The arbitration agreement is a contract in which the parties exchange promises with the legal intention to be bound to the performance of those promises. Thus, parties to the arbitration agreement must possess legal capacity to conclude such a contract. We shall examine the following aspects of this concept of the legal nature of the arbitration agreement below;
Parties and their capacity to contract
Parties to the arbitration agreement are the main disputants in the arbitral reference and also are the same parties to the underlying or main transaction from which the dispute evolves. The disputing parties are therefore the physical persons or legal entities that are empowered by their personal laws or the law of the place of their incorporation to opt out of litigation into the private dispute resolution mechanism of arbitration in the settlement of their underlying dispute.
Since the arbitration agreement is a contract, the disputing parties must have capacity to conclude a contract, to sue and be sued.
- The Parties
Identifying the parties to any particular arbitration agreement is of primary importance since it is only such persons or entities that shall be bound by its terms, as in any other contract. Usually, an examination of the arbitration agreement will reveal those who are parties to it.
When is there need to identify the parties to an arbitration agreement?
The need to identify parties to the written arbitration agreement arises in situations where one party denies that it is bound by the arbitration agreement. Such enquiries are usually found in arbitration references dealing with multiparty, joinder and non- signatory issues, and where the very existence of the agreement is contested.
Identifying parties to a written document is relatively straight forward since the names and description of the parties will be contained in the document. Where however there is no written record of the agreement, identifying parties to the agreement becomes problematic. Where the arbitration agreement is contained as a clause in another contract, the wording in the clause will usually refer to the same parties covered by the main contract.
Physical persons who can sue and be sued under their personal laws can be parties to arbitration agreements, the arbitrator’s contract and the contract between the disputing parties and the arbitration institution.
The case of legal and corporate entities
There are other forms of arrangements or entities clothed with legal personality under various legal systems that participate in international arbitration. Such entities are mainly registered companies or corporations.
Generally, a registered company can sue and be sued in its own name, until it is liquidated or goes into administration. In liquidation, the liquidator is sued (or sues) as representative of the company. The test applied to determine if an association can be a party to an arbitration agreement (and the arbitrator’s contract and contract with the arbitration institution) is whether such association can conclude legal contracts pursuant to the law of its incorporation of registration. This presupposes that the association is in existence at the relevant time of concluding the arbitration agreement.
The case of a merger of companies
Where the association or entity merges with another entity, it remains in existence, though in its merged form so that it will still be bound by the promises it made in any arbitration agreement it has already concluded.
In some cases, the merger creates a succession situation in which the company not party to the arbitration agreement can still represent the other company in the arbitration proceeding as a result of the merger.
The case of company officers and representatives
Though these corporations act in their own name and enjoy an independent or separate legal existence and personality (from their shareholders, directors and management), they act through various officers, agents and servants and are ultimately owned by individuals or groups of individuals. The question of applying the principle of apparent or ostensible authority of company officers to lift the corporate veil of a registered entity is governed by the law of the place of incorporation but does not affect the responsibilities under an arbitration contract.
The complexity of a group of companies in international arbitration
Corporations that drive international business transactions are mainly designed using the ‘group of companies’ structures in various forms of major joint venture and partnership projects. These organizations have very complex corporate structures. The size and volume of financial investment in a majority of large international projects demand the formation of such joint ventures and/or consortia. The subsidiary members of a group of companies may be registered under the laws of various states where they carry out their business concerns. Some groups of companies are structured in such a way that the parent company retains control over the management of the subsidiaries while in some other group of company’s structures, the subsidiaries are more autonomous and exercise more powers independently of the parent company.
From decisions (both arbitral awards and court judgments) on the ‘group of companies’ doctrine, it appears that where the member companies of a group are actively involved in the formation, performance and possible termination of the contract, such member companies of the group will be more likely to be bound by any arbitration agreement arising from the transaction. This is so even where these member companies are not named as parties in the underlying contract and have not signed the relevant arbitration agreement.
There are divergent opinions as regards the group of companies doctrine in international arbitration.
One opinion is to the effect that the parent company though not a signatory to the arbitration agreement would be granted leave to participate in the arbitration reference. This was the position of the arbitral tribunal in the Dow Chemicals case.
The other opinion was in the Peterson Case in which the group of companies doctrine was applied with the principles of agency to assume jurisdiction to hold a party responsible for damages caused to other companies with reference to local law (substantive law) though that party was not subject to the arbitration contract.
Position of non-signatories to an arbitration agreement
Arbitration agreements have been held to also bind non- signatories in certain situations. The discussion on non- signatories relates to situations where one or more individuals or entities that have not signed either the submission agreement or the main contract containing the arbitration clause, are held to acquire rights and liabilities under the arbitration agreement contrary to the doctrine of privity of contract.
It is universally agreed that a total stranger to the arbitration agreement cannot be a party to it on the basis of the doctrine of privity of contract.
2. Capacity of parties to the arbitration agreement
A party concluding an arbitration agreement must have legal capacity to enter into a legally binding contract. In other words, such party must have capacity to sue and be sued. In most legal systems, an adult person without any legal impediment can conclude an arbitration agreement.
The legal capacity of an individual or entity is regulated under the personal law of the individual and the law of the place of incorporation or registration of the legal entity.
Since the arbitration agreement emanates from the underlying transaction, it is the same law that governs questions of legal capacity of the parties under the main contract that will determine the same question as it affects the arbitration agreement.
The parties to an arbitration agreement must have legal capacity to contract under the relevant regulatory law. This may be the law of the individual’s place of habitual residence or domicile or the law of the place where the company is registered or has its principal place of business.
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