Introduction
Arbitration is a private dispute resolution mechanism which leads to an enforceable arbitral award. A very crucial cornerstone of international arbitration is consent. In the recent years the scholars have spoken about the ‘dogma of consent’ or the ‘marginalisation’ of it which may be due to the fact that arbitration has evolved and expanded as multiparty situations involving complex jurisdictional issues which have become commonplace. While its historical role was that of an informal and bilateral dispute resolution process. There are numerous ways in which the consent can be assessed in an international arbitration agreement and these will be explored in this essay in order to determine which is the best method to assess the consent in the international arbitration agreement.
I. Consent in an international arbitration agreement.
The ‘consent’ is a multifaceted term which may have the significance of the expression of consent or the reaching of mutual consent. The adjective of ‘consensual’ is one of the essential criteria for the arbitration qualification. The international treaties and national laws have consistently required consent as a precondition to arbitration. Furthermore, the English Arbitration Act 1996 provides that “parties should be free to agree how their disputes are resolved.”
The Singapore Court of Appeal said in the case of PT First Media TBK v Astro Nusantara International BV that “an arbitral award binds the parties to the arbitration because the parties have consented to be bound by the consequences of agreeing to arbitrate their dispute. Their consent is evinced in the arbitration agreement.” While the United States Supreme Court in the case of Volt Information Sciences v Leland Stanford, Jr. University 1 recognised that “arbitration under the [Federal Arbitration Act] is a matter of consent, not coercion, and parties are generally free to structure their arbitration agreements as they see fit...”
Arbitration has long been as a consensual exercise, has increasingly been viewed as a mechanism borne out of compelled consent. It is especially so when parties have unequal bargaining position. This can be clearly seen in the case of Guillermo Cañas v ATP Tours decided by the Swiss Federal Supreme Court where it was stated that “any athlete wishing to participate in organised competition under the control of a sports federation whose rules provide for recourse to arbitration will not have any choice but to accept the arbitral clause.” This is also the case in United States where mandatory arbitration agreements are found in employment contracts, which the American Courts uphold such as in the case of Rent-A-Center v Jackson.
In the recent years, there is an increasing doubt in the consensual nature of arbitration which comes from the expansion if arbitration from the resolution of bilateral disputes to complex multi-party arbitrations and third-parties joining the arbitration. The arbitrators are now hearing claims by or against someone who has never signed the relevant contract, therefore, not giving consent to arbitration. However, the principle of consent has not been extinguished in international arbitration. But in a multi-party arbitrations where third-parties may join the arbitrations, a non-signatory might still be bound by an arbitration agreement because consent to arbitrate was given through some other means other than the formality of a signature.
II. Binding non-signatories through the group of companies doctrine.
The famous French case Dow Chemical v. Isover St. Gobain2 which Lord Collins referred to in the case of Dallah Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan will be guiding us through this part of the essay. The award in Dow Chemical which was under the Arbitral Rules of the International Chamber of Commerce (ICC Rules) initiated the debate around the group of companies doctrine. The mentioned doctrine in essence postulates that an entity within a group of companies can be held bound by an arbitration agreement or arbitration clause contained in a contract to which another member of the group was a signatory. In other words the group of companies doctrine allows the extension of an arbitration agreement in a contract entered into by a member of a group of companies. Provided that in the facts of the case, the two entities within the group could be treated as having a single economic reality. There is the identification of the common and single economic reality (une réalité économique unique) of a group of companies without consideration of the distinct juridicial identity of each of its members The important condition for the application of the group of companies doctrine is the need for the other entity or company to have a shared single economic reality with the signatory of the arbitration agreement or clause. As it can be seen the application of this doctrine is not demanding.
Around the world, different jurisdictions have taken different views on this theory. The decision in Peterson Farms will enlighten us about the position of the English law on this issue. The group of companies doctrine is generally disapproved in England it has been demonstrated in the Peterson Farms case and been held that it is not part of the English law. A question was raised before the English Commercial Court in a proceeding under section 67 of the U.K Arbitration Act 1996 as to whether the entities pithing the claimant’s group in an arbitral proceeding could claim damages although they were not parties to the arbitration. The respondent in the proceeding claim damages for losses accruing to its sister companies as well, applying the group of companies doctrine. The tribunal held that the arbitration agreement was distinct from the main contract, thus the designated law by the parties which was Arkansas law was inapplicable and it applied the common intention of the parties. The Court heavily criticised the award which was awarded by the tribunal and held that Arkansas law did apply and there was no reasoning provided by the Court for the exclusion of the group of companies doctrine from the English law. However it reasonably seems that the mentioned doctrine would be accepted if it was part of the law governing the agreement (Ex: if the chosen law is French Law).
In the French Law, the French Courts were among the first to adopt the group of companies doctrine which can be seen in the case of Dow Chemical. In the mentioned case, the Paris Court of Appeal confided the ICC arbitral award that was, for the first time mainly based on the doctrine as seen above. Under the theory which has been set out by the tribunal and approved by the court of appeal, the third-party and the signatory must not simply belong to the same group of companies but it should play a role in negotiation, execution, performance or termination of the contract. This was further illustrated in the case of Dallah Estate and Tourism Holding Company to determine whether a non- signatory can be bound by an arbitration agreement, a French court would take account of the whole history and conduct of the parties. In this mentioned case, it would include the Pakistani Government’s involvement with the project and negotiation of the agreement so as to find out whether “all the parties to the arbitration proceedings...had the common intention to be bound by the said agreement”. The parties thus agreed that a French court would apply the test of "common intention”. This is done in order to ascertain the intention of the parties through their objective conduct. It was decided that
It is primordial to note that the tribunal did not disregard the requirement for consent but simply considered that in the particular circumstances of the case, consent of all the parties was implied. The group of companies doctrine has since been followed by the French courts in a number of decisions.
III. Binding non-signatories through the lifting of the corporate veil.
As it has been seen above there is a lack of universal acceptance of the group of companies doctrine however that does not imply that non-signatories cannot be bound to an arbitration agreement or clause. There is a more common way which can be used to join a third-party to an arbitration agreement through the lifting of the corporate veil. Although it may argued that the lifting of the corporate veil and the doctrine of the group of companies are quite similar but the practice of courts in different countries indicates that these two theories are treated differently.
In the case of Orri v Société des Lubrifiants Elf Aquitaine, the Cour de Cassation confided the decision of the Paris Court of Appeal which permitted the lifting of the corporate veil and the extension of the arbitration clause since the appellant, a party to the arbitration agreement had fraudulently used the corporate veil of several marionette companies to avoid paying his creditors. The Court’s decision was based on the fact that the appellant was the sole decision-maker in the particular association of companies.
This is also the case in U.K where the English courts have lifted the corporate veil on valid grounds such as when a subsidiary company is being used for an illegitimate purpose or being used as a mere façade amongst other grounds. Nevertheless the English court practice shows that there is a great reluctance in disregarding the separate legal entities of the corporate personalities and the corporate veil is thus lifted in very limited circumstances. The English High Court held in Roussel-Uclaf v. G.D Searle that a subsidiary claiming the benefit of an arbitration agreement to which it was not a party was entitled to a stay of court proceedings in favour of arbitration. The application was done under the section 1 of the U.K Arbitration Act 1975. But in 2008 the English Court of Appeal in the case of City of London v Sancheti overturned the decision of Roussel- Uclaf. The Sancheti case reaffirms the the restrictive approach of the English courts to the determination of the parties to international arbitration agreements. It held that “a mere legal or commercial connection” to the relevant agreements “is not sufficient” to bind a non-party, claiming “through or under” a party to an arbitration agreement.
Thus, it is possible for a non-signatory party to be bound to an arbitration agreement under the English law if it has more than “a mere legal or commercial connection” as mentioned in the Sancheti case. There is also the possibility for a non-signatory party to be bound by an arbitration agreement where the contract confers a substantive right on that party. Therefore, although restricted, there is still scope under the English law for binding a non-signatory to an arbitration agreement as a party to the arbitral proceedings.
IV. Consent to an arbitration agreement in a consumer contract.
A consumer contract is very different from a contract between two commercial entities as they have the possibility to negotiate the terms and conditions of the contract however a consumer does not have this opportunity. The consumer is considered to be a weaker party with respect to the business (company) as the latter has only two choices to accept the terms and conditions as set out by the former or to refuse it but not to negotiate. Therefore, if there is an arbitration agreement in the consumer contract, he/she will not have the choice but to accept the arbitration agreement. In the event that a dispute is born the implementation of the arbitration agreement by the consumer would be expensive. This leads to another issue whereby the consumer may give up their rights as it will be economically illogical to initiate an arbitral proceedings for a consumer in certain circumstances.
Due to the imbalance which has been mentioned above when there is the inclusion of an arbitration agreement in a consumer contract, section 8 of the International Arbitration Act 2008 provides a solution for the Mauritian jurisdiction. A consumer may accept the arbitration clause or agreement but can invoke section 8 of the mentioned act. When there is this invocation, the arbitration agreement would be enforceable against the consumer, only if after the dispute has arisen the consumer in a separate written agreement certified that he/she read and understood the agreement and agrees to be bound by it. Thus, giving the consumer more power to decide on this issue as upon the signature or conclusion of the main contract he/she did not have any other choice than to accept the standard terms and conditions. The section 8 of the International Arbitration Act 2008 brings a balance between the consumer and the business. However, there is not the same method in all of the jurisdictions.
In France, there is a different method but there are some similarities with the Mauritian method to determine the consent in a consumer contract having an arbitration agreement. The Cour de Cassation in the case of PWC Landwell – PricewaterhouseCoopers Tax & Legal Services v Ms L...Y... and others, ruled that having an arbitration clause in an agreement with a consumer was manifestly unfair and must therefore be set aside. The court overruled its previous case law (Rado and Jaguar) regarding arbitration clauses and consumer disputes in international arbitration, stating that, according to the Unfair Terms Directive (93/13/EC), a non negotiated arbitration clause should be set aides without an arbitral tribunal ruling on jurisdiction first.
There is almost the same approach in U.K which can be seen in the case of Mylcrist Builders Limited v Mrs G Buck 3 where the claimants applied for an order to enforce an arbitration award against the defendant. The defendant was the consumer who had agreed to the standard terms and conditions. Those terms and conditions included an arbitration clause. Under the Unfair Terms in Consumer Contracts Regulations 1999, the arbitration clause contained was unfair on the defendant being a consumer as it caused significant imbalance in the parties’ right and obligations under the contract, to the detriment of the defendant. The case Mylcrist Builders Limited should be used as a reminder to businesses of the risks of the inclusion of an arbitration clause in their standard terms and conditions when dealing with consumers.
V. Applicable law or rules for the assessment of the existence of consent.
Hence, as it could be seen above, there are many applicable laws and rules in order to determine the existence of a consent in an international arbitration agreement. But the application of the law depends on many factors of the case, as the application varies from one jurisdiction to another.
There would usually be no dispute in the event that the consent of the parties have been recorded in writing on paper in the traditional ways and that both or all of the parties are signatories. However, many legal systems impose no requirement that the arbitration agreements must be in the form of signed documents. Section 4 of the International Arbitration Act 2008 clearly illustrates that there is no obligation to record the consent and the agreement in writing. Some other countries also enforce the arbitration agreements which have been made orally. In the circumstances where the parties are clear signatories of the international arbitration agreement, it is rather straightforward as it is almost the same in most of the countries and there are no real dispute or divergence on this issue.
On the other hand, when we are dealing with the consent of non-signatory parties it is a more complex matter as there are different outcomes depending on the applicable law. The binding of the non-signatory parties through the group of companies doctrine makes more sense as the arbitration agreement may be extended to another entity of the group of companies where one of the companies is a signatory to the arbitration agreement. The condition that the two entities should be sharing a single economic reality should be fulfilled in order for the group of companies doctrine to be applicable. The English law unfortunately excluded this method to assess the consent to the arbitration agreement in favour of the lifting of the corporate veil. They are quite similar from a theoretical point of view but differs when they are applied by the courts. The consent of arbitration agreement should be assessed through the French way (group of companies doctrine) as it is practical and more logical. The lifting of the corporate veil should be left for the illicit activities and other serious issues. I firmly believe, that the group of companies doctrine (as it has been seen above) is the most suitable rule to extend the arbitration agreement to non-signatory parties.
Concerning the consent given by consumers to an arbitration agreement contained in a consumer contract there are different methods that are used in the different jurisdictions with quite many similarities among them. To my humble opinion, the solution provided in the section 8 of the International Arbitration Act (as it has been seen above) is a very suitable one which brings a balance between the the consumer and the business. According to me, this is the best applicable law in order to assess the consent given in the consumer contract whereby one of the parties is considered as weaker.
Conclusion
Arbitration is generally based on a contractual agreement whereby each party usually consents to use arbitration before the birth of an eventual dispute. The extension of arbitration agreements to the non-signatories may weaken or even destroy this important foundation of the arbitral process. But the consent has never been an absolute notion in the context of international arbitration.4 Consent has been a flexible concept in the international arbitration agreement. Although one rule or law may have more intellectual rigour than another, little analytic benefit obtains from labels such as “wrong” and “right” with reference to the doctrinal variants from the diverging national systems. It is similar to diverging paths that lead to the same end, so the diverging doctrines may point to functionally-equivalent ways of deciding cases.
1 [1989] 489 U.S. 468
2 ICC Case No. 4131
3 [2008] EWHC 2172 TCC
Yovesh Gunnoo.
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