Non-Parties to Arbitration – The View On Claiming “Through Or Under”

In a previous post, Albert Monichino QC reviewed the decision in Rinehart v Hancock Prospecting [2019] HCA 13, where the High Court was called on to resolve the proper interpretation of an arbitration agreement that had been interpreted in different ways by two intermediate appellate courts.

In this further note (originally published in CommBar Matters), Albert considers a second aspect of the judgment, namely the extent to which third-parties may rely on or be bound by an arbitration agreement. He considers the scope and operation of the phrase ‘through or under’ in s 2(1) of the Commercial Arbitration Acts and, consequently, the ability of non-signatories to an arbitration agreement to avail themselves of the agreement.

He deals with the expansive approach adopted by the majority (Kiefel CJ, Gageler, Nettle and Gordon JJ) and the narrow approach adopted in the dissenting judgment of Edelman J. The majority’s view was expressed as follows [77]:

“This is a matter in which the defendant third party companies claim a defence through or under parties to an arbitration agreement – that those parties were beneficially entitled to mining tenements which they assigned to the defendant third party companies – in circumstances where the appellants agreed with those parties to the arbitration agreement that any dispute as to those parties’ beneficial title to the mining tenements would be determined by arbitration. And although there is no privity of contract as such between the defendant third party companies and the appellants, it is not in any sense exceptionable that the defendant third party companies are entitled to hold the appellants to an arbitration agreement by which the appellants agreed with the defendant third party companies’ predecessors in title that the appellants would be bound. The statutory expansion of privity effected by the extended definition of “party” in s 2(1) of the NSW Act accords with the precept that a claimant who takes the benefit of an agreement must accept “the burden of [its] stipulated conditions”.”

In his dissenting judgment, Edelman J stated [87]

“At its heart, commercial arbitration is based upon the agreement of the parties to a form of alternative dispute resolution. An arbitration clause, in which the parties consent to the resolution of disputes by arbitration, will often be part of a package of rights and duties agreed by the parties. As a general rule, therefore, third parties who do not incur the burdens of the other provisions of the contract should not be entitled to take the benefit of an arbitration clause. Nor should a third party be compelled to go to arbitration by a clause to which it has not agreed. This general rule is not unique to arbitration clauses. It is a basic tenet of justice that a voluntarily assumed obligation should not be imposed upon a person without some manifestation by the person of an undertaking to be bound by the obligation.”

Albert concludes that:

Given the majority’s decision, an expansive approach to the concept of ‘through or under’ now prevails in Australia. Under this approach, ‘through or under’ is treated as a statutory exception to the privity doctrine. Thus, third-parties to an arbitration agreement may claim ‘through or under’ the arbitration agreement, even though not privy to the agreement to arbitrate. The effect of the majority’s decision in Hancock is to raise uncertainty as to which third parties may exercise rights under an arbitration agreement. With respect, the approach of Edelman J is to be preferred. This approach respects the fundamental notion of privity of contract and promotes party autonomy by enabling parties to determine who they arbitrate with and about what.

The extent to which third parties may rely on or be bound by an arbitration agreement remains a vexed question. Courts around the world have adopted a range of approaches including the alter-ego doctrine, agency, implied consent and estoppel. The issue is an important one as transactions frequently involve performance by parties that are not actual signatories to the contract at issue, including sureties, sub-contractors, lenders, and third-party beneficiaries.  A ‘Targeted Search’ within this Site reveals a number of recent instances (and there are no doubt many others) where the courts have grappled with third party/ non-party issues:

  • England, where in Cape Intermediate Holdings v Dring [2019] UKSC 38, the English Supreme Court confirmed the extent of a non-party’s right to obtain documents used in court proceedings (see here), and the English High Court’s decision in J (Lebanon) v. K (Kuwait) [2019] EWHC 899 (Comm), where the Court adjourned the claimant’s application to enforce an arbitral award against a non-party to an arbitration agreement pending the outcome of set aside proceedings at the seat of the arbitration in Paris, and refused security for the award (see here).
  • Hong Kong, where in Dickson Valora Group (Holdings) Co Ltd. v Fan Ji Qian [2019] HKCFI 48, the Defendant commenced court proceedings in China to claim benefits under a contract to which it was not a party in circumstances where the contract provided for arbitration in Hong Kong; the High Court granted the anti-suit injunction, holding that a non-party to a contract who becomes entitled to enforce an obligation which is subject to an arbitration clause must do so by arbitration in accordance with the contract (see here).
  • India, where in Reckitt Benckiser (India) Private Limited v Reynders Label Printing India Private Limited & Anr (1 July 2019), the court held that a non-signatory without any causal connection with the process of negotiations preceding the arbitration agreement could not be made party to the arbitration, and circumstances and correspondence post execution of the arbitration agreement could not be used to bind a non-signatory. (See article by Nishith Desai)
  • Malaysia, where in Dato’ Seri Timor Shah Rafiq v Nautilus Tug & Towage Sdn Bhd [2019] MLJU 405, the Court considered a party’s right to production of documents in the context of non-parties to an arbitration (see here);
  • Switzerland, where the Court confirmed that, under the provisions of the New York Convention, an arbitration clause could validly bind a party which had not signed the main contract 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 (see here); (note that in Motorola Credit Corp. v. Uzan, 388 F.3d 39, 52-53 (2d. Cir. 2004), the Second Circuit Court of Appeals determined that non-signatories could not compel arbitration because Swiss law controlled and Swiss law did not permit non-signatories to invoke arbitration agreements).
  • USA, where the Southern District Court recognised that a non-signatory may be bound to arbitrate pursuant to several different common law principles arising under by incorporation by reference, assumption, agency, veil-piercing/alter-ego and estoppel (see here) (Note that the US Supreme Court will shortly have the opportunity to consider the question of whether the New York Convention permits a non-signatory to an arbitration agreement to compel arbitration based on the doctrine of equitable estoppel: GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC).
  • See also the summary by Winston & Strawn of an April 2019 decision from the Wuhan Intermediate People’s Court in China, which partially set aside an arbitral award because it involved a non-signatory to the arbitration agreement.

See further:

  • the article by Thomas Heintzman QC, where he considers the approach in Canada in CE International Resources LLC v Yeap Soon Sit (2013) BCSC 1804, where the court found that while the relevant legislation preclude the enforcement of awards when the subject matter of the arbitration is not capable of settlement by arbitration under the laws of British Columbia or if such enforcement would be contrary to the public policy of British Columbia, the enforcement of an award against a non-signatory to an arbitration agreement is not contrary to either of those provisions if the arbitrator has found that the non-signatory is in fact and law a party to the arbitration agreement.
  • the article “Relooking at Consent in Arbitration” where the authors refer to a number of relevant decisions, including: the Singapore CA’s decision in PT First Media TBK (formerly known as PT Broadband Multimedia TBK) v Astro Nusantara International BV and others and another appeal [2013] 226 SGCA 57, where the CA stated that: “[a]n arbitral award binds the parties to the arbitration because the parties have consented to be bound by the consequences of agreeing to arbitrate their dispute. Their consent is evinced in the arbitration agreement” and the US Supreme Court’s decision in Volt Information Sciences v Leland Stanford, Jr. University [1989] 489 U.S. 468, which recognised that “[a]rbitration under the [Federal Arbitration Act] is a matter of consent, not coercion, and parties are generally free to structure their arbitration agreements as they see fit…” The authors comment:

“Another source of increasing doubt in the consensual nature of arbitration comes from the expansion of arbitration from resolving disputes between two parties to complex multi-party arbitrations and third-party joinders, where arbitrators hear claims by or against someone who never signed the relevant contract, therefore, not giving consent to arbitration… we believe that this seeming paradigm shift from consensual to compulsory or the so-called ‘compelled consent’ does not mean that the principle of consent has been extinguished. For arbitrations borne out of compelled consent, the problem is essentially one of abuse of unequal bargaining powers, which should be reconsidered by legislatures. For example, a legislature may decree that disputes of a small quantum and arising from an average consumer transaction shall be non-arbitrable. For multi-party arbitrations and third-party joinders, a “non-signatory” might still be bound by an arbitration agreement because consent to arbitrate was given through some other means other than the formality of a signature.”

Therefore we do not agree that “arbitration without consent exists”. We think it is more accurate to refer to a modern approach to consent that is more focussed on facts and more aligned with commercial practice, economic reality and trade usages.”

“The needs of arbitration users have changed since the drafting of the New York Convention in 1958 and these needs are not best addressed by a rigid and dogmatic adherence to arbitration principles and practices. For example, in respect of multi-party arbitrations, it remains to be seen whether an award can be enforced against a losing party joined to an arbitration against its will when that party cannot select the tribunal.  As the raison d’être of international arbitration is the greater predictability of global enforcement of an award, parties’ concerns about such issues of award enforcement in multi-party arbitrations are real and can only be resolved by relooking at traditional arbitration principles.”

“Consent in arbitration must also address the new economic reality of more complex commercial practices. The close interactions of today’s global economies and the greater economic convergence in today’s markets have led to a greater prevalence of international trade and complicated projects around the world involving multi-party transactions and contracts. Groups of companies are not the exception but the present norm in major international projects as commercial parties seek to manage their risks and resources better. These multi-party transactions and contracts have in turn given rise to more multi-faceted and multi-party international trade disputes. The concept of consent must accurately reflect the economic functions of global entities and the complex structures of modern-day projects.”

Reference should also be made to Bernard Hanotiau‘s 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) where he concludes 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 Hong Kong 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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