In what instances can third parties or non-signatories be bound by an arbitration agreement or award?
International Arbitration (2nd Edition)
The general rule under Chilean law is that third parties or non-signatories to an arbitration agreement or to the contract that contains the arbitration agreement, are not bound by such agreement or by the award issued in the arbitration proceeding. A third party may only be part of an arbitration prior its consent and the consent of the actual parties of the agreement.
However, there are some exceptions to this rule. A third party may be bound by an arbitration agreement that has been assigned to it by law, as it occurs in legal subrogation and succession cases. Another exception are the cases where the corporate veil or alter ego theory is applicable.
Portuguese jurisdiction embodies the principle that only the parties that have executed an arbitration agreement can be bound to it. Third parties which have not signed the arbitration agreement, but who subsequently adhered to it, may also be allowed to join on-going arbitral proceedings based on such arbitration agreement.
Legal figures and doctrines such as the “Group of Companies”, “Estoppel” (in Portugal “Abuse of Right”) or “Piercing the Corporate Veil” pose exceptions to bind non-signatories to arbitration agreements or arbitral awards and are of extremely limited use in Portugal.
In principle, the arbitration agreement only binds the parties (article 1243 of the NCPC) but Luxembourg case law has confirmed that in the event of the assignment of a contract or the stipulation in favour of a third party, the arbitration clause may be enforceable against a third party. Courts have also extended arbitration agreements to non-signatories in cases of group contracts where the parties would (i) have implicitly agreed to adhere to the arbitration agreement; (ii) would be linked to the master agreement (Tribunal d’arrondissement, Xème chambre, jugement civil n°115/2012 du 1er juin 2012).
In principle, parties which have an interest in the arbitral proceedings may join or intervene, unless otherwise provided in the arbitration rules agreed between the parties.
Whether in international arbitration an arbitration agreement can be extended onto a non-signatory third party must always be assessed on a case-by-case basis. Pursuant to the Swiss Federal Tribunal’s case law, an extension of the arbitration agreement onto non-signatory third parties may in the following scenarios be possible:
- A non-signatory third-party may become subject to an arbitration agreement based on an implied intent, typically expressed by such party’s conduct. Under certain circumstances, an interference by a third party in the negotiations or performance of a contract containing an arbitration clause may lead to the applicability of such arbitration clause to the interfering third party.
- Unless express language in the arbitration clause determines otherwise, third party beneficiaries of agreements with arbitration clauses may generally invoke such arbitration clauses when raising claims under the pertinent agreements, even though these third party beneficiaries have not signed the agreement in question.
- In case of assignment of contracts containing an arbitration clause, the arbitration clause is generally also deemed to have been assigned onto the assignee.
- Under the alter ego doctrine, also referred to as the piercing of the corporate veil doctrine, a non-signatory party can be bound by an arbitration agreement, if such non-signatory party can be regarded as an alter ego of a party formally bound by the arbitration agreement. Such assumption requires that a party exerts complete and exhaustive control over another party and has misused such control to such extent that it may be appropriate to disregard the separate legal forms of the two parties and treat them as one entity. However, in Switzerland the separate corporate forms of companies will only under exceptional circumstances be disregarded, such as in case of fraud or blatant abuse of rights.
- It is a matter of debate in Switzerland whether the group of companies doctrine applies in Switzerland. In any event, it is submitted that in many instances where one would apply such doctrine to extend the scope of an arbitration agreement onto a third party, there is a similar likelihood to successfully achieve an extension invoking the doctrine of implied intent of the third party onto whom the agreement is to be extended (see above).
As a general rule, arbitration agreements bind only the parties that have expressly agreed to arbitrate (section 1029 (1) ZPO). As a result, a third party cannot be forced to join an arbitration without its consent.
If the third party consents, the (original) parties may agree to its participation (or the institutional rules may provide for a special legal construction of joinder). The rules regarding joinder of parties in state court-litigation do not apply to arbitral proceedings. Therefore, in order for an arbitration agreement to extend to a third party, (i) the latter needs to agree to be joined, and (ii) all parties and the tribunal need to agree (either by explicit agreement or by the application of institutional rules).
Only in instances of assignment, agency, succession and insolvency, the respective assignee, principal, successor and insolvency administrator is generally bound by the arbitration agreement and any arbitral award (exceptions apply).
Moreover, the “group of companies doctrine” is not adopted in Germany. This position is explicitly confirmed by the Bundesgerichtshof. However, the court also found that if the doctrine is applied under foreign laws, this does not necessarily constitute a violation of German public policy.
Ukrainian law and court practice generally recognise the possibility to extend effect of an arbitration agreement on the third party based inter alia on the rules of assignment. However, if the award in favour of the principal debtor was rendered, possibility of recognition and enforcement of the award in favour of its successor or assignee (instead of the creditor under the arbitral award) is highly problematic in practice. In particular, some courts have found that under the CPC it is possible to file an application for recognition and enforcement of arbitral award only by the creditor under the arbitration award.
The Panama Arbitration Law is silent as to whether third parties or non-signatories can be bound by an arbitration agreement or award.
However, one of the two main arbitral institutions in Panama has rules regarding the joinder of third parties to the arbitration proceedings.
Under the rules of the “Centro de Arbitraje y Conciliación de Panamá (CeCAP)”, in the complaint, in the statement of defense, in the counterclaim or in response to the counterclaim, parties may request the arbitration center to join another party or parties to the arbitration, as long as this application is made prior to the constitution of the arbitral tribunal.
A third party may not be bound by an arbitration agreement or award pursuant to UAE CPC.
The DIFC-LCIA Arbitration Rules (Article 22) further provides that one or more third parties may to be joined to the arbitration subject to the agreement of the third party and the applicant party.
Generally, the arbitration agreement is only binding between the parties. However, a third party or a non-signatory may be bound by an arbitration agreement in case of universal succession. Moreover, following a Supreme Court Case in 1997 (the Emja-case), it is now generally accepted that an arbitration agreement may be transferred with binding effect also in case of singular succession.
The issue whether a guarantor of any of the parties to the main contract also should be bound by the arbitration clause in the main contract has been deliberately left open for case law to decide and it is fair to say that yet there is no precedence. Rather, case law shows that tribunals and the courts have taken a pragmatic stance and the outcome is very much dependent on the particular circumstances of the case.
Under Swedish law, the approach is generally skeptical towards the so-called “group of companies” doctrine and the possibility to pierce the corporate veil is very limited. The same goes for binding third parties to an arbitration agreement by so-called third party beneficiary agreements.
Spanish law does not give a tribunal power to assume jurisdiction over individuals/entities that are not actually a party to the arbitration agreement. However, certain case law in Spain has admitted that arbitration agreements may bind non-signatories if they have had a very close and strong relationship with one of the signatories and/or played a relevant role in the performance of the contract subject to arbitration (the so-called "tacit acceptance of the arbitration agreement").
This issue has to be analysed on a case-by-case basis, given that there is no specific case law in Spain applicable on a general basis (the decision of the Supreme Court of 9 July 2007 may be cited as being contrary to the extension of the arbitration clause to non-signatories and the decision of the Supreme Court of 26 May 2005 as being favourable to such extension).
It is established as a general principle that no one can be bound by an arbitration agreement without consent. Up until now, Serbian courts and arbitrations have not addressed doctrines allowing extension of the arbitration agreement to non-signatories (such as group of companies doctrine, piercing of the corporate veil, etc).
As a general rule, an arbitration agreement is consensual and therefore only binding on the contracting parties. Therefore, parties who did not sign the contract cannot be compelled to arbitrate disputes relating to the contract except when the contract contains a reference to a document containing an arbitration clause to which the third party is a signatory. However, a third party that did not sign a contract incorporating an arbitral clause may compel a party that did sign the contract to arbitrate if the contract contains a reference to a document containing an arbitral clause and the reference is such as to make that arbitration clause part of the contract.
The court may also issue an order directing the inclusion in arbitration of those parties who are not bound by the arbitration agreement but who agree to such inclusion provided those originally bound by it do not object to their inclusion.
In addition, preliminary attachment as an interim measure of protection may issue against property or funds in the custody of a third person.
Further, in cases of arbitration involving a third-party provider of security, an arbitration agreement contained in a contract of loan between the lender and the borrower extends to and covers an accessory contract securing the loan, such as a pledge, mortgage, guaranty or suretyship, executed by a person other than the borrower only if such third-party securing the loan has agreed in the accessory contract, either directly or by reference, to be bound by such arbitration agreement.
There is no provision which confers powers to the tribunal or the local court to bound any third party or signatory to arbitration. However, at the same time, it can be noted that for the purpose of interim relief, the Tribunal can implead a third party for effective implementation of the interim order.
Third parties or non-signatories cannot be bound by an arbitration agreement or award.
There are some precedents where the corporate veil was pierced when a parent company completely controls the contracting subsidiary and was directly involved in the transaction. Other cases include instances where a company signs as a guarantor. There can be no joinder of a party that is not a signatory to the arbitration agreement, except by agreement of all the parties (that is, a third party consensually becomes a party to the arbitration).
Even though the principal rule is that only the parties are bound by the arbitration agreement, there are certain situations where third parties or non-signatories may be bound the agreement. This is quite a complex issue, but one example is that the arbitration agreement shall be deemed to be transferred together with any transfer of the legal relationship to which it applies, unless otherwise agreed.
Third parties and non-signatories will have to respect the arbitration award to the same extent as they would be bound by an agreement between the parties to the arbitration case.
In general, third parties and non-signatories cannot be bound by an arbitration agreement or award since they take effect only inter partes. However, in exceptional cases, non-signatories may participate in the arbitration and be bound by an arbitral award, e.g. in cases where the agreement, which is the subject matter of arbitration, is concluded in favour of a third person which is not a signatory thereof.
Third parties or non-signatories are in general not bound by an arbitration agreement or award. In general, a body of jurisprudence has developed internationally which concerns when a non-signatory can be required to arbitrate, such as in cases of agency, implied consent or group of companies, however these circumstances have not been examined or applied by Cypriot Courts yet.
Under general principles of French contract law, agreements bind only the contracting parties (Article 1199, Civil Code). The same rule applies to arbitration agreements, which are normally not binding on non-signatories.
However, in some circumstances, the French courts consider that it is possible for third parties to be bound by an arbitration clause that they have not signed. This may occur, for example, in the context of a group of companies or interconnected contracts (see Question 20).
The existence of a group of companies is, however, not sufficient in and of itself to extend an arbitration agreement to third parties (and in fact, most arbitral tribunals refuse to extend an arbitration clause solely on this basis). It is merely a circumstance that may favour such an extension, which requires interpreting a party’s behaviour to infer its consent to be bound by the arbitration agreement. Accordingly, this doctrine is very fact-dependent, and French courts take into account a variety of elements, particularly the third party’s participation in the negotiation, conclusion, performance and termination of the contract.
A third party (even where it was not a party to the arbitration) may also be liable for an arbitration award under the piercing of the corporate veil and agency doctrines. For example, an award rendered against a state can be enforced against a state-owned company, if the party seeking enforcement of the award can prove that the company is in fact the alter ego (émanation) of that state (see Paris Court of Appeal, 3 July 2003, No. 2002/03185, Société Nationale des Pétroles du Congo). Similarly, an award rendered against a subsidiary would be enforceable against its parent company if the conditions for piercing the corporate veil under French law are met.
See question No. 20 above.
Generally, under the ACA, a third party cannot be bound by an arbitration agreement or award. However, an arbitral tribunal may assume jurisdiction over individuals or entities that are not themselves parties to an agreement to arbitrate, if the parties to the arbitration agreement consent to the participation of such third parties and if such third parties themselves voluntarily submit to the jurisdiction of the arbitral tribunal. Also, in the event of the death of any party to the agreement, the arbitration agreement is enforceable by or against the personal representative of the deceased. See section 3 of the ACA. Where the assets and liabilities of a contracting party are being liquidated by a court order, the liquidator may be authorized by the court to bring or defend any arbitration proceedings and therefore would be bound by the decision in such arbitral proceedings. Further, third parties or non-signatories would be bound by an arbitration agreement where there exist any rights and obligations under assignment and agency contracts.
Third parties may be bound by arbitration agreements or an award only if there are special situations such as, in particular, of legal succession (including assignments, conferment or redemption of debts) or they are beneficiaries (in such cases, the third party is still free to decide whether it consumes the rights under a contract but when it does, it is also considered bound by a respective arbitration clause according to Supreme Court jurisprudence).
Arbitration agreements generally bind only the parties. Nonetheless, applying ordinary principles of contract law, courts in the United States have held that third-party non-signatories may be bound by arbitration agreements on theories of estoppel, agency relationships with a party, assumption of the contract containing the arbitration agreement, third-party beneficiary status under the contract, or piercing the corporate veil. Hellenic Inv. Fund, Inc. v. Det Norske Veritas, 464 F.3d 514, 518 (5th Cir. 2006). With respect to joinder, please see response to question 9 above.
Arbitration awards bind only the parties to the arbitration. Enforcing an arbitral award against a non-party to the arbitration (e.g., by piercing the corporate veil ) requires a separate lawsuit against the third party.
Only signatories are bound by the arbitration agreement. This is the principle informed by the consent maxim. That being said, an arbitration agreement is binding upon third parties in cases of assignment, assumption of debt, succession, merger or other types of corporate transformations, and subrogated claims. Also in the rare cases in which a piercing of the corporate vail is justified a stakeholder may be bound by the arbitration agreement concluded by the legal entity. Under similar substantive law arrangements, the arbitration agreement may be deemed binding upon non-signatory companies of the same group. These however are to be understood as exceptional cases. Greek case law confirms this assessment.
A third party not bound by the arbitration agreement may not be compelled to participate in the arbitration proceedings. For that reason, procedural devises provided for under the GrCCP as regards State Court proceedings, such as compulsory joinder of third parties, are not applicable to arbitration.
That being said, in case the third party consents and the initial parties agree to it, the third party may participate in the arbitral proceedings.
The parties to the arbitration agreement are the parties the name of which is indicated in the arbitration agreement as parties to the arbitration agreement. As a rule, it should be concluded that parties that are not parties to the arbitration agreement are not included in it. Therefore, third parties and non-signatories are not a party to the arbitration agreement and are not bound by it.
However, a person may be considered a party to an arbitration agreement by virtue of implied agreement even if he has not officially signed the arbitration agreement (e.g., if he took active part in the arbitration and offered to serve as guarantor to one of the parties to the arbitration as part of an arrangement offered under the arbitration that was validated as an arbitral award). In addition, a party may be included in an arbitral proceeding when the parties to the arbitration agreement and the party the inclusion of which to the arbitration agreement is sought all agree on its inclusion in the arbitration. An arbitration agreement can also bind the successor of the original party to an arbitration agreement (Section 4 of the Arbitration Agreement). Also, in order to prevent parties from evading the participation in an arbitral proceeding to which they essentially agreed by using formalistic claims, the arbitration can also include a person who does not meet the aforesaid conditions, provided that he has a strong connection with one of the parties which is a signatory. For instance, when the inclusion is sought of parties having a strong connection with one of the signatories but the principle of separate legal entity separates them. Thus, for example, when a party to the arbitration applies for the inclusion of the controlling shareholder in the company with which it signed an arbitration agreement, or when a party seeks to include in the preceding the company which is wholly controlled by the other party.
The general rule is that a valid and enforceable arbitration award can only be made by a tribunal that has jurisdiction over the dispute and can only bind the parties to the arbitration. However, the 1996 Act states that references in Part I (Arbitration pursuant to an arbitration agreement) to a party to an arbitration agreement include "any person claiming under or through a party to the agreement" (s.82(2)).