In what instances can third parties or non-signatories be bound by an arbitration agreement?
International Arbitration (4th edition)
As a general rule, third parties or non-signatories are not bound by the arbitration agreement. Exceptionally, non-signatories may be bound by an arbitration agreement, for instance, in case of fraud or by application of the “disregard of the legal entity” or “lifting the corporate veil” theories, for example, when the parent company (and not its subsidiary) is the real party to the commercial relationship.
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. The extension of the arbitration agreement to non-signatory companies of the same group (‘group of companies’ doctrine) or to the shareholders of a party (‘piercing the corporate veil’) have not been applied in Austria. However, case law has established that in principle 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.
As an agreement, the arbitration agreement has legal effect only vis-à-vis the parties to it. Nevertheless, in some cases it has effect vis-à-vis a third party. Although the Bulgarian case law is not unified, in case of assignment of receivables or debts the arbitration clause included in the respective agreement shall have legal effect between the assignee and a third party, this third party being a debtor or creditor of the assignor pursuant to the agreement assigned (although between the assignee and the counter-party there is no arbitration agreement). The same is applicable in case of a contract for transfer of a commercial enterprise between the assignee and the counter-parties of the assignor pursuant to agreements. In case of subrogation or novation, the arbitration agreement shall also apply. However, such view is not undisputed in the court practice which follows rather strict approach.
Canadian courts have held that non-signatories can be bound by an arbitration agreement in certain circumstances, including when:
(a) there is an agency relationship between a signatory and a non-signatory;
(b) the relationship between a parent company and a subsidiary company is sufficiently close to justify piercing the corporate veil;
(c) a non-signatory is bound by estoppel; and
(d) a signatory treats a non-signatory as a:
(i) nominee of a signatory; or
(ii) true party to the arbitration agreement. See Northwestpharmacy.com Inc v Yates, 2017 BCSC 1572.
According to Cypriot Law on arbitration, an arbitral tribunal shall not assume jurisdiction over third parties who are not signatories and therefore not contractually bound by the arbitration agreement without their consent. However, other members may be bound to an arbitration agreement made between two parties when applying the group of companies’ doctrine. Also, third parties may be a part of a domestic or international arbitration when summoned to appear before the tribunal in order to testify or produce documents, but on the other hand they wouldn’t be bound to take part in arbitration proceedings and produce documents if they wouldn’t have been compelled to do so at a trial.
Czech law states that arbitration agreements also bind the legal successor of the parties unless the parties expressly exclude this in their agreement.
Other than the possible exception of investment treaty arbitration and a party’s subsequent consent to be bound by the arbitration clause, there are no express provisions either in UAE Federal or UAE Common Law jurisdictions that allow for a non-signatory to be bound by an arbitration agreement.
The possibility of binding third parties to an arbitration agreement is expressly contemplated in s.82(2) of the 1996 Act. It provides 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”. A non-party to a contract may be bound by that contract’s arbitration agreement if: (i) a party assigns or transfers rights or causes of action under the contract to that third party; (ii) the third party is able to enforce the terms of the contract in accordance with the Third Parties (Rights Against Insurers) Act 1930 or the Contracts (Rights of Third Parties) Act 1999; or (iii) the third party replaces one of the original parties by way of novation. It is also possible for an insurer to be subrogated to contractual rights and thus become bound by the contract’s arbitration agreement.
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.
In Ameet Lalchand Shah and Others v. Rishabh Enterprises it was held that Agreements that are inter-connected, with a similar underlying commercial purpose, would bind all the parties to the agreements, even though one of them might be lacking an arbitration clause, or an entity is not party to all such agreements.
The Arbitration Law does not contain specific provisions compelling a third party to join an arbitration proceeding. However, it does allow for a third party’s joinder into the arbitration, subject to (a) the third party having an interest in the arbitration proceeding, (b) the consent of the contracting parties, and (c) approval from the tribunal.
The Indonesian code on civil procedure is often referred to and remains applicable when Indonesian law is selected as the law governing the arbitration process (lex arbitri). In the absence of clear guidance under the institution’s rules or the Arbitration Law, a third party considered relevant to the merits of the case can be drawn into the proceeding as a co-defendant or co-respondent. This is a special category of defendant that will not typically face any financial consequences of the arbitration process but will be bound to comply with the award rendered.
There are several instances in which an arbitration clause can have binding effect on non-signatories under Liechtenstein law: as an example, in cases of succession – both singular succession and universal succession – the successor will (in principle) be automatically bound by the arbitration agreement. Also, a third party beneficiary of a contractual relationship may – when asserting his claim – rely on the arbitration clause which forms part of the underlying contract.
Even more important from a Liechtenstein perspective is the personal scope of arbitration clauses contained in the articles or statutes of Liechtenstein corporate entities and foundations, and in the trust deeds/declarations of trust of Liechtenstein trusts.
An arbitration clause contained in the articles or statutes of a corporation is binding upon the corporation, its shareholders and its corporate bodies. In the case of Liechtenstein foundations, the arbitration clause can be unilaterally imposed by the founder upon the foundation’s formation. It is (in principle) binding on all foundation participants, i.e. the founder, the beneficiaries, and (depending on the nature of the respective claim) also the foundation bodies.
The general rule is that an arbitration agreement is not binding on a third party or non-signatory given, inter alia, that it would be contrary to the doctrine of privity of contract.
Nevertheless, a person who is not a signatory to the arbitration agreement can be added as a party with the signatories’ consent.
Third parties or non-signatories cannot be bound by an arbitration agreement, and local courts do not have faculties to order them to participate in arbitration agreements because consent is a non-voidable requirement under Mexican law to be bound by an arbitration agreement.
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.
A third party can be bound by an arbitration agreement if the subject matter of the agreement is transferred to such third party. Further, third parties can in some instances be bound by an arbitration agreement if they make direct claims against one of the parties to the agreement based on the agreement.
In this respect, we also note that according to Norwegian rules on the binding force of judgments, arbitral awards are binding on third parties to the same extent as the third parties would have been bound by an equivalent agreement regarding the subject matter of the award.
Pursuant to the principle of party autonomy, Philippine jurisprudence generally prohibits the impleading of third parties into arbitrations that arise from agreements they are not parties to [Freuhalf Electronics Philippines Corp. v Technology Electronics Assembly and Management Pacific Corp. (2016)]. However, exceptions are made for parties who are bound by separate or accessory contracts which incorporate by express reference arbitration clauses in another primary contract, such as third-party beneficiaries [Bases Conversion Development Authority vs. DMCI Project Developers, Inc., (2016)] and bond issuers to a construction contract [Prudential Guarantee and Assurance, Inc. vs. Anscor Land, Inc. (2010)].
The arbitration tribunal may request the relevant body or court to assist in the arbitration proceeding as the tribunal deems appropriate for the arbitration process, including summoning a witness or expert or demanding the production of a document. But apart from the forgoing, an arbitration agreement binds only the parties to it.
Local courts may not order third parties to be bound by an arbitration agreement without the consent of the parties. As the Singapore High Court observed in the 2014 case of The Titan Unity,  SGHCR 4 (at ):
Consent is the very foundation of arbitration, without which an arbitral tribunal’s authority to hear and determine the dispute is non-existent. If a court orders a joinder notwithstanding the lack of consent, it would force a party to bring its dispute to be adjudicated by a forum which has no jurisdiction to decide the matter [and] from which no enforceable award could be rendered. More fundamentally, the non-consenting party would be denied its right to access the courts when it has not waived its right to do so in the form of an arbitration agreement. As such, in adherence with the spirit of the Model Law and the New York Convention, a court has the power to order a joinder only with the parties’ consent.
Korea’s Arbitration Act (the “Act”) is silent as to what circumstances might bind third parties or non-signatories to an arbitration agreement. In proceedings conducted under the KCAB International Arbitration Rules (the “Rules”), a third party may join the arbitration and be voluntarily bound if there is an agreement in writing by all parties to the joinder (Article 21 of the Rules).
A third party which becomes a successor to a contract may also be bound by the contract’s arbitration provision (Seoul Western District Court 2001GaHap6107, 5 July 2002). It has been settled by the Supreme Court that “although in principle an agreement on jurisdiction is a legal act which does not bind any third party other than the parties to the agreement or their respective successors, as a matter of substantive law, an agreement to change the jurisdiction modifies the terms of exercising a right and the substantive interest attached thereto, and as such, with respect to a nominative claim regarding which the parties may freely agree on the terms of the legal relationship, the successor to the claim has also become the successor to the modified legal relationship, and therefore the successor is bound by the agreement on jurisdiction” (Supreme Court 2005Ma902, 2 March 2006).
French contract law provides that a contract only binds the parties to that contract (Civil Code Article 1199). The same rule applies to arbitration agreements: as a matter of principle, only the parties to the arbitration agreement are bound by this agreement. There are however three main exceptions where a third party can be bound by an arbitration clause that it has not signed:
1. When there is a chain of contracts involving transfer of contractual rights, the arbitration clause will be transferred as an accessory to the substantive rights being transferred (ABS and AGF v.Amkor technology, Amkor technology, Amkor technology euroservices, Amkor Wafer and Anam semiconductor, Court of Cassation, First Civil Chamber, 27 March 2007, No. 04-20842, Bulletin 2007 I.129).
2. When a third party directly takes over the rights and obligations of the signatory. (Films du Jeudi v.Taurus Films, Beta Films and Omnia Film, Court of Cassation, First Civil Chamber, 8 February 2000, No. 95-14330).
When a third party is directly involved in the negotiation, performance or termination of a contract containing an arbitration clause, French courts presume that the party has implicitly consented to be bound by the arbitration agreement. (Iakovoglou Prodomos and Oebe TH v.Amplitude, Court of Cassation, First Civil Chamber, 7 November 2012 No. 11-25.891) Although France is acclaimed as a hotbed for the application of the “group of companies doctrine”, to be clear, the existence of a group of companies is not sufficient in and of itself to extend an arbitration agreement to third parties. 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. French courts are more likely to compel a non-signatory to arbitrate in the context of international arbitration than in the context of domestic arbitration. For example, in the case of a group of companies, where the parent company of the signatory was actively involved in the negotiation and performance of the contract, the Paris Court of Appeal held that the parent was bound by the arbitration clause contained in the contract (Paris Court of Appeal, 21 October 1983, 1984 REV. ARB., 98).
French courts have also accepted that an arbitration clause signed by a private party and a state-owned company can be extended to a state that did not sign the arbitration clause in certain circumstances (Paris Court of Appeal, 17 February 2011, 2011 REV. ARB. 286). Most specifically, a third party (even where it was not a party to the arbitration) may 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 of that State (Société nationale des pétroles du Congo, Paris Court of Appeal, 3 July 2003, No. 2002/03185). 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 EAL does not expressly regulate the extension of the arbitration agreement to third parties or non-signatories. Egyptian court decisions, all the same, do not portray a clear trend as to the doctrine and accord the ultimate weight to the parties’ consent to arbitration as determined by arbitral tribunals. Egyptian courts are increasingly becoming more flexible in considering the extension of arbitration agreements to third parties and/or the joinder of third parties to arbitral proceedings and will usually defer to the arbitral tribunal’s findings in this regard, unless there is no agreement in writing or principles of public policy have been contravened.
The Egyptian Court of Cassation decisively rules that an arbitration agreement included in a contract does not automatically extend to a company that forms part of a larger group of companies entering into the said contract. The company must have actively contributed in the performance of the contract or there must have been a confusion between the intents of the two relevant companies (Court of Cassation, challenge no. 4729 of JY 72, hearing session dated 22 June 2004). In other words, the doctrine of group of companies is accepted by the courts for purposes of extension of the arbitration agreement in the presence of an implication in the performance process of the contract.
The doctrine of economic unity is not sufficient, in and of itself, for purposes of extension of the arbitration agreement if the third party has not exhibited consent to arbitration. (Cairo Court of Appeal, commercial circuit no. 62, case no. 83 of JY 118, hearing session dated 5 August 2002, in Fathi Waly, Arbitration in local and international commercial disputes, Munsha’at Al Ma’aref, 2014 ed., p. 195-196) However, Egyptian courts have shown flexibility regarding extension to third parties and would normally defer to the tribunal’s reasoning in this respect, unless a clear principle of public policy is compromised.
The Egyptian Court of Cassation recently held that an arbitration agreement cannot exist without consent of the parties, but added that an arbitration agreement may extend to third parties and to other contracts connected to the principal contract on the basis of several doctrines and principles including: group of companies, group of contracts, universal succession, mergers or assignment if their conditions are met. (Court of Cassation, challenges nos. 2698, 3100 and 3299 of JY 86, hearing session dated 13 March 2018)
The ICA Act is silent on the matter as well as the CAM Santiago arbitration rules. There are both judicial and arbitral decision though that have exceptionally extended the arbitration agreement to non-signatories parties by applying a specific contract law doctrine called ‘stipulation in favour of a third party’.
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).
Under certain circumstances, a court may allow a third party that was not part of the arbitration agreement to become a claimant or respondent in an arbitration. Such third party could be a successor of a party, assignee of the main contract, debt assignee, person who assume the debt, guarantor, an insurance company under subrogation, or a third party beneficiary.
In one High Court instance, the parties contracted to submit disputes before the ICC in the US, but there is a separate clause where the distributor (one party of the arbitration agreement) is to recognize that the property rights and interests associated with the trademarks and product names used for the products under the contract are all owned by the other party of the arbitration agreement as well as its affiliates. This caused the High Court to find that those affiliates are also bound by the arbitration agreement.
In principle, a third party cannot be bound by an arbitration agreement without its consent. There is also no regulation or case law available under Turkish law regarding the extension of an arbitration agreement to non-signatory third parties. In this respect, third parties can only be bound by the arbitration agreement under specific circumstances such as legal succession by inheritance or assignment.
On the other hand, the Court of Appeal has differing approaches to the issue depending on the nature of the underlying dispute and contractual relationship. According to the Court of Appeal’s previous decisions , while non-signatories can be bound by an award in the instances of succession, acquisition of property, assignment of claims, transfer of negotiable instruments, transfer of bills of lading, and succession of insurer; the extension to non-signatories is refused in the instances of representation and full third-party beneﬁciary contracts.