In what instances can third parties or non-signatories be bound by an arbitration agreement or award? Can local courts order third parties to participate in arbitration proceedings in your country?
International Arbitration (3rd edition)
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). There are no precedents of local courts ordering third parties to participate in arbitration proceedings as witnesses or to submit evidence. Theoretically this may be possible. Local courts cannot order a third party to be joined as a party to an arbitration.
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.
The legislation in Cyprus does not bound any third parties or non-signatories by an arbitration agreement or award and such measures are not applied in Cypriot Courts. However, Cap. 4 states that third parties can be instructed by the Court to present documents concerning the dispute and be ordered to be examined under oath.
Thirds parties or non-signatories can be bound by an arbitration agreement only in case of legal succession, as stipulated under section 2 (5) of the Arbitration Act.
No one can be compelled to participate in arbitration proceedings without their consent.
The CPC stipulates the right of third parties or non-signatories to participate in the arbitral proceedings, under the general conditions concerning third party participation in front of the national courts.
The paramount condition to be complied with relates to the consent of the third parties, as well as that of the other parties to the arbitration. Nonetheless, an accessory joinder claim (i.e., the third party voluntarily adheres to the procedure, with the scope of supporting one of the parties’ positions) is admissible even in the absence of the consent of all the other parties.
Serbian Act on Arbitration prescribes that the arbitration agreement shall remain in force even in case of the assignment of contract or claim, unless agreed otherwise. The same applies to subrogation and other cases of transfer of claim, e.g. legal consolidations through merger or acquisition.
Extension of the arbitration agreement to non-signatories in cases that concern multiple parties such as “group of companies” doctrine, piercing of the corporate veil etc. is not regulated under Serbian law.
Local courts cannot order third parties to participate in arbitration proceedings.
A third party cannot be bound by an arbitration agreement or award without its consent, and may not be joined to arbitration proceedings without the consent of the parties to the proceedings. However, Article 8 of the Interpretation of the Supreme People’s Court Concerning Some Issues on Application of the Arbitration Law of People’ Republic of China allows for exceptions in the following circumstances: (1) a party to the arbitration is merged or divided after the arbitration agreement has been concluded, in which case the arbitration agreement will bind the successor which assumes the original party’s rights and obligations; or (2) a party to the arbitration dies following the conclusion of an arbitration agreement, in which case the arbitration agreement will bind the successor who assumes the original party’s rights and obligations in the matter.
a. In general, the arbitration agreement and the award are only binding between the parties. However, rules of succession or power-of-attorney can make the agreement or award binding for third parties as well.
An arbitration agreement is generally binding only on the parties. Exceptions extending the arbitration clause to third parties include assignment of the underlying contract, general succession, and acquisition of an enterprise (with respect to disputes concerning liabilities connected with operation of the enterprise). Moreover, an arbitration clause included in the articles of association of a company extends to the company and any subsequent shareholder (the same rule applies also to an arbitration clause included in the statute of an association or cooperative).
Arbitration law does not contain any provisions regarding third-party joinder or notice, but it is generally accepted that it is allowed, if both the parties and the third party consent. This could be addressed in the arbitration rules or the arbitration agreement. For example, under the Rules of the Court of Arbitration at the Polish Chamber of Commerce, upon application of a third party, the arbitral tribunal may allow it to participate in arbitral proceedings, subject to the consent of 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).
State courts cannot order parties or third parties to arbitrate or issue subpoenas to third parties.
Article 22 of the UAE Arbitration Law empowers an Arbitral Tribunal to authorise the joinder of a third party to the arbitral proceedings. The Arbitral Tribunal may do so upon the request by a party or by the joining party.
The request to the Arbitral Tribunal, must, however, be made by a party to the arbitration agreement, and provided all parties are given an opportunity for their views to be heard.
This provision could find its application where subcontracts validly incorporate the arbitration clause of a main contract.
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.
Third parties cannot be compelled by the UAE Courts to participate in arbitral proceedings.
Generally, a third party cannot be bound by an arbitration clause without its consent. It may participate in an arbitration, but only if all of the other parties concerned consent. Consent may be given by adopting institutional rules that provide for joinder.
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)).
Neither the Law of Arbitration nor its implementing regulations expressly address this question. The language of relevant rules, including ones relating to awards and enforcement, is limited to governing the parties to the arbitration. It should be noted, however, that as a matter of Saudi Companies law, shareholders may lose their limited liability status assuming certain guidelines are violated.
Article 13 of the Implementing Regulations to the Law of Arbitration provides that the arbitration tribunal may allow the intervention of a third party or join a third party subject to agreement of the parties to the arbitration and the third party.
For SCCA arbitrations, Article 7 of the Saudi Center for Commercial Arbitration (SCCA) Arbitration Law allows joinders, where:
1) a party wishing to join an additional party to the arbitration shall submit to the Administrator a notice of arbitration against the additional party. No additional party may be joined after the appointment of any arbitrator, unless all parties, including the additional party, otherwise agree. The party wishing to join the additional party shall, at that same time, submit the notice of arbitration to the additional party and all other parties. The date on which such notice of arbitration is received by the Administrator shall be deemed to be the date of the commencement of arbitration against the additional party. Any joinder shall be subject to the appointment of arbitrators provisions included in these Rules;
2) the request for joinder shall contain the same information required of a notice of arbitration and shall be accompanied by the appropriate filing fee;
3) the additional party shall submit an answer in accordance with the provisions of Article 5; and
4) the additional party may make claims, counterclaims, or assert set-offs against any other party in accordance with the provisions of Article 5.
In principle, an arbitration agreement is only binding on the parties. However, different common law principles may apply to bind a non-signatory party, such as agency law, equitable estoppel, or the piercing of the corporate veil. Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 631 (2009).
Arbitrators have the power to summon any third party in writing to testify before the tribunal at a hearing. 9 U.S.C. § 7. If a person summoned as a witness does not comply, the statute gives the district court in the district in which the arbitrator sits the power to compel the person’s attendance before the arbitrator. However, the FAA does not give arbitrators the power to subpoena documents from third parties outside of a hearing. See CVS Health Corp. v. Vividus, LLC, 878 F.3d 703, 708 (9th Cir. 2017).
Austrian law does not contain statutory provisions allowing an arbitral tribunal to assume jurisdiction over individuals or entities which are neither party to an arbitration agreement nor signatories to the contract containing the arbitration agreement. However, case law has established that both single and universal legal successors (e.g. in case of assignment) and the beneficiaries of contracts explicitly concluded to the benefit of a third party are bound by an arbitration agreement even if they are not signatories to the contract.
Third parties may not be ordered by courts to participate in arbitration proceedings.
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.
Except with the consent of the parties and third-party, a third party cannot be made a party to an arbitration. It is essential that a person must be a party to an arbitration agreement before he is made a party to an arbitration. The court may command third parties within Nigeria to appear as witnesses or produce evidence. See section 23 of the ACA.
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.
A tribunal generally has no jurisdiction over non-parties to an arbitration agreement, except for cases involving assignment of or succession to claims or obligations, or when other shareholders or participants of a legal entity join a corporate dispute. Russian courts do not have the power to compel third parties to arbitrate.
Third parties cannot be forced to participate in arbitral proceedings in any circumstances.
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 (Arbitration Act section 10).
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.
Local courts cannot order third parties to participate in arbitration proceedings
The arbitration agreement only binds the parties that have expressly agreed to arbitrate, section 1029 ZPO. Third parties can only be bound by the arbitration agreement under certain circumstances, either based on a contractual agreement or. in case of legal succession by inheritance or assignment.
As of today, there is no court decision in Germany adopting the "group of companies doctrine". It is accepted in the case law, however, that the fact that a foreign arbitral award has been rendered on the basis of the "group of companies doctrine" is not a reason as such for denying its recognition and enforcement in Germany according to German case law.
Local courts cannot compel third parties to participate in arbitration proceedings under German law.
In general, third parties and non-signatories cannot be bound by an arbitration agreement or arbitral award since they the arbitration agreement has effect only inter partes. However, in exceptional cases, non-signatories may participate in arbitration proceedings and be bound by an arbitral award, e.g. in cases when the agreement, being the subject matter of arbitration, is concluded in favour of a third person that is not a signatory thereof.
The parties or third parties cannot be compelled to actively participate in arbitration proceedings.
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 nor by the award issued in the arbitration proceeding. A third party may only be part of an arbitration with its consent and the consent of the actual parties of the agreement. Accordingly, local courts cannot order third parties to participate in an arbitration proceeding in which they have not subscribed to the arbitration clause.
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 occurs in legal subrogation and succession cases. Also exceptions to the rule are those cases where the corporate veil or alter ego theory is applicable.