Tribunals”, in B. Hanotiau, Complex Arbitrations: Multiparty, Multi-contract, Multi-issue – A comparative Study (2nd ed.), Kluwer Law International 2020, pp. 5-94, p. 86.
[10] S. Brekoulakis, “Chapter 8: Parties in International Arbitration: Consent v. Commercial Reality”, in S. Brekoulakis, J. D.M. Lew, et al. (ed.), The Evolution and Future of International Arbitration, Kluwer Law International 2016, pp. 119-160, p. 134, para. 8.67.
[11] S. Brekoulakis, “Chapter 8: Parties in International Arbitration: Consent v. Commercial Reality”, in S. Brekoulakis, J. D.M. Lew, et al. (ed.), The Evolution and Future of International Arbitration, Kluwer Law International 2016, pp. 119-160, p. 141, para. 8.89; see also Dallah, Court of Appeal, 17 February 2011, No. 09/28533.
[13] J. D.M. Lew, L. A. Mistelis, et al., “Chapter 16 Multiparty and Multicontract Arbitration”, in J. D.M. Lew, L. A. Mistelis, et al., Comparative International Commercial Arbitration, Kluwer Law International 2003, pp. 377-409, para. 16-40.
[14] S. Brekoulakis, “Rethinking Consent in International Commercial Arbitration: A General Theory for Non-signatories”, Journal of International Dispute Settlement, Volume 8, Issue 4, December 2017, pp. 610-643.
