ISSUE 3: JOINDER PARTIES

May arbitration agreements bind non-signatories? If so, under what circumstances?

Arbitration agreements cannot bind non-signatories in the manner of joining non-parties to an

arbitration agreement. The general rule is that an arbitration agreement is not binding on a
non-party or stranger to the agreement.

A person who is not a signatory to the arbitration agreement can be added as a party with the
signatories’ consent.

An arbitration agreement can bind a non-signatory if the underlying contract is validly

assigned to a non-signatory: see Harris Adacom Corporation v Perkom Sdn Bhd [1993] 3
MLJ 506 (under the repealed Arbitration Act 1952).

Notably, in the case of court proceedings jointly involving non-signatories and signatories to
an arbitration agreement, non-signatories may be bound by an order to stay the entire court
proceedings pending reference to arbitration: see Renault SA v Inokom Corp Sdn Bhd &
Anor (and Other Appeals) [2010] 5 MLJ 394 (decided under the repealed Arbitration Act
1952).

Source: Malaysia IBAA Guide

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SEE RULE 9 AIAC RULES ALLOWS JOINDER OF PARTIES. – I EXPLAINED YESTERDAY

Since rules to ‘join’ third parties to arbitration proceedings, subject to the consent of the
parties. What steps can a third party take to safeguard its rights where parties to an
arbitration do not consent to a joinder?

In its judgment, the Federal Court opined that where the dispute in the arbitration affects a
non-party, priority should be given for the dispute to be litigated in court. The Federal Court
espoused a ‘fairness’ test, in which:

“the primary consideration on whether to grant the injunction to restrain the arbitration
proceedings where the rights of a non-party thereto are involved is what would be the
fairest approach to all parties. It must not result in any party suffering a severe disadvantage
and for the ends of justice to be met, the benefits must outweigh the advantage.”