Non-Party Bound By Arbitration Agreement On The Basis Of Implied Consent

The Australian approach to the interpretation of arbitration agreements

Courts regularly face applications to set aside or resist enforcement of awards on one or more of the grounds set out in Article V of the New York Convention. Article V(1)(a) of the New York Convention (s.89(2)(b) of the Hong Kong Ordinance) – pursuant to which a Court may refuse recognition and enforcement on the basis that the arbitration agreement is not valid under the law to which the parties have subjected it – is one such provision, and it encompasses an argument that there was no consent to arbitrate because one of the parties claims that it was not a party to the arbitration agreement.

Consent to arbitrate is often referred to as the cornerstone of arbitration; fundamentally, a tribunal’s jurisdiction to make an award is founded on the consent of the parties. While many arbitration agreements involve two entities, complex commercial arrangements can involve a contractual structure which has many participants (often manifested through the use of corporate group structures), which highlights the potentially changeable consensual character of arbitration.

A case in point is the April 2019 decision of the Swiss Federal Supreme Court, (case No. 4A 646/2018, in German) concerning a distribution agreement between a Slovenian company and Swiss company, where the dispute centred around whether the distribution agreement containing an arbitration clause had been validly concluded between the parties or only between the claimant and a third party, where that third party was a group company of the respondent. The Court confirmed that an arbitration clause could validly bind a party which had not signed the main contract under the provisions of the New York Convention on the basis that the third party continuously intervened in the performance of the contract containing the arbitration clause, thereby accepting the arbitration clause by implied consent.

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Bernard Hanotiau offers a detailed review of the issue of consent in arbitration in his article Consent to Arbitration: Do we Share a Common Vision”, published in Arbitration International (Vol.27, Issue 4, 1 December 2011) (available by subscription) concluding that:

“it is incorrect to claim that there has been a marginalization of consent. It is more accurate to refer to a modem approach to consent that is more focussed on facts and more aligned with commercial practice, economic reality and trade usages.”

About Phillip Rompotis

Phillip practices as a barrister and arbitrator in Hong Kong. He has over 25 years’ litigation and arbitration experience in commercial disputes relating to construction & engineering, financial services, joint venture & shareholders agreements, technology, trusts, property and landlord & tenant. He is a Fellow of the Chartered Institute of Arbitrators, the Singapore Institute of Arbitrators, the Malaysian Institute of Arbitrators, and a member of various lists/panels of arbitrators.

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