Non-signatory is a person/ party/group of parties that are not directly the concept of non-signatories to an arbitration agreement relates to the parties that were not part of the arbitration agreement during its signing. The concept of signatories in arbitration has become a major concern in commercial transactions and agreements. In today’s dynamic world where the highly complex, multi-layered and involves parties from different jurisdictions and these transactions are effectuated through also. The multiparty or multi lawyered contracts create a paradigm for tripartite contracts. The doctrines mentioned below oppose the concept of party autonomy in arbitration. Some doctrines don’t particularly circumvent the party autonomy. There has been some doctrines and principles in international commercial arbitration that determine the position of third party/ non-signatory to the arbitration agreement. This article briefly deals with various such doctrines/principles to an extension of the arbitration award and adjudicate the scenarios and various judgements with international jurisprudence compelling non-signatories to be a party to the arbitration agreement.
DOCTRINE OF EXTENSION TO ARBITRATION AWARD
Group of companies Doctrine:
This doctrine is one of the most common and the most discussed. According to this doctrine, the emphasis on “une réalité économique unique” means a single entity. This doctrine provides for the same legal entity despite being legally independent and individual parties, the relation between the non-signatories to the signatories are taken into consideration on basis of certain factors before binding a non-signatory to the arbitration agreement.
Indian jurisprudence started with the landmark judgement of Sukanya Holdings Pvt Ltd V Jayesh H Pandey where an observation was made regarding the boundation of a non-signatory to an arbitration agreement on following observations: “that a person who is not a party to the arbitration agreement, cannot be roped into the arbitration proceedings, roped into the application under Section 9″ and “causes of action against various parties cannot be separated in a single arbitration and that an arbitration arrangement can only bind the parties who have entered into it.” The permission to add a non-signatory to the arbitration agreement by applying this principle was observed in Mahanagar Telephone Nigam Ltd vs Canara Bank, further, the court observed the concept of ‘composite transaction’ the court further observed that “A non-signatory or third-party could be subjected to arbitration without their prior consent, but this would only be in exceptional cases. The court will examine these exceptions from the touchstone of direct relationship to the party signatory to the arbitration agreement, direct commonality of the subject matter and the agreed subject matter parties being a composite transaction. The transaction should be composite where the performance of the mother agreement may not be feasible without aid, execution and performance of the supplementary or ancillary agreements, for achieving the common object and collectively having bearing on the dispute. Besides all this, the court would have to examine whether a composite reference of such parties would serve the ends of justice. Once this exercise is completed and the court answers the same in the affirmative, the reference of even non-signatory parties would fall within the exception afore discussed“. This concluded the question and eased the ongoing state of confusion, still there remains various international judgements and findings that could be debated.
The intention of parties to an arbitration agreement is established under this principle. This doctrine works on the principle of ‘agent and principal’ where the principal would be bound by the arbitration agreement if signed by the agent. In Thomas CSF SA Vs American Arbitration Association it was observed that the consideration of mutual benefit from affiliation was rejected as sparse to bind a non-signatory to the arbitration agreement signed by an agent/affiliate based on agency principal. An ICC tribunal in this regard observed that the following distinctions have to make, i.e., the law of jurisdiction, law governing seat of arbitration, laws governing the principal and agent relationship and form where the capacity in which it was conferred on the agent (the law governing the agent-principal contract). The Federal Court of Switzerland compelled non-signatory principal to the arbitration because of the undistinguishable representation of two parties.
The doctrine of Equitable Estoppel:
This doctrine is by far has been recognized in USA and Canada. According to this doctrines ‘estoppel’ provided for the prevention of a party who during the signing of the arbitration agreement accepts the benefits of the arbitration but avoid the obligate to arbitrate. Two theories to these doctrines are:
- The first theory denies the party its right to claim benefits in an arbitration agreement while in return it bypasses its duties and the burden attached to it can be compelled to arbitrate by the signatory. In the American Bureau of Shipping V Tencara the court in its judgement held that the owners are to be compelled before the tribunal to arbitrate as non-signatories as they were the recipient of the benefit of ABS classification, they were estopped from claiming their inapplicability to the arbitration agreement.
- The second theory to the doctrine relates to the non-signatory who can compel the signatory to an arbitration wherein the subject matter of the dispute is intertwined with the arbitration agreement and the non-signatory is related to the signatory. MS Dealer Serv. v. Franklin upheld the test to determine whether a non-signatory can compel arbitration. In McBro Planning and Development Co. v. Triangle Electronic Construction Co., Inc. observes permitting the signatories to compel arbitration by non-signatories and in the case of Sunkist Soft Drinks, Inc. v. Sunkist Growers Inc it was observed that the non-signatories can compel arbitration due to asserting a claim against non-signatories.
Various entities have their subsidiary companies. This doctrine compels and extend the arbitration agreement to the main company regardless of the agreement or the subsidiary’s own a separate entity, the factor on which the matters are dealt are highly fact-based and the totality of the circumstances. In case of any wrongful act or fraud is determined on such a corporate’s end, the courts determine the totality of the whole environment where the party and the non-signatory operate. The court also takes into account other factors in an account solely for the furtherance of the interests of the entities. In Aloe Vera of America, Inc. v. Asianic Food (S) Pte Ltd and Anr application of this principle was first witnessed, an application was filed against Asian Foods Ltd.’s shareholders and directors on the ground that the Arbitration Agreement was signed on behalf of Asian Foods and now is represented as a company’s alt ego. The Singapore high court upheld the Court’s ruling, thereby acknowledging this doctrine and held the addition of shareholder in arbitration as a party which later led to its enforcement.
Incorporation by Reference:
The extension of arbitration agreement through reference determines the inclusion of a non-signatory of a contract. This doctrine applies to such contracts/ agreements where a set of conditions/clauses are described separately from that agreement but are referenced in that contract. The functioning of this doctrine was observed in the case of JS & Const. Co. V Richard County Hospital Authority, it was held that the “general reference” clause of the agreement wherein the subcontractor’s duties and obligations concerning the prime contractor were highlighted towards the hospital authority in the main contract. Similarly, the Nanisivik Mines Ltd. v. Canartic Shipping Co. case which deals with the British and Canadian position concerning the American jurisprudence. It was held that non-signatories have to be compelled to arbitrate under a wider context.
By the above reading, we came to know the nuances of cases and their observations that a non-signatory to an arbitration agreement could be compelled to become a party in the arbitration process and under this, the interpretation of the New York convention also favoured the extension of the non-signatory(s) and enforcement of awards for/against them. The courts to determine the involvement of non-signatory, generally, look into the theory that generally revolves around implied consent. Most cases are fact-based and a set of general laws and understanding has been developed about these doctrines.
Author’s Name: Tejash Yadav (Faculty of Law, Delhi University)