THIRD PARTY IN ARBITRATION AGREEMENT

A PROJECT SUBMITTED TO

ARMY INSTITUTE OF LAW, MOHALI

UNDER THE GUIDANCE OF:

(DR. )

IN PARTIAL FULLFILMENT OF THE REQUIREMENT OF THE DEGREE OF BA L.L.B.

SECOND YEAR (CONSTITUTION)
2021-2022

Submitted by:
(PARTH MEHTA)
Punjabi University, Patiala
2021-2022
 DECLARATION

It is certified that the project work presented in this report entitled “CONSTITUTIONAL
ANALYSIS OF SEDITION LAW IN INDIA” embodies the result of original research work
carried out by me.

All the ideas and references have been duly acknowledged.

DATE: 30TH January ,2022 NAME: CHETAN KUMAR PANDEY

PLACE: AIL, MOHALI ROLL NUMBER: 2039

 Third Parties to Arbitration Agreements
Third parties who are strangers to an arbitration agreement, but involved in
or allegedly responsible for the underlying issues in an arbitration, can
significantly affect the course of an arbitration. Many arbitrations would, if in
the courts, be multi-party cases. Typically, however, in an arbitration unless
there is a drag-along provision in contracts between, for example, a
contractor and a sub-contractor, third parties cannot be compelled to
participate. Nonetheless two cases, demonstrate that in certain circumstances,
third parties to an arbitration agreement can be compelled to give discovery
evidence and may be able to rely on an arbitration clause to stay related
litigation.
 Third Parties can be Compelled to Produce Evidence
In Jardine Lloyd Thompson Canada Inc v Western Oil Sands Inc, the Alberta
Court of Appeal held that third parties to arbitration agreements can be compelled
to produce evidence in an arbitration.(1)
Western Oil Sands Inc. (“Western”) submitted a claim under an insurance policy
issued by underwriters. The underwriters denied the claim. Western commenced
arbitration against the underwriters, pursuant to an arbitration clause in the
insurance policy. In their defence, the underwriters alleged that Western’s agent
and broker, Jardine Lloyd Thompson Canada Inc. (“JLT”), made
misrepresentations in obtaining the insurance policy. JLT was not a party to the
insurance policy or the arbitration. SJO Catlin (“Catlin”), one of the underwriters,
applied to the tribunal for an order:
1. Compelling four JLT employees to appear for examinations for discovery;
and

2. Directing that a confidential “mutual co-operation agreement” between

Western and JLT (the “Standstill Agreement”) produced.
The tribunal granted the orders sought.

The primary issue on appeal was whether the tribunal had jurisdiction to allow
Catlin’s applications.

The ABCA held that, under the UNCITRAL Model Law, parties may draft
arbitration agreements to suit their needs. However, if an arbitration agreement is
silent, the tribunal has broad procedural discretion to conduct the arbitration in any
manner it sees fit. This discretion has few limits, and includes the ability to
determine the admissibility, relevance, materiality and weight of any evidence. The
ABCA noted that the insurance policy did not limit the scope of examinations for
discovery. Rather, it stated that examinations for discovery shall be conducted in
accordance with the Alberta Rules of Court. Therefore, the ABCA held that the
tribunal had jurisdiction to compel the JLT employees to appear for examinations
for discovery.

With respect to the Standstill Agreement, the ABCA held that tribunals may seek
the court’s assistance to obtain relevant evidence. However, the court is not
obliged to provide assistance. Ultimately, the ABCA held that Western must
produce the Standstill Agreement.

Leave was sought to appeal the decision of the ABCA to the Supreme Court of
Canada but was refused.

 Non-Signatories can be Parties

In Northwestpharmacy.com Inc v Yates, the Supreme Court of British Columbia
held that non-signatories can be parties to arbitration agreements.(2)
Northwestpharmacy.com Inc. (“NWP”) entered into a contract with Omega Group
Inc. (“Omega”). The contract contained an arbitration clause, for which NWP
negotiated. The arbitration clause stated that “all disputes arising out of or relating
to” the contract shall be settled by arbitration. A dispute arose and, rather than
commencing an action against Omega, NWP commenced an action against the
principals of Omega (the Yates and Tozman Defendants) and other related parties.
Justice Macintosh repeatedly speculated that the NWP did so in an attempt to
avoid the arbitration clause. The Yates and Tozman Defendants applied to stay the
action in favour of arbitration. To be successful, the Yates and Tozman Defendants
had to persuade the Court, that they should have the benefit of the contract’s
arbitration clause.
Justice Macintosh held that, in certain circumstances, non-signatories can be
parties to arbitration agreements. Such circumstances include when the plaintiff
treats the defendant as the true party to the contract. Throughout the dispute, NWP
asserted that the Yates and Tozman Defendants were the true parties to the
contract. Accordingly, Justice Macintosh stayed the action in favour of arbitration.
In other words, strangers to the arbitration agreement were able to rely on the
arbitration clause to stay related litigation.

Key Takeaways
The key takeaways from the cases above are:

1. If an arbitration agreement is silent, the tribunal has broad procedural

discretion to conduct the arbitration in any manner it sees fit, including by
compelling discovery of third parties;

2. Party status may be construed broadly in certain cases; and

3. A party cannot avoid an arbitration agreement by selective pleading.

 

(1) Jardine Lloyd Thompson Canada Inc v Western Oil Sands Inc, 2006 ABCA 18
(2) Northwestpharmacy.com Inc v Yates, 2017 BCSC 1572

David Tupper has arbitrated extensively in a variety of areas, including

construction disputes, insurance disputes and real estate disputes.
Stefani Wesley is a student-at-law at Blake, Cassels & Graydon LLP. She obtained
her JD from Queen’s University and has been an active volunteer in a number of
legal areas.

Whether A Party To A Dispute Before An Arbitrator Can Claim Money For

And On Behalf Of A Third Party On The Ground That The Third Party
Worked On The Project?

The Law Commission had recommended amending the definition of Party under
Section 2 (1) (h) of the Arbitration and Conciliation Act, 1996 to include person
claiming through or under such party. However, this recommendation was not
accepted.

However, by 2015 amendment, Section 8 of the Arbitration and Conciliation

Act (Act) was amended, which reads as follows:

Section 8 (1):
A judicial authority, before which an action is brought in a matter which is the
subject of an arbitration agreement shall, if a party to the arbitration agreement or
any person claiming through or under him, so applies not later than the date of
submitting his first statement on the substance of the dispute, then, notwithstanding
any judgment, decree or order of the Supreme Court or any Court, refer the parties
to arbitration unless it finds that prima facie no valid arbitration agreement exists.

The 2015 amendment to Section 8 of the Act gives enough leeway to include third
party claims in the overall claims of the petitioner (party to the Arbitration
Agreement) and makes it clear that persons claiming through or under the party to
arbitration agreement can claim the benefit of such agreement.
In Chloro Controls(I) P.Ltd vs Severn Trent Water Purification[1], the
Supreme Court held that though the scope of an arbitration agreement is limited to
the parties who entered into it and those claiming under or through them.....

In Ameet Lalchand Shah vs Rishabh Enterprises[2], the Supreme Court

revisited the principles expounded in Chloro Controls India Private Limited Vs.
Severn Trent Water Purification Inc. and Others and held that:
 Principally four amendments to Section 8(1) of the Act have been introduced
by the 2015 Amendments - one being that the relevant "party" that is entitled
to apply seeking reference to arbitration has been clarified/amplified to
include persons claiming "through or under" such a party to the arbitration
agreement;
 
 The Parties to the agreements namely Rishabh and Juwi India:

0. Equipment and Material Supply Agreement; and

i. Engineering, Installation and Commissioning Contract and the parties
to Sale and Purchase Agreement between Rishabh and Astonfield are
one and the same as that of the parties in the main agreement namely
Equipment Lease Agreement. All the four agreements are inter-
connected. This is a case where several parties are involved in a single
commercial project executed through several agreements/contracts. In
such a case, all the parties can be covered by the arbitration clause in
the main agreement.
Thus, from a conjoint reading of Section 8 and the above judgements, it can be
inferred that a party to an arbitration can claim amounts for and on behalf of a
third party, who may or may not be an affiliate or a group company.

Also, the intention of legislature in not accepting the Law Commission

recommendation of including person claiming through or under such party in
the Party definition under Section 2(1)(h) of the Act could be that the legislature
did not intend to give the third parties an opportunity to arbitrate their individual
claims separately. That would have resulted into multiple claims arising out of the
same transaction relating to a project/principal agreement being filed and thereby
increasing the judicial burden.

Therefore, a party to a dispute before an Arbitrator can claim money for and on
behalf of a third party on the ground that the third party worked on the project

Doctrine of Privity of Contract

In accordance with the common law principle of doctrine of privity of contract, a
contract cannot confer rights or impose obligations upon any person who is not a
party to the contract. As such, the third parties to an Arbitration Agreement, who
have worked on the transaction forming part of the Arbitration Agreement for and
on behalf of a party to the Arbitration Agreement, cannot directly claim but have to
claim through a party to the Arbitration Agreement.

Extension Of Arbitration Agreement To A Non-Signatory

As per the Contract Law, an agreement cannot be binding on the non-

signatory. Similarly, an arbitration agreement is also governed by the
same principle. Arbitration is based on consent and can only bind the
parties who are in agreement to it. However, a non-signatory can be
bound by an arbitration agreement in certain circumstances. Indian
jurisprudence has developed in the light of the following
circumstances:

INDIAN JURISPRUDENCE
A. The hon'ble Supreme Court of India in the case of Sukanya Holdings
Pvt Ltd.1 held that non-signatory to the arbitration agreement cannot
be referred to arbitration as there is no provision in the Arbitration Act
which prescribes a mechanism in this regard.

B. However, the position of the apex court was broadened in 2013 in

the case of Chloro Controld Pvt Ltd.2 The Sukanya Holding judgement
was in context to Section 8 of the Arbitration Act (Domestic Arbitration)
and thus, did not apply to the Chloro Controls Judgement as it is a
foreign seated arbitration. The SC adopted the doctrine of “GROUP OF
COMPANIES” and provided an exceptional scenario wherein a non-
signatory could be included in the arbitration.
This doctrine was evolved in the ICC arbitral award of Dow Chemical
Case3 and aimed to extend the arbitration agreement, signed only by
one or some of the companies of a group, also to the non-signatory
companies of the same group.4 According to it a non-signatory can be
bound by the arbitration agreement if the conduct of the parties
evidences a clear intention about the same. Thus, the court/ tribunal
can admit a non-signatory as a party when it is satisfied that the non-
signatory is a necessary party to the contract.

C. After these judgements, the Arbitration Act was amended in 2015 to

apply the ratio Chloro Controls judgement even to the domestic
arbitration. Hence, it replaced the word “party” with “a party to the
arbitration agreement or any person claiming through or under him.”

D. The recent case in this regard is MTNL v Canara Bank5 , wherein the
hon'ble Supreme Court has pointed out the circumstances when the
Group of Companies doctrine can be invoked to make a non-signatory
bound by an arbitration agreement. They are as follows:

1. When it is established that it was the intention of all the parties to

bind the signatory as well as Non-signatory to the arbitration
agreement.
2. When the non-signatory has been engaged in negotiation/
performance/ termination of the contract.
3. When the non- Signatory has made statements to express its
intention to be bound by the contract.
4. When the non-signatory is involved in the execution of Composite
Transaction which means a transaction with a common business
objective which would not be possible without the participation of
non-signatory party.
5. When the signatory and non-signatory parties exist within a tight
group structure with strong organizational and financial links to
constitute “A Single Economic Unit”.

TYPES OF MECHANISM TO INCLUDE A NON-SIGNATORY TO AN

ARBITRATION PROCEEDINGS
 1. JOINDER

A ‘joinder' refers to the inclusion of a third party by an original party to

the arbitration proceedings using procedural methods. Joinder may
occur at a later stage when the claimant chooses that a third party
should become a supplementary respondent.6 Once a third[1]party
assent to a bi-party arbitration, it converts to a multi-party arbitration
proceeding. Insolvency is a very usual condition for joinder needs.

1. CONSOLIDATION

Consolidation means consolidation of parallel arbitrations that have

previously commenced or of claims developing from two distinctive
arbitration agreements.7 The wording of the arbitration agreement, the
laws of the seat of arbitration and the arbitral institute's rules play a
predominant role in consolidation of arbitration. Consolidating
associated mediations might be cost effective and may likewise evade
conflicting results.8

1. INTERVENTION

Intervention is the point at which an outsider shall submit a request for

joinder to the institution by stating that “a third party wishing to be
joined as an additional party to the arbitration”. Prior to the
confirmation of the arbitral tribunal, the Institution has the right to
decide whether such third party may intervene while post confirmation,
the arbitral tribunal itself is conferred with the right to take such a
decision. Furthermore, once the additional party is joined to the
arbitration before the date on which the arbitral tribunal is confirmed,
all parties shall be deemed to have waive of their right to designate the
arbitrator and the institution shall appoint the arbitral tribunal.
Intervention can be used only if the applicable institutional principles or
national laws allow it like HKIAC rules.

CONCLUSION
There are mechanisms for referring a non-signatory to an arbitration.
In determining whether a non-signatory should be joined to the
proceedings, arbitrators have the same main requirements - consent,
connectivity, timing, and procedural efficiency. The precedents have
developed sufficiently to accommodate such situations. The apex court
has evolved the horizon of domestic arbitration by adopting the
doctrines such as Group of Companies and Composite transactions.

Although the Arbitration Act included the terms “a party to the

arbitration agreement or any person claiming through or under him.” in
Section 8, it still failed to address the issue on who can be termed as a
person if they do not fall under the tight group of companies. As we can
see the rules for extending an arbitration agreement to a non-signatory
are still evolving.

BIBLOGRAPHY
https://www.mondaq.com/india/arbitration-dispute-resolution/1063740/extension-
of-arbitration-agreement-to-a-nonsignatory
 https://adric.ca/third-parties-to-arbitration-agreements

https://www.legalserviceindia.com/legal/article-6440-whether-a-party-to-a-
dispute-before-an-arbitrator-can-claim-money-for-and-on-behalf-of-a-third-party-
on-the-ground-that-the-third-party-worked-on-the-project-.html