It is well established that a company and its owner are separate legal persons. The landmark Salomon case2 held that – save for very limited exceptions – the company has rights and liabilities of its own which are distinct from those of its shareholders. It is also generally accepted that consent is central to the formation of an arbitration agreement.
Combining these two concepts, only companies that have consented to an arbitration agreement may enforce arbitral awards or bear liabilities flowing therefrom. It also follows that third-party non-signatories, including their shareholders, are prima facie precluded from holding such rights and obligations.
There may be exceptions to this general rule. Some such exceptions are found in private law principles:
- assignment – when contracts are assigned from one party to another.
- ageny – when agents conclude or perform contracts on behalf of principals.
- succession – when companies merge to form new entities, arbitral obligations might correspondingly be ‘transferred’.
However, it would be a misnomer to refer to such doctrines as ‘exceptions’ to the rule of privity – these private law principles serve to identify, as a matter of law, the correct parties to the arbitration agreement.
We should also mention the Dow Chemicals decision (ICC case numbers 2375 and 5103) – a case that gave birth to the highly controversial ‘group of companies’ doctrine, known to be limited in application outside France. Under this doctrine, an arbitration agreement signed by one company in a group of companies entitles (or obligates) affiliate non-signatory companies, if the circumstances surrounding negotiation, execution and termination of the agreement show that the mutual intention of all the parties was to bind the non-signatories.