At least five common scenarios are usually present where an arbitrator’s analysis leads to a joinder of a non-signatory to arbitration, whether sought by either signatories or non-signatories
These might be named as follows:
- non-signatory participation in contract formation, particularly, where a non-signatory played a significant role at the time of the contract formation;
- a single contract scheme constituted by multiple documents;
- implied or express acceptance of the arbitration agreement by the non-signatory, whether in the particular arbitration itself or in another forum;
- absence of the signatory corporate personality; and
- fraud or fraud-like abuse of the corporate form.
The first three elements relate principally to implied consent, while the last two address the corporate veil. Furthermore, the “corporate veil” type of arguments necessarily derive from a signatory’s attempt to join a non-signatory to the arbitration proceedings, whereas in our case a less frequent case of a non-signatory trying to join the proceedings is present.
We will focus below on this case, i.e. implied or express acceptance of the arbitration agreement by the non-signatory, where a reference should be made to the “group of companies” doctrine derived from the famous case of Dow Chemical.
In that prototype case, Dow Chemical v Isover St. Gobain, an American parent (Dow USA) and its French subsidiary (Dow France) sought to benefit from an arbitration clause contained in agreements governed by French law that affiliates (Dow AG and Dow Europe) had signed with companies whose rights were transferred to Isober St. Gobain.
Given that the party resisting joinder (Isover St. Gobain) had already agreed to arbitrate pursuant to the relevant arbitration clauses binding Dow AG and Dow Europe, the critical issue was whether it would be compelled to honour that commitment with respect to companies that wished to participate in the arbitral proceedings.
In rejecting the defendant’s motion, the arbitral tribunal cited various indicia of the parties’ common intent, stressing that the arbitration clause was autonomous from the main agreement; thus the parties must be shown to have accepted either the entire contract (including the arbitration clause) or the agreement to arbitrate itself.
Dow Chemical assumes that the party sought to be joined will have been involved in the initial and final stages of the transaction: the negotiation and conclusion of the contract, as well as in performance and termination.
The non-signatory application was successful as it ultimately managed to show, inter alia:
- “Dow France appeared to be at the centre of the organisation of the contractual relationship” with the defendant;
- “the relationship could not have been formed without the approval of the American parent company”;
- neither of the parties “attached the slightest importance to the choice of the company within Dow Group that would sign the contracts”;
- “for exercising its contractual activities the distributor necessarily needed to make use of the trademarks belonging to the parent company”, which showed “the primary involvement of the parent company in the distribution agreements”;
- even though distinct juridical identity, a group of companies “constitutes “one and the same economic reality”;
- delivery under the contract “could be made by any wholly owned subsidiary of Dow (USA)”, which showed that “the parent company was the pivot of the contractual relationship finally established between certain entities of its group and the distributors”;
- it was undisputable that Dow USA exercised “absolute control over its subsidiaries”;
- “the application of the arbitration clause… conforms to the mutual intent of the parties”.
It must be added that Dow Chemical is not the only case where the non-signatories consented to arbitrate – it also happened in the Jaguar decision, known in some literature for exempting international consumer transactions from French consumer protection schemes.
It is important to note that the non-signatory in that case (Jaguar France) sought arbitration, and had been involved in the transaction (sale of a custom-made automobile) from its beginning.
Furthermore, based on a recent study by two leading Swiss scholars, in only a quarter of the surveyed cases did the tribunal extend the arbitration clause to non-signatories.
That lead some authors to conclude that:
“Although the data remain insufficient to permit any firm conclusions (at least without more information on the facts of the cited cases), the study does indicate a relatively low success rate for bringing parties into arbitration through “group of companies” criteria. Rather, non-signatories normally would be joined under common principles such as fraud, implied consent and lack of corporate personality.”
The same author usefully summarised all available ICC arbitral cases on the issue of joinder of non-signatories, which shows that out of 22, only in eight awards did the tribunal extend the arbitration agreement to a non-signatory, and that included such grounds as:
- inter-related contracts (twice);
- lack of corporate personality (twice);
- fraud or fraud related (twice);
- participation in negotiation through special vehicle (once);
- bound by admission in judicial action (once).