Originally from The American Review of International Arbitration  (ARIA)

ABSTRACT

The extension of arbitration agreements is one of the most debated issues in international commercial arbitration. Effectuating the extension to bind non-signatories to arbitration produces a host of problems in practice, especially extension based on contract law theories. National laws are unsuited to determining the validity of extension in international disputes because of the peculiarities and technicalities of national contract laws, which are designed primarily to be applied to domestic disputes. This study aims to develop and adopt a unified set of rules to be applied to extension issues without recourse to national laws, focuses on agency theory, and proposes rules in this respect. Applying this proposed unified approach enhances certainty, predictability and flexibility in international arbitration, which aligns with the nature of arbitration as a neutral and effective dispute resolution mechanism.

I.   THE LAW APPLICABLE TO NON-SIGNATORY ISSUES IN INTERNATIONAL COMMERCIAL ARBITRATION AND TRANSFORMING THE TRADITIONAL NATIONAL APPROACH TO A TRANSNATIONAL ONE

A.    The Applicable Law to Extension Issues

The extension of an arbitration agreement to non-signatories binds a third party to an arbitration despite the fact that the third party has not signed the arbitration agreement nor the underlying contract. One of the main difficulties surrounding extension to non-signatories is that the international instruments addressing international commercial arbitration—such as the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) and the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration—do not regulate the law governing the extension or the legal principles applied to effectuate binding non-signatories.  So, disputes over the parties to the arbitration agreement or its scope are often left to national courts, arbitral tribunals, and jurisprudence.  In this respect, different jurisdictions have adopted varied positions on effectuating an extension and the requirements to extend the arbitration agreement to non-signatories.

Non-signatory issues are determined, in most cases, on the law applicable to the arbitration agreement, since these issues are considered within the subjective scope of the agreement. Accordingly, determining the law governing the arbitration agreement is essential to determine who is bound by the agreement. In most cases, parties do not choose the law applicable to the arbitration agreement because they opt for standard arbitration clauses provided by arbitral institutions that do not indicate the governing law.  In addition, to avoid any ambiguity that may impede the clause’s effectiveness, parties may prefer not to add detailed determinations that may complicate the proceedings, such as the law applicable to the clause—particularly since the arbitration agreement could be subject to different national laws for different issues.  For example, formal validity of the arbitration agreement, subjective validity, arbitrability, interpretation, scope, capacity of the parties, etc. could be determined by different laws;  that is why it was stated that the accurate expression is the ‘laws’ applicable to the arbitration agreement instead of the ‘law’ applicable to the arbitration agreement.

The New York Convention and most institutional rules contain no specific provisions on the law applicable to various issues of the arbitration agreement. Similarly, most national arbitration acts do not indicate the law applicable to the arbitration agreement.  The Swiss Private International Law Act is considered an exception as art. 178 notes that the arbitration agreement is valid if it conforms to either the law chosen by the parties, the law of the main contract, or Swiss law.