“The users of International Arbitration, in commercial, investment or maritime disputes, has long recognised arbitration as alternative to litigation and to preserve its sanctity adored the idea of consent of parties and resultant award.”2
In the words of George
A. Bermann3
“all participants—parties, counsel, arbitrators, arbitral institutions—
have an interest in ensuring that arbitration delivers the various advantages associated
with it, notably speed, economy, informality, technical expertise, and avoidance of national
fora, while producing awards that withstand judicial challenges and otherwise enjoy
legitimacy.” If a court or tribunal compels a party to arbitrate despite it not
having consented to arbitration,4
the legitimacy of both, the arbitration and
any resulting award is compromised.5
Resultantly, the core aspect and peculiar nature of international arbitration
as far as parties are concerned, lies in the International Arbitration
Agreements. “Arbitration ‘is a matter of contract and a party cannot be required to
submit to arbitration any dispute which he has not agreed to submit.”6
Such arbitration
agreements can be found in commercial contracts, pertaining to dispute
resolution relating to the contract. In cases of multi-party contracts, involving series of related contracts, joinder of parties in one arbitration is
possible.7 These clauses are further well defined in the model clauses of
international arbitration agreements provided by international arbitral
institutions, such as “International Chamber of Commerce [“ICC”], the Singapore
International Arbitration Centre [“SIAC”], the International Centre for Dispute
Resolution [“ICDR”] and the London Court of International Arbitration [“LCIA”],
which provide concise and well-tested formulae.”8
Some of the Indian Arbitral
Institutions like International Arbitration & Mediation Center [“IAMC”]9
and Mumbai International Arbitration Center [“MCIA”]10 also rules
governing joinder of third parties These clauses are based on the principles
of contract and agency.11
The exponential growth of multi-party proceedings can easily be inferred
from the statistical data available with the leading arbitral institutions. They
indicate the complex nature of international transactions and commerce to
be the cause for this growth.
12 In this background, it becomes essential to note that a third party can be joined in an arbitration proceeding with their
consent.13
Contrary to this usual route, the issue worth discussion is the joinder of
third parties to arbitration proceedings without their consent.14 Several
jurisdictions have developed legal doctrines that permit the extension of
arbitration agreements to parties who were not original signatories. As
outlined by Gary Born,15 these include doctrines such as agency, alter ego
or veil-piercing, the group of companies’ theory, estoppel, legal succession,
assignment, ratification, and the concept of third-party beneficiaries. These
mechanisms are invoked to either bind non-signatories to arbitration
clauses or to allow them to rely on such clauses when asserting claims under
the main contract. While the legal theories16 justify the joinder of third
parties to arbitration, the procedural aspects of those third parties are
regulated by institutional rules or international agreements, if they so
provide. The legal object, of adding third parties is to avoid parallel
proceedings of arbitration and foster efficiency of arbitration.17
Interestingly, “there are decisions and commentator’s opinion that third parties have
no right to intervene or join in an arbitration absent the consent of the existing parties.”18
In the wake of manifest increase in multi-party agreements, such as international construction projects that often involve “webs of independent
contractual relationships between parties of different nationalities.”,19 yet
the question to be answered is “whether joinder of interested third party as well as
non-consenting party is legally permissible in an arbitral proceedings?”
20 Multi-party
disputes also arise in maritime, insurance/reinsurance, and franchise cases,
Owner-Contractor-third party subcontractor, contractor-engineer-third
party architect, injured party-liable party-third party indemnifactor, injured
party-insurer-third party reinsurer, patent holder-manufacturer-third party
distributor, copyright distribution contracts, employee-employer-third
party subcontractor, seller-buyer-third party financier.21
Viewed from this angle, the case of interested third parties is completely
different from non-consenting third parties. The inclusion of nonconsenting third parties to arbitral proceedings raises the issues of
legitimacy of such arbitral proceedings, due process, and public policy,22 due
to their non-consent to arbitrate. The violation of due process with no equal
representation is apparent, as a third party does not get the power to choose
the arbitrator at the pre-reference stage. This procedural infirmity makes
the award susceptible for annulment. Article V(2)(b) of the Convention on
the Recognition and Enforcement of Foreign Arbitral Awards [“New York
Convention”] provides grounds for the refusal to recognise and enforce
an arbitral award under public policy concerns.
As discussed above, “international arbitration is fundamentally consensual. As a
consequence, an arbitration agreement binds (and benefits) only the agreement’s parties,
and not others. Nonetheless, there are circumstances in which non-signatories may be held
to be parties- and consequently both bound and benefitted by an arbitration agreement.”24
Therefore, it becomes necessary to trace the evolution and growth of multiparty arbitration agreements, institutional rules, national contractual laws,
decisions of courts, and international arbitral tribunals. The questions raised
under the present article are:
a. The Legality of Joinder of Third Party to the Arbitral
Proceedings and enforcement of such award.
b. What is the objective behind the joinder of the third party to
the arbitral proceedings?
c. What are the procedural rules governing the joinder of third
party to arbitral proceedings in cases of non-consenting party?
d. How awards passed in such circumstances can be prevented
from annulment with the joinder of non-consenting third party?
II. Historical Perspective
The concept of consent inherent in the context of international arbitration
can be seen from the signing of the first international commercial
arbitration treaty in the modern era, known as the Montevideo Convention,
signed in 1889, followed by the 1899 Hague Pacific Settlement of
International Disputes. “However, it was Geneva Protocol of 1923 that developed
the importance of reliable, effective and fair mechanisms for resolving international
disputes to the expansion of international trade and investment.”
25 According to Gary
Born, “International Commercial Arbitration is a means by which international business disputes can be resolved, pursuant to parties’ agreement to arbitration
agreement’.” The consensual nature of an arbitration agreement is prevalent
in Article 7 of the United Nations Comm’n on Int’l Trade Law
(UNCITRAL), Model Law on International Commercial Arbitration
[“Model Law”]26 and also emanates from Article II of the New York
Convention.27 The consent is therefore, prevalent in the case of state-tostate arbitration pursuant to a treaty or under the international commercial
arbitrations and justifies its binding effect on the signatory parties. This
doctrine has been approved by the Hon’ble Supreme Court of the United
States of America in the case of Steelworkers of America v. American
Manufacturing Co.28
According to William H. Park, “Non-consensual theories involve a non-signatory
party in the arbitration despite there being a clear lack of intention to arbitrate. Thirdparty beneficiary doctrine and veil-piercing doctrine are examples of such theories.”29
This means that the arbitral tribunals employ various legal doctrines such
as indirect consent under the agreement namely agency, group companies’
doctrine and estoppel. Gary B. Born in his book30 has postulated eight
instances/basis for subjecting non-signatory to arbitration agreement. also affect the handling of non- signatory issues. For the most part however,
it is the arbitral tribunal, rather than the arbitral institution, that has the
authority to address non-signatory issues in institutional arbitrations, as well
as in ad hoc arbitrations.39 The Model law does reflect that in cases of nonsignatories, various courts have applied the New York Convention to
determine consent in lieu of their participation during negotiation of the
contract, performance of the contract and knowledge of the arbitration
agreement.40 Hence, non-signatories having received benefits under the
contract when an arbitration clause is bound to it.
III. Legality of Joinder of Third Parties and its Objective
Joinder of third parties ignores the concept of privity of contract and can
be ordered against the objection taken by the third party. There appears to
be no definitive legislation on the joinder of third parties to arbitration and
the necessity to exercise such joinder lies in the facts of each case by the
arbitral tribunal to avoid multiplicity of parallel proceedings. Hence, arbitral
tribunals may resort to two tests to justify the addition of third parties to
the arbitral proceedings.
Firstly, a party to international agreement makes out a case at the outset
that non-addition of third parties to the arbitral proceedings would be fatal
to award making process by the tribunal and is required for better
adjudication and secondly, addition of third parties is required to avoid
parallel proceedings and to avoid different class of findings by tribunal on
multi-party agreements. These doctrines are recognized in the cases of presence of corporate group, community of duty and interest between the
parties.41
Many arbitration rules provide for joinder of third party.42 This is different
as compared to national arbitration laws,
43 and institutional rules in relation
to third party in some other form.44 The joining of third party as a formal
party despite its objection entails complete procedural empowerment and
hence, an award rendered can be enforced against such third party. The
different forms of joinder of third parties could be used to assist the party
asserting its claim before the tribunal and is prevalent under German,
French and Swiss Law. However, such addition by a joinder does not affect
the third party let alone the issues of confidentiality in ongoing arbitration.
The other forms of joinder could be amicus curiae though it suffers from
issues of confidentiality,
45 in the event the tribunal requires assistance with
critical knowledge or expertise at the hands of third party.
It may not be out of place to mention that the rationale to join a third party
without their consent is much akin to the rationale adopted by courts to
exhibit fairness, efficiency and to remove conflicting decisions.46 The
consent element which is absent for courts to investigate becomes critical
for the arbitral tribunals in the cases of joinder. The objective behind consolidating and joining two parallel proceedings seems to be to overcome
the issues of efficiency and to avoid conflicting awards. At the same time,
“it reduces legal costs, and other procedural obligations of witnesses in an arbitration.”47
The recent awards of arbitration proceedings in Ronald S.Lauder v. the Czech
Republic,
48 and CME Czech Republic B.V. v. the Czech Republic 49exhibit the
necessity of consolidation of parallel proceedings. On the same issue, conflicting awards
were rendered by different tribunals that justify joinder of third party to avoid such a
fiasco.”50As against this, many authors believe that joinder issues suffer from
consent absentia,51 no equal participation, the right to appoint arbitrators
and the field is surrounded by breach of confidentiality.
Recently, the Court of Appeal in Malaysia in the case of Wijaya Karya v.
Zecom Berhad 52 allowed the joinder of a non-signatory due to existence of
implied agency relationship within the complex corporate structures,
holding that subsidiaries acting for their parent companies in performance
of contractual obligations may validly be bound by the arbitration
agreement.
Similarly, The Supreme Court of India in the case of ASF Buildtech (P) Ltd.
v. Shapoorji Pallonji & Co. (P) Ltd.
53 has held that “it can be seen that there is
nothing within the scheme of the Act, 1996, which prohibits or restrains an arbitral
tribunal from, impleading a non-signatory to the arbitration proceedings on its own accord.
So long as such impleadment is undertaken upon a consideration of the applicable legal
principles — including, but not limited to, the doctrines of ‘group of companies’, ‘alter
ego’, ‘composite transaction’, and the like — the arbitral tribunal is fully empowered to
summon the non-signatory to participate in the arbitration.”
IV. Procedural Rules Governing the Joinder of Third Party
The absence of consent of parties under national laws on arbitration
renders the joinder otiose. The New York Convention requires the national
courts to enforce the contractual terms and arbitration agreement in lieu of
Article II (1) and Article II (3) of the convention. Many multi-party
agreements contain provisions for consolidation and in the absence of any
laws on joinder, the general trend is to avoid the joining of a third party.54
Contrary to this, institutional rules carry definite clauses leading to certainty
for joinder at the time of execution of a contract.55 Two definite measures
required under institutional rules are consent to joinder,
56 and equal
participation.57 What strikes at the core on joinder rules in relation to
institutional rules is the power of the tribunal to allow joinder despite third
party objection, considering the necessity under a particular case.58
The third-party objection for joinder has been adequately dealt by some of
the arbitral rules. In cases of contest on joinder, institutional rules allow
such requests for joinder by looking at the circumstances of each case
binding third party to arbitration agreement.59 One of such examples is the Rule 7 of SIAC Rules 2016,
60 and Rule 18 of SIAC Rules 2025 that needs
attention.
61 Under the rules, for a third party to be prima facie governed by
the arbitration agreement, it requires subjective satisfaction qua valid
arbitration clause encompassing the disputed issue and the third party.62
The core issue to be determined is whether the dispute covers aspects of
same transactions, and the purpose of joinder is for fair and expeditious
arbitral proceedings. In addition to this, the data from ICC Rules 2021,
reflects greater scope for joinder of third parties even after the constitution
of the arbitral tribunal.63 Under Article 7.5, the consideration to be
examined on joinder are prima facie, related to the underlying arbitration
agreement, existence of conflict of interest and its effect on the arbitral
procedure.64
A. Treatment of Third Party in Arbitration
The right of equal participation is a fundamental facet under the arbitration
process, and this has a serious impact in the case of joinder of third parties.
To treat them differently would result in violation of public policy leading
to annulment of awards.65 In order to overcome this, possible solutions can
be put in place. If the tribunal is not constituted, the joined third party could
be allowed to give consent or nominate its arbitrator. In the absence of joint
nomination, institutions could be allowed to nominate, and all the parties
would have to waive their right. Another possible situation could be the
joinder of a third party after constitution of tribunal, in such a situation, the
third party’s consent is taken either to waive its right to nominate, or allow for reconstitution of tribunal. The institutional rules provide for such
combination of rules to ensure equal representation of the third party.66
V. Fate of Award in case of Joinder of Non-Consenting Party to
Arbitration Process
The discussion above enunciates principles under the New York
Convention and the Model law for the national courts to look at the parties
to the arbitration agreement and stress its focus on contracting parties to
dispute. However, as stated above, joinder is possible with the advent of
institutional rules by arbitral institution and arbitral tribunal. The substance
of the issue regarding annulment under public policy lies in the
discrimination against third parties on account of fair treatment within the
meaning of due process and equal participation. The joinder of third parties
necessarily implies their right to present their case at par with the original
parties and in case of denial of same, violates due process and fair treatment.
The other ground relating to non-participation in constitution of an arbitral
tribunal governs the procedural defect and is a ground under Article V(1)(b)
of the New York Convention for annulment67. The said clause coupled with
Article 32(2)(b)(ii) of the UNCITRAL Model Law68 refers to a procedural
violation and is a ground to challenge an award.69 The said proposition takes
benefit from French Law, under Article 1520.5 of CCP that requires parties
to be treated equally by the tribunal and with due process.70 The said
approach with slight variations is also prevalent in Swiss Private
International Law that recognises public policy as a ground for annulment.
Further, section 103 of The English Arbitration Act that is placed in common law jurisdictions treat public policy at high pedestal and requires
due satisfaction to recognise violation of procedure leading to annulment
of award.71 In addition to public policy, the judicial dicta72 also considered
the issues of consent at the time of considering the challenge to award.
In a recent ruling of the High Court of Singapore73, on the requirement of
consent, it held that:
“The parties to a Singapore-seated LCIA arbitration had not consented to being
joined to the arbitration, despite being a signatory to the underlying agreement
between the Parties. This decision reinforces the high threshold to be met for the
forced joinder of third parties to Singapore- seated arbitrations and provides clarity
on the operation of Article 22.l(viii) of the LCIA Rules (20l4) under
Singaporean law”.
The Supreme Court of India in the cases of Indowind Energy Ltd. v. Wescare
(I) Ltd74 and Sukanya Holdings Limited v. Jayesh H. Pandya75 did not allow the
addition of a non-signatory on the ground that there exists no law under
Indian Arbitration and Conciliation Act, 1996 [“1996 Act”]. As a contrast
to these judgments, courts in India in the cases of Chloro Controls Case,
[“Chloro Controls”]76 Chetan Properties Ltd. v. Kasturi and Sons Ltd,
77 Ameet
Lalchand Shah v. Rishabh Enterprises,
78 and Reckitt Benckiser (India) Private Ltd
v. Reynders Label Printing India Pvt Ltd & Ors79 has accepted the Group of
Company doctrine and allowed the addition of non-signatory to arbitration.
One can fairly argue from reading of these cases that under the Indian
context, approach of Hon’ble Supreme Court of India has changed with
respect to joinder of third parties after Indowind and Sukanya Holdings
onwards. This is primarily, on the ground that in these cases, the court lay
more emphasis on the word “party” to only mean signatory to arbitration
agreement and ruled that non-signatory cannot be compelled to give
consent for an arbitration.
On the other hand, from Chloro Controls onwards, the Hon’ble Supreme
Court invoked the implied consent principle by interpreting Section 45 of
the 1996 Act in cases of Doctrine of “composite references”, “composite
performance” and “group of companies” This was done by interpreting
word “any person claiming through or under” mentioned under Section 45
and thus, the court recognized the concept of joinder of third party in cases
of multi-party agreement. However, this interpretation has been criticized
in the case of Cox and King Ltd. v. SAP India Private Ltd.
80
The Hon’ble Court clarified and overruled finding in Chloro Controls to the
extent that the word “Party” would include signatory as well as nonsignatory and the issue of consent of non-signatory be determined by
considering factors such as mutual intent of parties, relationship of nonsignatory to a party which is signatory to the agreement, commonality of
subject matter, composite nature of transaction, performance of contract,
necessity of, for binding non-signatory, conduct of non-signatory to
determine its consent. As upheld in Ameet Lalchand’s case, the
participation of non-signatory in contract negotiation can be a factor to
determine intention of parties to be bound by an agreement.
Internationally, the genesis of adding non-signatories on the basis of
common intention under the Group Company arose in France81 in the case
of Dow Chemicals.82 This was done not only on the face value of Group
company but by analysing the involvement of non-signatory in participation
in the negotiation of agreement, performance and termination of
agreement. This is also the case in jurisdictions like Switzerland.
83 However,
the jurisdictions like England and Singapore84 have rejected the principle of
Group of Companies to non-signatory and has restricted it to agency,
novation and assignment, merger and succession.85
VI. Conclusion
The legislative study of the joinder of non-consenting third parties brings
forth an important issue of consent still in existence at the core of arbitral
proceedings. Apart from the power of the arbitral tribunal to invoke legal
theories in certain cases to join non-signatories to arbitration agreements,
the factum of consent still rules the field and is a valid ground for
annulment of an award, coupled with allegation of procedural infirmities.
The aim of this note was to analyse the different national institutional rules
and resultantly, bring forth the argument that to some extent, the
procedural aspect of joinder has been streamlined by the institutional rules.
Although still the issue of consent, due process and equal participation is
major obstacle for the tribunals to consider the joinder of third parties in
multi-party agreements. The ever-changing landscape of international trade
has allowed institutional arbitration to enact rules, however, the said rules
need to be suitably interpreted by the arbitral tribunals and nations enforcing the arbitral awards. Due to complexities in multi-party disputes,
a law cannot view and anticipate every possible change happening in
international transactions at God’s speed.
In the author’s view, success of the arbitral award would depend upon
consent of the third party to be bound by the arbitration agreement and
absolute assurance of equal treatment to be given to third party. In the
absence of waiver of rights by the third party in the appointment
mechanism, the certainty of award passed by tribunal is subject to its
challenge and annulment. Certain commentators, “eager to uphold the
contractual aspect of arbitration, argue that consent to joinder and intervention can be
obtained during contract negotiations and that this is the most appropriate way to deal
with the problems of multi-party disputes. However, this tactic ignores the reality of the
negotiation costs that accompany such an approach as well as the probability that
parties.”86
The author believes that if third parties can be brought within the purview
of the arbitration agreement, third parties should also be allowed to bring
their claim against a party to the arbitration agreement on the ground of
equitable justice. Institutional rules are required to be given practical
meanings to safeguard the interests of both, i.e. party seeking joinder and
non-consensual third party. The context of implied consents that are seen
in the context of Agency, Group of Companies, Estoppel, Succession, etc.
do not pose much problem as compared to non-signatory’s absence of
consent for their joinder in arbitral proceedings