Recent arbitration developments in Europe

This article deals with the European treatment of a significant issue that often arises in arbitrations: adding a non-signatory to the arbitration.

On March 1, 2021, the International Centre for Dispute Resolution (ICDR), the International Division of the American Arbitration Association, released revised Arbitration and Mediation Rules. One significant change involves the issue noted above:  the instances in which an arbitral tribunal may permit the joinder of a third party. Whereas previously the rules permitted joinder of an additional party after the arbitral tribunal's constitution only with all the parties' agreements, the new rules permit joinder after the constitution of the tribunal with the consent of the joining party, when the arbitral tribunal considers it appropriate.

In light of this development and a recent decision of the Swiss Federal Supreme Court, we review in this Article the state of play in Europe with respect to the extent to which third parties are permitted to join an international arbitration, which varies significantly from jurisdiction to jurisdiction.

An arbitral tribunal derives its jurisdiction from the consent of the parties, most usually expressed through the application of an arbitration clause in a contract. There are circumstances, however, in which third parties, who were not parties to the original contract requiring arbitration, may be bound by the arbitration agreement.

This question is all the more relevant in the context of competition law where the extent to which arbitration and jurisdiction clauses would apply in the context of a cartel damages claim, has long been debated. The Court of Justice of the European Union took a robust stance on this issue in the 2015 CDC v Evonik case.[1] It held that a jurisdiction clause incorporated in a contract requiring arbitration may, in principle, produce effects only in the relations between the parties who have given their agreement to the requirement of that contract, and normally only in relation to that legal relationship, i.e. the contract. The Court of Justice concluded that an arbitration clause that abstractly refers to all disputes arising from contractual relationships does not extend to a dispute relating to the liability that one party allegedly incurred as a result of its participation in an unlawful cartel. The clause would need to specifically refer to breaches of competition law in order to apply to competition issues.

However, in the English case of Microsoft Mobile v Sony,[2] the High Court went the other way and considered that the arbitration clauses in issue there, which included express good faith pricing obligations, were sufficiently broad to encompass Microsoft’s claims having regard to the terms of the supply contracts. It was irrelevant in this regard that Microsoft had not explicitly pleaded its claim in contract – it was sufficient that such claims were pleadable. The potential contractual claims were sufficiently closely related to the claims actually advanced by the Claimant so as to render rational business persons likely to have intended such a dispute to be decided by arbitration pursuant to the contract.  

In competition claims which are being pursued by way of arbitration, for example (where English law applies), as a consequence of the Microsoft Mobile judgment, it may be relevant to seek a joinder of a third party when relevant documents are in the possession and control of a different entity within the corporate group accused of anticompetitive conduct, or to joinder completely different corporate groups that together implemented a cartel.

The Swiss Federal Supreme Court[3] recently granted an appeal against an arbitral award which had extended the arbitration agreement to the appellant as a non-signatory to the agreement.  The defendants in the action, concerning the construction of a diesel power plant in Bangladesh, sought to join the subcontractor of the claimant in the proceedings. The arbitral tribunal had found that it had jurisdiction to hear the claims against the subcontractor because the subcontractor had interfered in the conclusion and execution of the main contract in such a way that this constituted a declaration of consent to the arbitration clause.

The Swiss Federal Supreme Court (SFSC) granted the appeal, declaring that despite the subcontractor’s presence at the conclusion of the contracts, its participation in various meetings and communications, its involvement did not go beyond the obligations set out in its subcontractor contract of which the defendants were aware.[4] According to the Court, given the parties understanding of the basis of the subcontractor relationship, the defendant could not have had a good faith understanding that the subcontractor was bound by the arbitration agreement.  This case has been seen by commentators as a new perspective from the SFSC, which has in the past been more liberal in its approach to the joinder of third parties to an arbitration.[5]

France might be considered to be the principal proponent of the more liberal approach. Along with certain other continental European countries, France adheres to the so-called “group of companies” doctrine. This was first articulated in France in 1982 in Dow Chemical v. Isover Saint Gobain.[6] In that case the arbitration tribunal allowed the joinder of the Claimant’s subsidiary companies on the basis that the contracting party and its subsidiaries constituted “the same economic reality.” In so finding, the arbitration tribunal applied a three part test which sought to ascertain whether: (1) the group of companies must display a tight group structure; (2) an active role was played by the non-signatory in the conclusion of the agreement; and (3) a mutual intention of the parties must be there for a group to be considered bound by the arbitration agreement.[7]

Other European jurisdictions have similarly allowed the joinder of third parties on this basis. As mentioned above, the Swiss courts[8] have adopted a somewhat liberal attitude to the question on joinder, for example, allowing the joinder of companies within the group of an Italian company in an arbitration against an Iranian company.[9]

In Germany, the requirement for contracts to be in written form prevents a wide application of the  “group of companies” doctrine. The German courts have, however, found that the doctrine is not contrary to public policy.[10]  

England on the other hand has a far more restrictive approach. The law of England places great importance on the concept of privity of contract. The circumstances in which third parties may be joined to an arbitration are highly circumscribed and include effectively only instances where the identity of the parties have changed by operation of law. These include situations where a party has assigned the rights under a contract to a third party, for example, where an insurer has subrogated contractual rights to itself. There are also statutory provisions that allow third parties to enforce contractual terms, for example, The Third Parties (Rights Against Insurers) Act 1930 and the Contracts (Rights of Third Parties) Act 1999.[11]

The English courts have rejected the “Group of Companies” doctrine established in the French Dow Chemicals case summarized earlier. The UK High Court, in 2004, in Peterson Farms Inc. v. C&M Farming Limited,[12] concluded that the doctrine forms no part of English law.

It’s intriguing in this regard to note that, in the competition context, the English courts have so far appeared more open to arbitration clauses extending beyond contractual claims into tortious claims, and in particular complex cartel damages claims, which nearly always involve multiple parties. There appears to be a disconnect between the relative ease with which arbitration clauses may be engaged in competition claims under English law and the ability of claimants in such cases to join other companies, which they accuse of committing the same anti-competitive conduct. This contrasts with the position in many EU countries, where the “group of companies” doctrine simplifies joinder of third parties but, following the CDC case mentioned above, in order for a third party to rely on such on a jurisdiction (and by implication an arbitration) clause, it is, in principle, necessary that the third party has given his consent to that effect. Clearly, more case law is needed to see how these apparent inconsistencies play out in the years ahead.

Footnotes

*There is also an article by Walter D. Kelley, Jr., a Hausfeld LLP partner, in this issue of the Hausfeld Competition Bulletin addressing the law in the United States with respect to the issue of whether a non-signatory to an arbitration agreement can compel a signatory to arbitration.

[1] Case C-352/13, Cartel Damage Claims (CDC) Hydrogen Peroxide SA v. Evonik Degussa [2015]

[2] Microsoft Mobile Oy (Ltd) v Sony Europe Limited & Others [2017] EWHC 374 (Ch)

[3] see decision 4A_124/2021 (13/11/20)

[4] Decisions of the Swiss Federal Supreme Court in 2020 Kluwer Arbitration Blog 5/2/21.

[5] Dr. Valentina Hirsiger and Lukas Frommelt, Baker McKenzie, Swiss Supreme Court denies the extension of an arbitration clause to a third party for lack of (implicit) consent, Lexology, 22/12/2020.

[6] ICC Case No 4131, Interim award of 23 Sept. 1982.

[7] See Adysaha Samal, Extending Arbitration Agreements to Non Signatories, The King’s Student Law Review Vol; XI, Issues.

[8] See, e.g., the Swiss Supreme Court Case No. 4A_450/2013

[9] See https://www.nortonrosefulbright.com/en-gb/knowledge/publications/eb82eee0/non-signatories-to-arbitration-agreements.

[10] See Bundesgerichtshof (n. 28)). Controls Indic v. Severn Trent Water Purification Inc. & Or (2013) 1 SCC 641.

[11] For further detail see When does an arbitration agreement bind a third party in English law?, Practical Law Arbitration

[12] (2004) APP L/R. 02/04

*Lucy Pert and Tom Bolster are Partners in the London office.