9.01  This chapter gives an overview of the issue of extension of consent to arbitration. The widely used concept of extension is in some ways a misleading concept, because decisions accepting the substitution of one party for another or the addition of a non-signatory party to the arbitration proceedings¹ are regularly based on consent.²

9.02  The chapter first discusses the extension of consent to arbitration by application of general principles of contract law or corporate law (Section A). Later the chapter considers extension of consent to arbitration to non-signatories (Section B), where aspects related to consent by conduct³ will also be looked at.

9.03  The United States have always followed—together with France—a strong contractual approach with regard to arbitration.⁴ Due to the fact that in the United States ‘arbitration agreements (p. 145) are to be treated like other contracts, subject to the policy favouring arbitration’, general principles of contract law—including third party principles—apply to arbitration agreements in the same way that they apply to contracts in general.⁵ However, in other common law countries and in civil law systems, general principles of contract law are also used for extending arbitration agreements. Principles of contract law include agency, assignment, subrogation, universal succession, and third party beneficiaries. These principles, when applied to arbitration agreements, give rise to issues with regard to consent to arbitration.

9.04  Under the general principles of contract law, it is the person in whose name and on whose behalf the contract was made, rather than the agent or representative, who will be bound by all the rights and obligations deriving from the contract.⁶ An arbitration clause entered into by a person acting, expressly or implicitly, as the agent of a principal, and within the limits of his authority, is therefore generally directly imputable to the non-signatory principal.⁷ Conversely, an agent who discloses his agency is, in principle, not bound by the arbitration agreement.⁸

9.05  The situation is more complex when the main contract concluded by an agent contains an arbitration clause. The key issues with agency are whether the principal must provide the agent with specific authorization to enter into an arbitration clause, as opposed to the general authorization to conclude the substantive contract, and, in the affirmative, the question of which form the specific authorization has to take.⁹ Another issue closely related to consent is about what happens when the agent exceeds his powers. Moreover, in the United States agency is conceived in a broader sense.¹⁰

9.06  There is great diversity regarding the authority and form requirements necessary to agree to arbitration on behalf of another person.¹¹ Several laws require explicit or special authority,¹² some the written form or the form necessary for the transaction envisaged (ie the arbitration agreement), which is tantamount to requiring the written form,¹³ while others pose no requirements of form.¹⁴ Conversely, it is generally agreed that the New York Convention does not pose any requirement of form on this subject.¹⁵

9.07  It has been observed that the relaxation of the protective element in the form requirements brings good reasons to allow oral conferrals of power on an agent, especially where the agent is authorized to enter into the contract on behalf of the principal.¹⁶ However, this leads to more incertitude. On the other hand, the importance of the issue of consent to arbitration by the non-signatory increases. Indeed, where an agreement containing an arbitration clause has been entered into by a person who expressly or impliedly did so as a representative of a principal, that (p. 146) non-signatory principal may be bound to the arbitration agreement.¹⁷ While in agency’s cases, where there is a formal representation or a subsequent ratification by the principal, the principal will normally have consented to arbitration, issues with non-signatories arise—in particular in the case of apparent agents.

9.08  If the agent acts outside the scope of his mandate, or does not disclose his capacity as agent, then the question of who is bound by the arbitration agreement arises.¹⁸

9.09  Due to the fact that agency relationships are often not explicit, the courts and tribunals are regularly dealing with undisclosed or apparent agents, ie situations where a principal is not willing to be represented or is not aware of a representative, but a third party’s legitimate reliance in such representation is protected.¹⁹ In these cases there is no consent of the principals to arbitration. Therefore, to warrant an extension of the arbitration clause vis-à-vis the principal, the ‘appearance’ upon which the counterparty of the undisclosed agent relies must reach a certain threshold.²⁰ On the other hand, the undisclosed agent may be compelled to arbitrate, not based on agency, but by application of other theories, such as the theory of appearance or estoppel.²¹

9.10  An agent that executes a contract on behalf of a disclosed principal will not normally be compelled to arbitrate against its wishes;²² however, in some US circuits,²³ a non-signatory agent may be permitted to compel arbitration based on an arbitration agreement contained in the contract the agent signed in his capacity as a corporate director, officer, or employee where he would otherwise be required to defend the claim in court.²⁴ It has been remarked that this highly pragmatic approach to agency theory sometimes also becomes expressed in terms of other theories, eg that the signatory is estopped from denying that the arbitration provision applies to the non-signatory agent²⁵ or that the agent has, by his behaviour, assumed the duty to arbitrate.²⁶

9.11  The transfer by the original party to a contract, which contains an arbitration clause, of its substantive claims, rights, and/or obligations to another person, often raises the question of whether the transferee will be bound by the arbitration clause, contained in the main contract, (p. 147) and in the affirmative under what conditions.²⁷ Transfers of rights and obligations may occur under different legal constructs.²⁸

9.12  Also at the heart of the problems which can arise in cases of assignments²⁹ is the fact that arbitration is a consensual process.³⁰ Originally the transfer of arbitration agreements by way of assignment was disputed, but the position has now changed and it is universally accepted that arbitration agreements are as assignable as any other contract.³¹ On the other hand, issues come up because of the ‘in writing’ requirement requested by the New York Convention and most national arbitration laws.

9.13  Parties are, in general, free to assign their contractual rights to a third party. Where those rights are covered by an arbitration agreement the prevailing view in international arbitration is that the assignee automatically becomes a party to the arbitration agreement; indeed courts in various countries, such as France,³² England,³³ Sweden,³⁴ Switzerland,³⁵ and Germany,³⁶ have consistently held that the assignee can sue and be sued under the arbitration agreement.³⁷ The Paris Court of Appeal went as far as considering it a general principle of arbitration law.³⁸

9.14  Yet, the rule of automatic transfer of arbitration clauses is not unanimously accepted. Indeed, there have been cases where tribunals and courts have rejected the idea of an automatic transfer of the arbitration agreement,³⁹ and required an express approval by the assignee or the original debtor as a precondition for the transfer of the right to arbitrate.⁴⁰ In particular, Italy is an exception to the general consensus favouring transfer in the event of the assignments of rights.⁴¹ The two main arguments which are usually suggested against the automatic transfer are the (p. 148) principle of separability⁴² and the view that arbitration clauses do not only provide for rights but also contain burdens.⁴³

9.15  The New York Convention requires an arbitration agreement to be ‘in writing’ and ‘signed’ by the parties or contained in an exchange of letters or telegrams’, but it does not explicitly answer the question of whether an assignment of an agreement automatically includes assignment of the arbitration clause.⁴⁴ While most national arbitration laws also require that the arbitration agreement be in writing, national courts have generally held that an automatic transfer of the arbitration clause does not violate the in writing requirement by arguing that the requirement addresses merely the initial conclusion of the arbitration agreement, but not subsequent transfers.⁴⁵ Such an approach, which has also been criticized,⁴⁶ would have the advantage in that there is no possibility of conflict in this respect with the substantive validity of the arbitration agreement (the reached mutual consent). However, other issues arise with regard to consent.

9.16  The issue with consent concerns the positions of the assignee and of the obligor.

9.17  Although one might object to the automatic transfer by invoking the principle of autonomy (separability),⁴⁷ according to which the fate of the main contract and of the arbitration clause are not bound,⁴⁸ autonomy—which concerns the respective validity of the two agreements—is not an obstacle to the second contract being a functional accessory to the first. In fact, to be a functional accessory justifies its automatic transfer.⁴⁹ General consent of the assignee to assume the main contract is therefore sufficient for the contained arbitration clause to be transferred as well.⁵⁰

9.18  French courts have long since held that, in the absence of an agreement to the contrary, the transfer of rights and duties resulting from a contract includes the transfer of the arbitration clause, which is a part of the terms and conditions of such contract, so that the assignee is bound by the arbitration clause.⁵¹ They justify this solution either by the accessory character of the arbitration clause, or by the presumed will of the parties to the assignment, or again by interpretation of such will.⁵²

9.19  Conversely, it has also been argued that the presence in arbitration agreements not only of rights but of duties (eg to refrain from instituting ordinary court proceedings) precludes any (p. 149) valid transfer of an arbitration clause to the assignee unless the latter expressly agrees to be bound by those duties.⁵³

9.20  The obligor had agreed to arbitrate with the assignor, but not with the unknown assignee. While in practice it is not possible to force a party to the arbitration clause to arbitrate with a third party, French authors and courts have overcome this difficulty by either a presumption of consent or considering that the arbitration clause is firmly bound to the contract and thus should follow it.⁵⁴

9.21  On the other hand, no automatic transfer takes place when the parties have excluded an assignment of the arbitration agreement,⁵⁵ or if it results from the circumstances that the clause was concluded intuitu personae.⁵⁶ Moreover, non-assignment clauses in relation to the substantive right are often considered to exclude any assignment of the arbitration agreement.⁵⁷ While these cases are obstacles to the transfer of the arbitration agreement, this will, however, be the case only exceptionally in international trade where arbitration is viewed favourably, and constitutes a common mode of dispute resolution.⁵⁸ Nevertheless, the assignment should not lead to a deterioration of the original debtor’s position.⁵⁹

9.22  The reason for the automatic assignment is that arbitration agreements are not personal covenants⁶⁰ but form part of the economic value of the assigned substantive right.⁶¹ Indeed, the prevailing view today is that they are entered into because of non-personal reasons, such as expediency, cost-efficiency, and other perceived advantages of the arbitration process.⁶² Moreover, as the Court of Appeal of New York stated in Hosiery Mfg Corp v Goldston, arbitration contracts would be of no value if either party could escape by assigning a claim subject to arbitration between the original parties to a third party.⁶³ Otherwise, it would be possible for a party to circumvent the arbitration agreement by assigning the main claim.⁶⁴ An exclusion of the possibility of assignment may, however, exist where the agreement to arbitrate is entered into on the basis of a special personal relationship.⁶⁵ Indeed, in such a case there should be a presumption that there is no consent to arbitrate with a third party on the part of the obligor. Moreover, an award rendered in application of Swiss law⁶⁶ also considered that an arbitration agreement combined with a confidentiality clause was concluded intuitu personae and, therefore, could not be assigned without the agreement of the other contractual party.⁶⁷

9.23  The rule of automatic transfer will equally apply to other forms of transfer of arbitration agreements, such as subrogation by operation of law, universal succession, third party beneficiaries.⁶⁸

9.24  Subrogation by operation of law apparently does not lead to the same difficulties as contractual assignment. It has been generally recognized, particularly in France,⁶⁹ that it extends to the arbitration agreement so that the subrogated party is subject to it and benefits from it.⁷⁰ The same is also true according, for instance, to the practice of the Swiss⁷¹ and English⁷² courts.⁷³

9.25  It is commonly recognized that the universal successor is bound by the arbitration clause concluded by the person whom he succeeds, under the reservation of an agreement to the contrary, in particular where such a clause had a strictly personal character.⁷⁴ Other cases of universal succession, such as takeovers, merger of companies, or the acquisition of the assets and liabilities of a company, cause the transfer of the arbitration agreement to the new owner or the new combined company in the case of a merger.⁷⁵

9.26  Broadly speaking, the third party beneficiary doctrine provides that in certain circumstances a non-signatory who has received benefits under the main contract is entitled to request performance of those benefits.⁷⁶ It has been observed⁷⁷ that while the US case law on ‘third party beneficiary’ is surprisingly inconsistent, in general ‘the mere status of the third party beneficiary imposes no duty to arbitrate . . . [however] doing so is a condition to the third party beneficiary’s enforcing its rights’ under that contract,⁷⁸ ie the third party beneficiary is only bound to arbitrate where it is the claimant in a claim relying on the main agreement.⁷⁹ In keeping with the general US contract approach, the third party must be an intended beneficiary, although evidence of this may be drawn from the writing itself and the surrounding circumstances.⁸⁰

9.27  In England, section 8 of the Contracts (Rights of Third Parties) Act 1999 extended the arbitration clause contained in the contract to the third party beneficiary of a substantive term of that contract, so that the third party can enforce the term against the promisor through arbitration.⁸¹ The latter can reciprocally invoke the agreement to obtain a stay of proceedings (p. 151) brought against him before the courts.⁸² Interestingly, the drafters moved from an initial position of considering it inappropriate for the statute to apply to arbitration provisions as this would impose ‘duties and burdens’⁸³ on a third party, to instead viewing the arbitration agreement as a ‘condition’ to enforcing the ‘benefit’ conferred by the third party beneficiary doctrine.⁸⁴

9.28  By contrast, the French Cour de Cassation denied the transfer of the arbitration agreement in favour of a third party beneficiary for the reason that such a clause can merely create rights and not duties.⁸⁵ Without contesting this result, Goutal inferred that the beneficiary could opt for arbitration without being thereby bound.⁸⁶

9.29  The three situations discussed previously may, at first glance, seem quite similar, for the third party, to mandatory arbitration, as the third party is subject to and benefits from the arbitration agreement because of an operation of law and not because of its direct consent. Therefore, the discussion on whether the arbitration clause has to be seen as a burden or not is understandable. Jarrosson, however, observed that an arbitration clause is not strictly speaking a burden, but rather a part of the rights stipulated in favour of the beneficiary and binding on the latter once he has accepted them.⁸⁷ Therefore, in this indirect way the third party gives its consent to arbitration. On the other hand, while the other party has consented to arbitration as a dispute resolution mechanism, its consent was to arbitrate with the original party and not with the third party. Nevertheless, when concluding the arbitration agreement the other party should have been aware of the possibility that the arbitration agreement could pass to a successor because of an operation of law.

9.30  The widely used concept of ‘extension’ of the arbitration clause to non-signatories is a misleading concept since, in most cases, national courts and arbitral tribunals still base their determination of the issue on the existence of a common intent of the parties and, therefore, on consent.⁸⁸ Indeed, in the majority of cases, the status of a non-signatory party does not result from the text of the agreement containing the arbitration clause, but from tacit acceptance, as is particularly the case for the extension to companies belonging to the same group.⁸⁹ However, while the ‘group of companies’ doctrine discussed in this section does not encounter any major difficulties under French law, which has no formal requirements,⁹⁰ this is not the case under other national laws which do not content themselves with either tacit acceptance or acceptance by conduct, but require that the will to submit to arbitration result from written documents.⁹¹

(p. 152) 9.31  Although most authors have recognized that such an extension should not take place unless it corresponds to the mutual intention of the parties, they are more or less favourable to presume such intention; they will accept ‘extension’ to a greater or lesser extent depending on:

• •  whether they attach more or less weight to economic criteria and the efficiency of arbitration;

• •  whether they consider arbitration the usual mode of dispute resolution in international commerce;

• •  whether they give weight to the respect of contractual texts or on the principle of good faith in business matters; and finally

• •  whether or not they permit international commercial usage to prevail over national laws.⁹²

9.32  Section B will then consider the doctrine of arbitral estoppel which is often relied upon by US courts to compel arbitration between a signatory and a non-signatory party. Moreover, arbitration agreements may also be extended to non-signatories for other reasons unrelated to consent, in particular by lifting the corporate veil when there is an element of fraud in using a company or for reasons related to the interest of the administration of justice. Finally, the extension of arbitration agreements in cases of multiple contracts and successive contracts is examined.

9.33  The ‘group of companies’ doctrine is probably the most prominent and controversial of the theories developed to ‘extend’ an arbitration clause to non-signatory parties.⁹³ Unlike other bases for binding non-signatory parties to an arbitration agreement—such as agency, alter ego, estoppel, etc—which have their origin in contract law or company law, the group of companies doctrine was developed specifically in the arbitration context.⁹⁴

9.34  In international arbitration, groups of companies raise a number of different issues; some of them concern mainly the substance of the dispute, others seem to be of a more procedural nature.⁹⁵ The existence of a group of companies gives a special dimension to the issue of consent, because consent to arbitration is expressed by conduct.⁹⁶ Whether an arbitration agreement signed by a company member of a group of companies is also binding upon and entitles other members of that group, but non-signatories of the agreement, remains an open question in national court’s case law and in international arbitration practice.⁹⁷ In the doctrine, the answer to this issue is as controversial as in the practice of arbitral tribunals and national courts.⁹⁸

9.35  The theory of ‘group of companies’, more an economic concept than a legal one,⁹⁹ has developed in arbitration case law and, under the influence of the latter, before the French courts.¹⁰⁰ Although arbitral awards have been making tentative references to ‘group of companies’ and (p. 153) how these groups may influence the jurisdiction of arbitral tribunals since the 1970s,¹⁰¹ the considerations of the arbitral tribunal in Dow Chemical v Isover¹⁰² are generally viewed as forming its cornerstone.¹⁰³ While it is often said that the ‘group of companies’ doctrine has particularly flourished in ICC arbitrations, it was not as widely followed by arbitration case law as its notoriety might lead us to believe.¹⁰⁴

9.36  Under the doctrine, a group of companies constitutes one and the same economic reality—despite the legal independence of the individual entities from one another—where the circumstances of the contract’s conclusion, its performance, its (possible) subsequent termination, and the degree of control executed among the group companies warrants such an inference.¹⁰⁵ On the other hand, in all ‘group of companies’ decisions, the finding of an expression of consent to arbitration by conduct—consent implied by conduct¹⁰⁶—generally remains key in binding non-signatories to an arbitration clause. The theory of ‘group of companies’ is distinct from agency because its aim is binding other members of the group to the arbitration agreement, and not replacing some members with others.¹⁰⁷

9.37  The group of companies doctrine has not found the same acceptance in all countries. While French courts and arbitral tribunals seated in France have usually followed this doctrine, English courts, in particular, have rejected it as not forming part of English law. When the group of companies doctrine finds acceptance, the group structure and/or the active involvement of the non-signatories in the negotiation and execution of the particular contract must be such as to suggest that the non-signatory party intended to arbitrate.¹⁰⁸ Consent—in the form of expression of consent to arbitration by conduct—therefore plays a key role in the group of companies’ theory, and national courts and arbitral tribunals have almost invariably referred to the requirement of common intention of the parties to arbitrate.¹⁰⁹

9.38  In France,¹¹⁰ it was the ICC award No 4131, Dow Chemical v Isover¹¹¹ which began the case law based on the ‘group of companies’ doctrine. Two of the four claimants were not mentioned as parties in the disputed contracts, but had participated in the negotiations and the performance of the contracts; they therefore claimed to benefit from the arbitration clauses contained therein.¹¹² The arbitrators, by invoking Article 8(3) and (4) of the ICC Rules then in force, first confirmed the autonomy of the arbitration agreement with regard to all national laws, which is in accordance with the French conception of the separability of the arbitration agreement.¹¹³ The arbitral tribunal inferred therefrom that they should decide ‘based on the (p. 154) mutual will of the parties’ and ‘usage conforming to the needs of international commerce, notably where a group of companies is concerned’.¹¹⁴ The arbitrators determined the test to be applied as follows:

Considering, in particular, that the arbitration clauses expressly accepted by certain of the companies of the group should bind the other companies which, by virtue of their role in the conclusion, performance or termination of the contracts containing said clauses, and in accordance with the mutual intention of all parties to the proceedings, appear to have been veritable parties to these contracts or to have been principally concerned by them and the disputes to which they may give rise.¹¹⁵

9.40  Since then, the argument of the ‘autonomous validity and effectiveness of arbitration agreements’ has been reiterated by the Paris Court of Appeal in a number of cases;¹¹⁸ recently it was also approved by the Cour de Cassation in the ABS v Amkor¹¹⁹ case.¹²⁰ The formula is based on two presumptions: the presumption of awareness of the clause, which is allegedly sufficient to presume acceptance thereof.¹²¹

9.41  Gradually national courts and arbitral tribunals departed from the context of group of companies and considered performance to operate as a self-standing basis to imply consent, independently of the existence of such a group.¹²²

9.42  The final step was taken in a judgment of 28 November 1989 where the Paris Court of Appeal considered the carrier Cotunav bound by the arbitration clause contained in an agreement made between two public agencies, in which Cotunav had no part, for the sole reason that ‘by accepting to intervene in the performance of the contract as carrier appointed by one of the parties in the framework of the contract, Cotunav necessarily assumed the obligations defined by the contract with regard to the carrier and accepted its modalities, including (p. 155) the arbitration agreement’.¹²³ Therefore participation in the performance of the agreement, deprived of any other link with the parties, led to an apparently irrefutable presumption¹²⁴ of acceptance of the arbitration clause.¹²⁵

9.43  The Cotunav case led to an enlargement of the previous case law, since it recognized such tacit acceptance outside of a group of companies. Tacit acceptance results solely from the performance of a contract concluded by other parties.¹²⁶ Indeed, a subjective criterion, ie membership of a group, has been abandoned in favour of an objective criterion, ie a connection with the object of the contract, of which arbitration is merely a ‘component of its performance’.¹²⁷ In other words, the involvement of the non-signatory in performance to the extent that it is evidence of implied consent to arbitrate may serve per se as the basis for extension, whether or not the facts relate to a group of companies.¹²⁸

9.44  Due to the fact that the Paris Court of Appeal then repeated this reasoning in a number of subsequent judgments¹²⁹ and was approved by the Cour de Cassation,¹³⁰ the presumption of awareness and, by virtue thereof, of acceptance resulting from the performance of the contract, can now be considered a material rule applicable before French courts to international arbitration agreements.¹³¹

9.45  Switzerland has produced comparably few arbitral awards and court decisions explicitly dealing with the ‘group of companies’ doctrine. The Swiss Federal Tribunal in the Butec case¹³² underlined that caution should be exercised before deciding that a company was bound by an arbitration agreement concluded by another company belonging to the same group of companies.¹³³ The court held that such a conclusion should only be drawn where factual circumstances are given which justify the assumption of an ‘appearance-based liability’ (Rechtsscheinhaftung).¹³⁴ This judgment illustrates the gap existing between Swiss and French case law.¹³⁵

9.46  Under these conditions it is understandable that arbitrators sitting in Switzerland have largely refused to extend arbitration agreements, not just for formal reasons, but by considering that the notion of ‘group of companies’ and the piercing of the corporate veil are instruments which should only be used with extreme reluctance.¹³⁶ In summary, the present state of Swiss law is that the extension of an arbitration agreement to a party which does not appear therein can be envisaged only if it can be established (by any means) that such a party was validly represented by one of the other parties—which does not result solely from membership in a group of (p. 156) companies—or if there was subsequent ratification or, finally, if the attempt to evade arbitration constitutes an abuse of rights allowing a piercing of the corporate veil (Durchgriff).¹³⁷

9.47  English courts strongly respect the contractual nature of arbitration. Indeed, the doctrine of ‘group of companies’ is said to be inconsistent with the principle of privity of contract, the principle of the corporate veil and the treatment of derivative actions.¹³⁸ In Peterson Farms, the Commercial Court held that ‘the [group of companies] doctrine . . . forms no part of English law’.¹³⁹ Therefore, the High Court confirmed the restrictive approach of English case law¹⁴⁰ with regard to a presumption of the extension of an arbitration agreement to the other members of the group.¹⁴¹ It has been argued that Peterson Farms¹⁴² represents a set-back to the efforts of incorporating the ‘group of companies’ doctrine into transnational law or the lex mercatoria.¹⁴³ On the other hand, it has also been observed that the decision of the Commercial Court does not inevitably command the conclusion of the end of any possibility of extension of the arbitration clause to a non-signatory company when the underlying contract is governed by English law.¹⁴⁴ Indeed, while the existence of a group of companies is not the ground on which courts and arbitral tribunals usually extend arbitration clauses to non-signatories, they generally base their decision on consent or on conduct as an expression of implied consent or as a substitute for consent.¹⁴⁵ Extension may therefore be achieved by recourse to such theories as agency, trust, or piercing the corporate veil.

9.48  The same theories are also applied in the United States. However, it appears that in relation to the issue of extension of the clause to non-signatories, US law is much more liberal¹⁴⁶ than any in Europe. At least in some Circuits, the paramount concern of the courts is the ‘federal policy favouring arbitration’.¹⁴⁷ On the other hand, the Sarhank case,¹⁴⁸ where the Second Court of Appeals declined to enforce an arbitral award against a corporate parent where there was no ‘clear and unmistakable intent by [it] . . . to arbitrate’, may indicate a shift from a rather liberal view, as expressed, for example, in the JJ Ryan case,¹⁴⁹ back to a greater emphasis on the parties’ intent to arbitrate.¹⁵⁰

9.49  Some authors suggest that the principles on which the ‘group of companies’ doctrine is founded are based on the lex mercatoria or on usages of international trade; others, conversely, submit that the law governing the arbitration agreement should be applied.¹⁵¹ While the advocates of the ‘group of companies’ doctrine purport that the exceptions to the notion of the separate entity of each juristic person and the privity of contract can be derived from the so-called (p. 157) lex mercatoria, the opponents of the ‘group of companies’ doctrine also recognize the existence of exceptions, however without deriving these exceptions from the lex mercatoria, but rather from the respective rules of the national proper laws of contract.¹⁵²

9.50  Not surprisingly the majority of the authors who favour ‘extension’ to non-signatories within a group of companies are French,¹⁵³ as they do not have to take any formal¹⁵⁴ or substantive conditions into account, with the exception of such substantive rules that might result from international public policy.¹⁵⁵ On the other hand, German and English authors are rather critical towards the ‘group of companies’ doctrine and reject it, only admitting very restrictively to piercing of the corporate veil (Durchgriff).¹⁵⁶

9.51  In the majority of cases, the status as party of a non-signatory does not result from the text of the agreement containing the arbitration clause, but from tacit acceptance.¹⁵⁷ This is particularly so for the ‘group of companies’ doctrine which is based on tacit or even presumed acceptance of the arbitration clause.¹⁵⁸ Such acceptance would result either from conduct at the time of the conclusion of the agreement, in particular participation in its negotiation but without the intention of signing it,¹⁵⁹ or from subsequent acts, particularly supervision of the operations or an active role in their performance, from which tacit acceptance may be inferred.¹⁶⁰ However, while originally participation in the negotiation or performance of the contract was only an indication of such acceptance, a presumption—at least according to French law—has since been established, by virtue of an alleged usage of international commerce, that knowledge of the arbitration clause constitutes acceptance thereof.¹⁶¹

9.52  Some cases even suggest that a party’s conduct should not necessarily be regarded as an expression of a party’s implied consent, but rather the party’s substantial involvement in the negotiation and performance of the contract and the knowledge of the existence of the arbitration clause have a standing of their own, as a substitute for consent, just as reliance is a substitute for consideration.¹⁶² In any case, it has been observed that, whatever the factual scheme, the issue of extension of the arbitration clause to the other companies of the group should be analyzed in terms of consent, rather than by determining whether the so-called ‘group of companies’ doctrine is known or unknown in the relevant legal system.¹⁶³

9.53  The doctrine of equitable estoppel in its traditional sense reflects the general legal principle of non venire contra factum proprium, found in Roman law and recognized in many contemporary civil law jurisdictions.¹⁶⁴ In arbitration the doctrine has developed a specific meaning applicable (p. 158) to non-signatories in the context of jurisdictionally fragmented multiparty situations.¹⁶⁵ The theory of estoppel is often relied upon by US courts to compel arbitration between a signatory and a non-signatory party (arbitral estoppel).¹⁶⁶

9.54  In general, the doctrine of arbitral estoppel applies where a party, by its own conduct, is prevented from denying that the other party in question is entitled to rely on an arbitration agreement.¹⁶⁷ Or, in other words, estoppel denies a party who has accepted the benefits of a contract containing an arbitration clause the defence that such an arbitration clause is not applicable to that party.¹⁶⁸ While in the majority of cases the doctrine has been employed by the US courts to estop the signatory party ‘from avoiding arbitration with a non-signatory’, on various occasions the doctrine has equally been applied to estop the non-signatory party from avoiding arbitration with the signatory party.¹⁶⁹

9.55  US courts have recognized at least two different versions of arbitral estoppel:¹⁷⁰

1. 1.  In the equitable version of arbitral estoppel,¹⁷¹ courts have compelled a non-signatory to arbitrate where the non-signatory knowingly exploits or directly receives a ‘benefit’ from the agreement containing the arbitration clause.¹⁷² In such instances, courts have allowed estoppel to be used as a proverbial ‘sword’ rather than ‘shield’, ie empowering the signatory to request arbitration of a claim.¹⁷³

2. 2.  In the intertwined version of arbitral estoppel,¹⁷⁴ courts have compelled arbitration based on an analysis of:¹⁷⁵

   • •  the relationship between the claim and the contract containing the arbitration clause; and

   • •  the existence of a ‘nexus between the parties’.¹⁷⁶

In this second version two conditions must apply concurrently:

• •  first, the dispute between the signatory and the non-signatory must be intertwined with the contract containing an arbitration clause; and

• •  secondly, the non-signatory must have contractual or close corporate links with one of the signatories.¹⁷⁷

9.56  In the case of the equitable version of the doctrine of arbitral estoppel, the US courts will normally take into account both equitable and consensual considerations to decide whether to refer the dispute between a signatory and non-signatory to arbitration.¹⁷⁸ On the other hand, the broad language of the intertwined version of arbitral estoppel has been fertile ground for arguments that in effect use only the close relationship of the signatory and the non-signatory as the basis for implied consent to arbitration.¹⁷⁹

9.57  The concern with both versions of the arbitral estoppel doctrine is that they often result in highly fact-specific decisions and sometimes appear to be used as an ‘easy option’ rather than applying a more rigorous legal analysis using traditional principles of contract and agency law.¹⁸⁰ This was the case in Choctaw Generation v American Home Assurance,¹⁸¹ where the intertwined version of arbitral estoppel was applied.

9.58  In relation to bank guarantees¹⁸² or letters of credit issued on the basis of a contract containing an arbitration clause it cannot be assumed that the bank has consented to arbitration on the basis of the underlying contract if the guarantee or the letter of credit does not provide for arbitration.¹⁸³ In Choctaw the US Court of Appeal for the Second Circuit held that a signatory to an arbitration clause may be bound under the doctrine of estoppel to arbitrate claims against the bank, where the issues the non-signatory (the bank) is seeking to resolve in arbitration ‘are intertwined with the agreement the estopped party has signed’.¹⁸⁴

9.59  Yet the differentiation made in Choctaw seems to have its reason less in the existence of a ‘nexus between the parties’ as the ‘nexus between the parties’ is the same under both circumstances. However, while in the case of bank guarantees or letters of credit issued on the basis of a contract containing an arbitration clause the bank (in the position of a respondent) has with the bank guarantee or the letter of credit not expressed its consent to arbitrate, in the Choctaw case the bank (in the position of a claimant) gave its consent to arbitrate by beginning the arbitration proceedings (claiming). On the other hand, it must also be observed that in the Choctaw case the respondent had only consented to arbitrate with the other signatory party to the arbitration agreement, but not with the bank. Therefore, the differentiation made in treating the two situations can only be justified when in the Choctaw case one enlarges the consent of the respondent from a consent to arbitration with a specific party to a consent to arbitration without having regard with whom the arbitration shall take place (as far as there is a relationship between the claim and the contract containing the arbitration clause).

9.60  In the case of intertwined estoppel the importance of consent has been practically diminished, and even on some occasions overlooked.¹⁸⁵ Indeed, in some cases ‘the non-signatory’ parties are actually third parties strictu sensu.¹⁸⁶

9.61  Arbitration agreements may also be extended to non-signatories for reasons unrelated to consent. In contrast to the situation where the arbitration agreement is extended as it were by expanding consent, in these cases a party is regarded as bound by the arbitration agreement despite having clearly expressed an intention to the contrary or without any reference to consent.¹⁸⁷

9.62  Very often the group of companies doctrine touches upon the similar, albeit distinguishable, theory of lifting the corporate veil, which was developed in company law, mainly in common law countries.¹⁸⁸

9.63  The principle of lifting the corporate veil is applicable in a whole series of different factual situations which have one characteristic feature in common: that a company is used by another company, by a natural person, or by a State as a trustee for certain purposes.¹⁸⁹ If either the trustor or the trustee have then signed an arbitration agreement, the effects of this agreement may be extended to the respective partner in the trust relationship.¹⁹⁰ The theory of lifting the corporate veil focuses therefore primarily on an excessive element of domination and fraud, rather than consent, which is the focus of the discussion under the ‘group of companies’ doctrine.¹⁹¹

9.64  Given the very extensive case law in connection with groups of companies, and the assumption of tacit or even presumed acceptance, the French courts have rarely had to rely on the notion of fraud in order to pierce the corporate veil.¹⁹² The situation is, however, different in other countries—for instance Switzerland,¹⁹³ even though in European jurisdictions the test for lifting the corporate veil is usually quite restrictive.¹⁹⁴ On the other hand, in the United States the threshold for lifting the corporate veil has traditionally been, as a result of the paramount policy in favour of arbitration, much less strict than that adopted in European jurisdictions.¹⁹⁵ A ‘close relationship’ between the entities involved seems to be sufficient to extend to the parent company the arbitration clause concluded by its subsidiary.¹⁹⁶ Recent US cases, (p. 161) however, show an evolution towards a more conservative approach, requiring some abuse of the corporate form.¹⁹⁷

9.65  The ground of ‘extension in the interest of the administration of justice’ may sound somewhat vague. However, according to Vidal it is fully justified in view of the jurisdictional nature of arbitration and the legitimate expectations of the parties.¹⁹⁸ An example is the reference to the indivisibility of the dispute in the decision of a US court,¹⁹⁹ which held that when the claims made against a parent company and its subsidiary are based on the same facts and are fundamentally indivisible, a tribunal may decide that the claims made against the parent company should be decided by arbitration even though that company was not formally a party to the arbitration clause.²⁰⁰ Moreover, there is also insistence in some cases on the need for the arbitrators to be presented with all the legal and economic aspects of the dispute.²⁰¹ Finally, considerations about the effect of arbitral awards on third parties might also be important.²⁰²

9.66  Disputes with regard to the scope of arbitration clauses may arise where the parties have entered into a number of different agreements, either simultaneously or consecutively, each with (or sometimes without) a separate dispute resolution mechanism.²⁰³ According to the theory of ‘groups of contracts’ ‘if the undertakings of the parties are indivisible, ie when they are all integrated parts of a single transaction, the disputes regarding obligations arising out of the various related agreements should be treated as a whole’.²⁰⁴

9.67  While the ‘group of companies’ doctrine deals with a situation of multiple companies and a single contract, groups of contracts situations presume the existence of a multitude of related contracts between multiple parties, or between the same parties.²⁰⁵ Nevertheless the issue with regard to consent to arbitration is similar: whether an arbitration clause present in one contract can be extended to related contracts, notwithstanding their formal independence.²⁰⁶ The issue of multiple contracts is also addressed by the newly revised ICC Rules (2012) which contain a provision that expressly deals with this aspect.²⁰⁷

9.68  The same parties may enter into a series of contracts related to a single project or enterprise, only some of which contain dispute resolution provisions.²⁰⁸ The question which then arises (p. 162) is whether in these cases an arbitration clause in one agreement may extend to disputes under other agreements.²⁰⁹ Indeed, an arbitration agreement may also exist if the contract is part of a series of contracts between the same parties, only some of which contain arbitration clauses.²¹⁰

9.69  The question if the contracts are interrelated has primarily to be decided by consensual analysis,²¹¹ even though the decisions consider fact-related aspects. When the parties to the relevant contracts are the same, and the contracts all relate to a single project, or economic enterprise, courts of various countries²¹² have generally been willing to hold that an arbitration clause in one agreement extends to related agreements, provided that the other agreements do not contain inconsistent arbitration or forum selection clauses.²¹³ Arbitral tribunals have generally reached similar outcomes,²¹⁴ including in cases where multiple contracts contain identically worded arbitration clauses.²¹⁵

9.70  The situation is more complex when the identities of the parties to related contracts differ, as it is often the case in construction projects, joint ventures, insurance settings, etc. In general no consent to arbitration can be assumed if third parties are involved, except where all parties can be bound through non-signatory principles to an arbitration agreement.²¹⁶ Hence an arbitration clause contained in a construction contract with the general contractor does not usually cover the general contractor’s contract with the subcontractor.²¹⁷ Moreover, in relation to bank (p. 163) guarantees or letters of credit issued on the basis of a contract containing an arbitration clause, it cannot be inferred that the bank has consented to arbitration on the basis of the underlying contract if the guarantee or the letter of credit does not provide for arbitration.²¹⁸

Therefore, Article 9 of the ICC Rules (2012) permits, in the case of multiple contracts, claims that are made under more than one arbitration agreement concluded under the ICC Rules to be determined in a single arbitration. However, when this is the case ‘the arbitration shall proceed as to those claims with respect to which the Court²¹⁹ is prima facie satisfied:

1. (a)  that the arbitration agreements under which those claims are made may be compatible, and

2. (b)  that all parties to the arbitration may have agreed that those claims can be determined together in a single arbitration.’²²⁰

In other words, with the second requirement (Article 6(4)(ii)(b)), the ICC Rules (2012) follow a strict consensual approach, ie indirect consent—the simple choice of the ICC Rules—is not sufficient to deal with claims of different arbitration agreements. No discretionary power is thus left to the arbitral tribunal or to the institution, but the parties have to agree.

9.72  In the case of successive contracts between the same or similar parties, where one, but not all, of the successive contracts contains an arbitration clause, questions can arise as to whether such a clause extends to disputes under subsequent (or earlier) contracts.²²¹ To determine the scope of the arbitration clause courts have looked to the language and relationship of the parties’ agreements in order to determine their intent, while generally presuming that the parties desired a single, sensible, and efficient dispute resolution mechanism.²²²

9.73  The arbitration clause in the main contract may also extend to follow up or repeat contracts entered in close connection and in support of a main contract.²²³ French courts, particularly, have held that an arbitration clause in the earlier of two or more related agreements may extend to disputes under later contracts, notwithstanding the absence of any dispute resolution provision in such contracts.²²⁴ However, between the agreements there must be a sufficiently (p. 164) close connection.²²⁵ The same approach has also been followed by national courts of various other countries²²⁶ and arbitral tribunals.²²⁷