Law Applicable to the Extension of the Arbitration Agreement to Non-Signatories - ARIA - Vol. 29, No. 3
Originally from American Review of International Arbitration, Vol. 29, No. 3
Arbitration agreements remove parties from national courts and bind them to arbitration. National legislations require such an extraordinary effect only when the parties consent to arbitration. The basis of this requirement is the principle of privity, according to which an arbitration agreement binds only those who are parties to it. The principle of privity is the most important source of legitimacy in international arbitration. International commerce nevertheless proved that a rigid rule with regard to consent may do harm to the justice and the predictability arbitration seeks to establish. As a result of this rigidity, for example, companies belonging to the same group could avoid being bound by the arbitration agreement, despite having been involved in various stages of the negotiation and the transaction, by having only one of them sign the underlying contract and the arbitration agreement. Arbitral tribunals and courts felt that keeping the scope of the arbitration agreement narrow would be unjust in situations that involve group companies, contract mistakes, and persons giving the appearance of a party without actually signing the underlying contract. In response, the international arbitration community started developing exceptions to the principle of privity by extending the arbitration agreement to third persons.
Extending an arbitration agreement to persons other than the parties to the agreement has not only been the subject of scholarly work but also court decisions and arbitral awards. As Hosking suggested, "The problem is by no means of academic interest only and is of growing practical importance." Several doctrines for the extension of the arbitration agreement based on contract theories, agency theories, or equity and fairness concerns have been developed and applied by courts and arbitral tribunals. Most of the scholarly work is on the applicability of these doctrines under different circumstances, and on whether the consent requirement still exists under some of these doctrines.
The question of the law applicable to the extension of the arbitration agreement, however, has not attracted as much attention. There is no clear consensus among courts or arbitral tribunals as to which law applies: the law of the arbitration agreement, the underlying contract, the seat of arbitration, or the place of incorporation of one of the parties or of the non-signatory. It has also been suggested that the extension of the arbitration agreement should be subject to rules of law such as lex mercatoria, principles of law, trade usages, rather than a specific national law.