Practical considerations for adding Non-Signatories in international arbitration

In international commercial arbitration, there is a natural tension between the "mutual consent" principle of arbitration agreements and the "complex reality" of modern commercial transactions. When the signatory is a shell company or the real decision-maker is behind the scenes, whether the parent company, related party or actual controller who has not signed can be brought into the arbitration often determines whether the winning award is "a piece of paper" or "real money". This article, based on the latest judicial precedents and arbitration rules from major global jurisdictions, conducts an in-depth analysis of the entity paths, strategies, and enforcement risks for joining Non-Signatories.

01 Introduction: The Challenge of "Contractual Relativity" in Business Reality

The basis of arbitration is "Consent". The traditional principle of Privity of Contract holds that an arbitration agreement is only valid for the signatories. However, this principle is increasingly inadequate in modern complex cross-border transactions.

Multinational groups often operate through complex corporate structures. The entities signing contracts may be special purpose vehicles (SPVS) or subsidiaries established for tax or risk isolation purposes, while actual negotiations, performance, and even default decisions are often made by the parent company or related parties. If the arbitration is only limited to the signatory party, it may not only lead to "winning the lawsuit but not getting the money" (because the signatory party is insolvent), but also trigger parallel litigation due to the failure to include the key party in the procedure. This not only results in double legal fees and time costs, but more dangerously, the arbitration tribunal and the court may make contradictory determinations on the same fact, leading to conflicts in the judgment results.

Therefore, how to strictly adhere to the bottom line of "arbitration agreement" while responding to the demands of "commercial reality" has become one of the most technically demanding and strategically significant areas of competition in international arbitration.

02 Program Path: How to Operate Joinder

Modern arbitration rules provide procedural entry points for the addition of non-signatories. Take the Hong Kong International Arbitration Centre and the Singapore International Arbitration Centre as examples. Article 27 of the HKIAC (Rule 2024) allows the arbitration tribunal or the HKIAC (before the formation of the arbitration tribunal) to add non-signatories, provided that it can be proved that such party is ostensibly (prima facie) bound by the arbitration agreement. This facilitates the early locking of jurisdiction. Article 18 of SIAC (Rule 2025) also has similar provisions. However, it should be noted that this does not imply the automatic establishment of substantive jurisdiction. Ultimately, the arbitral tribunal still needs to make a substantive judgment on whether it has jurisdiction.

03 Entity Path: Incorporating the six core theories of Non-signatories

To bring non-signatories into arbitration, lawyers must find legal grounds under applicable law that can replace "formal signatures". In practice, there are mainly six core theories, each with different applicable thresholds and legal consequences.

The "Group of Companies Doctrine"

This is a unique and most controversial theory of international arbitration, which originated from the famous Dow Chemical case of the ICC. The core logic is that although each company within the group has an independent legal personality, if they together constitute a "Single Economic Reality" and non-signatories substantially participate in the negotiation, performance or termination of the contract, It can then be inferred that all relevant parties (including non-signatories) have a "common intent" bound by the arbitration clause. Generally speaking, it mainly consists of three elements: First, there exists a tight corporate group structure; 2. Non-signatories have played an active role in the conclusion, performance or termination of the contract; Iii. There is a common intention subject to arbitration.

It is worth noting, however, that this principle is a product of French law and was also confirmed by the Supreme Court of India in the Cox and Kings case. However, courts in the United Kingdom (Peterson Farms case), Switzerland and the United States usually refuse to take it as an independent legal basis unless the conditions of agency or veil lifting can be met simultaneously.

2. Estoppel

This is the most powerful weapon under American law, especially after the GE Energy case confirmed that the New York Convention does not exclude the application of domestic law principles.

Direct Benefits Estoppel: If a non-signatory party has "intentionally exploited" the contract and obtained direct benefits from it, it cannot, on the one hand, enjoy the benefits of the contract and, on the other hand, refuse to fulfill the arbitration obligations under the contract on the grounds of "not signing". This is a fair principle to prevent the parties involved from "taking advantage of both ends".

Interwoven Claims (Intertwined claims toppel) : When the non-signatory party has a close relationship with the signatory party and the claims against the non-signatory party are "inseparable" from the underlying contract and its arbitration clause, the court may compel the non-signatory party to arbitrate. However, it should be noted that the standards for such expansion vary among the circuit courts in the United States, and it is usually more likely to be applied to "non-signatory mandatory signatory arbitration", while the opposite is more difficult.

3. Agency and Apparent Authority

This is the most traditional and widely accepted approach, whose core logic is that the signatory is legally regarded as an agent of the non-signatory party. This includes explicit proxies and implicit proxies. If it can be proved that the signatory is actually acting on behalf of the parent company, the parent company shall be bound by the arbitration agreement. In practice, it is usually necessary to prove that the non-signatory party has created through words and deeds the appearance that the signatory party has the right to act on its behalf, and the other party has developed a reasonable reliance on this.

4. the Corporate Veil/Alter Ego (Piercing the Corporate Veil/Alter Ego)

The core logic is that when the parent company exercises "complete control" over its subsidiary, causing the subsidiary to lose its independent will (merely a puppet or tool), and this control is used for fraud or causing injustice, the law will ignore the independent personality of the legal person and directly hold the parent company accountable.

It should be noted that the threshold for the application of this theory is relatively high. Merely holding a controlling stake or having co-directors is not enough to lift the veil. Most jurisdictions (including the United States, the United Kingdom, and Switzerland) require proof of fraud, abuse of rights, or the establishment of a company to evade legal obligations.

5. Implied Consent by Conduct

In jurisdictions such as Switzerland, although the "corporate group" principle is rejected, if a non-signatory party demonstrates a willingness to be bound by arbitration during the performance of the contract (for example, performing obligations on behalf of the signatory party for a long time), the court may determine that it is bound based on the "Good Faith" principle. This is closely related to the concept of "consent", but focuses on inferential intent through behavior.

6. Assignment, Succession&Subrogation

This is the transfer of rights and obligations based on legal provisions or contractual assignment. From the perspective of Chinese law, Chinese courts are extremely strict with non-signatory parties. However, in cases such as mergers and divisions, transfer of creditor's rights and debts, and subrogation claims, the arbitration agreement is recognized as having effect on the transferee or heir.

However, it is particularly important to note that in Chinese judicial practice (such as the Huizhou Weitong case), the arbitration clause of the main contract usually cannot be automatically extended to the guarantee letter, unless there is a clear agreement in the guarantee letter. The guarantee relationship is regarded as an independent legal relationship.

04 Application of Law

Determining which country's law applies to "whether non-signatories are bound" is the key to success or failure. Due to the different attitudes of various countries towards the above theories, the Choice of Law is often more important than the facts themselves. In practice, it is necessary to pay attention to the following three main paths of legal application, which may lead to completely different results.

the Law of the Underlying Contract: This is the most common applicable law. If the main contract is subject to English law, attempts to add a parent company through the "corporate group" principle are almost doomed to fail (refer to the Peterson Farms case).

Law of the Seat: For instance, in French arbitration, the court will apply the "Substantive Rules of International Arbitration", making judgments directly based on the common intentions and economic realities of the parties, rather than being bound by the domestic laws of a certain country.

Law of Incorporation: When it comes to "piercing the corporate veil", the law of the place of incorporation of the non-signatory party may apply. If it is an offshore company such as the Cayman Islands or BVI, the threshold for proving fraud is extremely high.

In practice, during the drafting stage of a contract or the early stage of a dispute, it is necessary to predict the location of the assets of potential non-signatories. If the assets are located in a jurisdiction that holds a conservative attitude towards non-signatories (such as the United Kingdom), one should avoid relying on the radical "corporate group" theory and instead seek evidence that complies with local laws (such as agency).

05 The "Dallah Trap" in the Execution Phase

Winning the arbitration does not mean victory; the award must be enforceable. In cases involving non-signatories, the enforcement risk is fatal. Therefore, during the arbitration stage, it is necessary to consider in advance whether the addition of non-signatories will affect enforcement.

Lessons from the Dallah case of the Supreme Court of the United Kingdom

In the Dallah v.Pakistan case, the applicant won the French arbitration. The arbitration tribunal ruled based on the principle of "common intent" that the Pakistani government, which had not signed, was bound by the arbitration agreement. However, when the applicant attempted to enforce the ruling in the UK, the Supreme Court of the UK conducted a De Novo Review based on French law (as the law of the ruling) and reached a conclusion that was completely contrary to that of the French court: the evidence was insufficient to prove that the government had a bound intention, and therefore the enforcement was refused. Therefore, the court of the place of enforcement may not necessarily respect the arbitration tribunal's determination of jurisdiction, but will re-examine the evidence based on its own understanding. If the laws of the place of enforcement (where the assets are located) are conservative towards non-signatories, it may lead to the client spending a huge amount of money but being unable to enforce in the location of the key assets, and previous arbitration victories may vanish in an instant.

The GE Energy case of the US Supreme Court has taken a turn for the better

Unlike the strictness in the UK, the US Supreme Court established a "pro-arbitration" position in the GE Energy case, clearly stating that the New York Convention does not prohibit the use of domestic law principles (such as estoppel) to force non-signatory parties to arbitrate. This clears the way for the enforcement of rulings involving non-signatories in the United States, as long as they comply with the principle of fairness under domestic law in the United States.

06 Practical Advice and Strategies for Lawyers

For the addition of non-signatories, lawyers must take into account the risks that may arise later during the contract drafting stage. For key non-signatories (such as the parent company or the actual controller), requiring them to sign a separate "one-page confirmation letter" or "guarantee letter", explicitly agreeing to be subject to the jurisdiction of the arbitration clause of the main contract, is the most cost-effective and effective risk control measure. If it is foreseen that multiple entities will be involved, try to choose an arbitration venue that is friendly to non-signatories (such as Paris), and avoid a conservative arbitration venue for non-signatories (such as London).

Before deciding whether to add non-signatories, a "end in mind" assessment should be conducted: Where are the assets? Does the local court accept this additional theory? If the assets are in the UK or China, relying on the "corporate group" theory is extremely risky. If the assets are in France or the United States, relying on the "corporate group" theory or "estoppel" has a higher chance of success.

07 Conclusion

The issue of non-signatories in international arbitration is essentially a game between the "form of consent" and the "substance of business". Although the global trend is shifting from strict formalism to a focus on "Functional Consent", the steps of various jurisdictions are not consistent.

For lawyers, blindly believing in the "corporate group" theory or the logic that "the parent company is rich" is dangerous. A successful strategy must be based on precise calculations of applicable laws, arbitration rules, and the legal environment of the final place of enforcement. Only in this way can we ensure that the hard-won arbitration award is not merely an expensive piece of paper, but a commercial justice that can be fulfilled.