- Emergence of Modern Principles Extending Arbitration To Non-Signatories
Arbitration has become the predominant method in international trade transactions, where relationships are complex and involve multiple parties.
Consequently, this has led to a relaxation in the strict application of the traditional doctrine limiting the impact of contracts on non-signatories. Modern principles have evolved to extend arbitration agreements to parties who are not direct signatories.
These principles have developed based on arbitral decisions or judgments from foreign courts, particularly in the context of multi-party arbitration, where strictly applying the traditional doctrine becomes challenging. This concept arises in disputes where arbitration procedures affect individuals outside the contractual framework.
In this context, recent judicial decisions have embraced modern principles such as extending arbitration agreements to individuals who contributed to its formation and showed an intent to be bound by it, based on the concept of implicit acceptance of the arbitration agreement.
For instance, the Court of Appeal of Paris, in its judgment of May 22nd, 2008, extended the arbitration clause contained in a company's articles of association to an individual who did not sign it.
The court indicated in its judgment that parties cannot claim to be unaware of or unfamiliar with the arbitration clause, as it cannot be said that they are ignorant of its existence or its content; their knowledge of it entails implicit acceptance. Thus, according to this court, the managing director of the company, despite not being a signatory to its articles of association or the company's contract, is considered a party in disputes arising from his management of the company. He thereby falls within the personal scope of the arbitration agreement, even without having signed it, in accordance with these modern principles.
In another case, the French Court of Cassation extended the arbitration agreement to the company director for hiding behind its veil. Generally, if a shareholder is a legal person, the arbitration agreement stated in the company's contract binds the company as a legal person because it is a party to it, and it does not extend to bind the shareholders of the company or its directors. However, the French Court of Cassation extended the arbitration clause to the company director due to his exploitation of its legal personality and hiding behind its veil. Therefore, the court considered him the real party and not the company itself.
However, some legal opinions in Egypt argue that the requirement for a written agreement as a condition for arbitration prevents adopting these modern principles. They argue that since written formality is a requirement, consent must be explicitly exchanged and cannot be implied.
Moreover, these theories and modern principles have emerged in specific jurisdictions and may not be binding in others. For example, British courts have rejected the application of certain theories extending arbitration agreements, stating they are not part of English law.
That being said, the expansion of arbitration scope involving non-signatories includes both established general rules and evolving theories, it involves fluctuating legal interpretations and are subject to court discretion.
- Examination of Legal Texts and Regulations in Qatar
In Qatar, there are no specific rules under the Law of Arbitration in Civil and Commercial Matters (No. (2) of 2017) (the “Law”) regarding instances when third parties or non-signatories may be bound by an arbitration agreement.
The Law establishes arbitration as a legal mechanism where parties, based on their sole and unique agreement, settle disputes outside of courts.
Article 1 of the Law defines arbitration as a “legal consensual method to settle disputes in lieu of judicial proceedings, whether the arbitral proceedings are administered by a permanent Arbitration Centre or otherwise, according to the agreement of the Parties”.
This consensual approach aligns perfectly with a fundamental principle in contract law, as stipulated in article 175 of the Qatar Civil Code, which emphasizes on the binding effects of a contract on the parties involved, an effect which they solely agreed to be subordinate to, without any other interference from a third party.
Moreover, there has been a significant development in the legal framework of the idea of multi-party arbitration; article 17(5) of the UNCITRAL Rules of 2010, stipulates that “the arbitral tribunal, upon request of any party, may allow one or more third persons to be joined as a party to the arbitration, provided that such person is a party to the arbitration agreement”.
Thus, the mentioned article sets a clear condition in order for third persons to join the arbitration, which is, to have previously agreed to be part of the arbitration agreement.
To continue, article 18 (6) of the Rules of Conciliation and Arbitration issued by the Qatar International Center for Conciliation and Arbitration, effective since May 1st, 2012, states that “The arbitral tribunal may, at the request of any party, allow one or more third person(s) to be joined in the arbitration as a party provided such person is a party to the arbitration agreement…”, being therefore in total conformity with article 17 (5) of the UNCITRAL Rules of 2010.
All these previous texts showcase the importance of the principle regarding the relative effect of a contract i.e. an arbitration agreement. In fact, article 171 of the Qatar Civil Code presented in its provisions the concept Pacta Sunt Servanda, emphasizing on the importance of honouring the agreement between the parties, but most importantly, insisting on the mutual consent of the parties, regarding any alteration of the contract.
In other words, the arbitration agreement, which is a contract between the parties, requires two wills, two intentions, in order to alter any element of the arbitration agreement, especially when it comes to potential new parties. Hence the differentiation between arbitration and litigation. In litigation, the sole requirement for accepting intervention is for a person to have a legitimate interest, whereas in arbitration—being a private dispute—the arbitral tribunal is not permitted to involve parties not bound by the arbitration agreement in the proceedings.
- Analysis of Qatari Judicial Decisions
The following decisions shed the light on the nature of arbitration, highlighting arbitration as the outcome of a contractual understanding that exclusively binds the agreeing parties.
Consequently, the terms and extent of this agreement cannot be construed to include parties who have not consented to it.
This implies that third persons cannot be compelled to participate in an arbitration process to which they have not consented, much like they cannot be regarded as parties to a contract they did not agree to:
- Appeal No. 164 of the year 2014, hearing dated 24/6/2014
The basis of arbitration is the parties' intention and has the nature of a contractual agreement. This is what the Court of Cassation has determined by assuring that "the intention of the contracting parties establishes arbitration and determines its scope in terms of the issues it covers, the applicable law, the constitution of the arbitral tribunal, its authorities, arbitration procedures, and others".
- United Arab Emirates
In its decision dated January 9th, 2018, the Court of Cassation in Abu Dhabi, affirmed the principles governing the issue of intervention and joinder in arbitration proceedings.
It emphasized that intervention and joinder are generally governed by the same principles, except that arbitration is limited by the scope of the arbitration clause. Therefore, extending the arbitration clause to non-parties is impermissible, and the consent of the involved party to arbitration is a fundamental requirement for joinder.
In contrast to regular litigation, where the court may introduce parties it deems beneficial for a fair trial irrespective of their consent, in arbitration, third parties may intervene if they demonstrate a legitimate interest, whether to join as a party or to consolidate.
The Court reinforced its decision by the following by stating that, while it is acknowledged that third parties may intervene before a state judge and may be compelled to intervene for the sake of justice, this principle is applicable solely in regular litigation and cannot be applied within the context of arbitration disputes due to its contractual nature.
The Court continued by stating that, non-parties, such as guarantors, cannot intervene intentionally in an arbitration dispute between the parties unless agreed upon, as the arbitrators lack the authority exclusively entrusted to regular courts. The scope of arbitration is defined by the agreement to arbitrate, and thus, no party can litigate before an arbitral tribunal unless they are a party to the arbitration agreement or fall within its scope. Therefore, if someone not party to the arbitration agreement or not covered by it, is included in the dispute, they may request their exclusion.
The jurisdiction of the arbitral tribunal is derived from the arbitration agreement, which is relative in its effect, thus non-parties or those not covered by the agreement cannot be compelled to submit to the authority of the arbitrators.
- Bahrain
Referring to Bahraini Arbitration Law No. 9 of 2015, it remains silent on regulating intervention and joinder in arbitration proceedings. This has led to division between opinions. The prevailing opinion considers the following: Requiring the consent of the parties for third-party intervention and the consent of the intervenor's opponent for joinder in the arbitration dispute.
Proponents of this view argue that "the relative effect of contracts" is a recognized principle, meaning that an arbitration agreement generally binds only its parties. This is known as the personal scope of the arbitration agreement, where the agreement does not extend to individuals who did not express a desire to exclude judicial oversight from their disputes. Therefore, non-parties to the arbitration agreement are not permitted to intervene in the arbitration dispute without obtaining the consent of the arbitration parties. Procedural rules applicable to judicial lawsuits before courts do not apply in arbitration proceedings.
- Saudi Arabia