Arbitration & ADR, Insights

Does Extension of Arbitration Agreements to Non-Signatories Undermine the Principle of Consent as Cornerstone of Arbitration?

INTRODUCTION
International arbitration has long been regarded as the cornerstone for resolving disputes between parties engaged in cross-border transactions. A fundamental principle underpinning this mechanism is that arbitration is consensual – a contractual arrangement entered voluntarily to resolve disputes outside the traditional court systems. As frequently expressed in arbitration agreements, consent generally binds only parties to the agreement. Thus, a third party (jus tertii) cannot be bound in arbitration, notwithstanding its legal or financial interest in the dispute. This accords with the doctrine of privity of contract which has been established in both civil and common law jurisdictions.

However, in modern complex contracts, it is near-impossible to have all parties as signatories to the same arbitration agreement. Thus, economic realities may justify the extension of the arbitration agreement to third parties who are the real parties to an underlying contract. Such extension, in principle, contrasts the nature of arbitration and appears to undermine the vital element of consent. This article seeks to examine the parameters of such an extension and whether it merely reflects the evolution of consent or undermines consent. In addition, we also considered the issue of appointment of arbitrator(s) with respect to extension of arbitration agreement to non-signatories.

EXTENDING ARBITRATION AGREEMENT TO NON-SIGNATORIES
In modern economic reality, complex business relations, such as construction and maritime contracts, may not be amendable to simple consensual, bipolar characterisation of arbitration due to multiple value chain partners and collateral relationships. Accordingly, national courts and arbitral institutions have developed contract and…

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