Originally from Handbook on International Commercial Arbitration - Second Edition

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The potential parties to any arbitration are the signatories to the underlying contract. It is their signature to the contract (or, more strictly, to the agreement to arbitrate that usually resides within the host contract) that signifies their agreement to have their disputes resolved by a tribunal and not by national courts. Sometimes when a dispute arises it appears that the “correct” party is not a signatory to the contract either because it is a non-signatory who has suffered the loss; is the true wrongdoer or the signatories are of insufficient means to justify being pursued. So starts the search for a theory to join a non-signatory.1

Equally, one of the main disadvantages of arbitration, in general (and international commercial arbitration is no different), is the restrictions imposed on who can be a party. In a typical contractual relationship of employer, main contractor, and sub-contractor, there will be two contracts: one between employer and main contractor and a second between main contractor and sub-contractor. If the employer-main contractor contract has an arbitration provision but the main contractor-sub-contractor does not, there is a real risk that the disputes might be decided in different forums. This can lead to inconsistent results (both in substance and in timing) and consequent hardship. For example, if the employer pursues a claim against the main contractor on the basis of poor workmanship for works undertaken by the sub-contractor, the sub-contractor can normally resist being joined to the arbitration on the grounds that it has not agreed to submit its disputes to arbitration, and can insist on any claim being resolved through national courts. Furthermore, the sub-contractor will not generally be bound by the findings of the tribunal. Therefore, if the employer succeeds against the main contractor, there is no guarantee of success by the main contractor against the sub-contractor as the different forums may reach different conclusions on the facts and the law. The involvement of any non-signatory party may result in the exclusion of a dispute from the agreed arbitration. In the Australian case of Paharpur Cooling Towers Ltd v. Paramount (WA) Ltd2 the court refused to stay proceedings on a bill of exchange as a non-signatory to the arbitration agreement was a party to the bill.