Consent is the foundation
Arbitration rests on agreement, so the starting point is that only those who entered into the arbitration agreement are bound by it. English law requires clear evidence of consent before holding a non-signatory to an arbitration clause, and it is sceptical of doctrines that would bind people who did not agree.
That makes who is bound a drafting question as much as a legal one: if you need a particular party caught by the arbitration clause, get its consent on the page.
Guarantors are not automatically bound
A guarantor is not automatically subject to an arbitration clause in the contract it guarantees. In Dallah Real Estate and Tourism Holding Company v Ministry of Religious Affairs of the Government of Pakistan [2010] UKSC 46, the Supreme Court required clear evidence of consent to arbitrate even where the Government was closely involved and a Minister had signed letters on government letterhead - and found that consent lacking.
So a guarantee should either expressly incorporate the arbitration clause of the underlying contract or contain its own arbitration provision. Do not assume the guarantor is swept in with the principal.
Assignees generally are bound
Assignment is different. Section 82(2) of the Arbitration Act 1996 extends the arbitration agreement to persons claiming under or through a party, and in The Jay Bola (Schiffahrtsgesellschaft Detlev von Appen GmbH v Voest Alpine Intertrading GmbH) [1997] 2 Lloyd's Rep 279 the Court of Appeal confirmed that an assignee takes the assigned rights subject to the arbitration clause - with both its benefit and its burden.
So an assignee who wants to enforce the assigned rights must generally do so by arbitration. Assignment carries the dispute mechanism with the right.
English law rejects the group of companies doctrine
Some legal systems (notably France) allow a non-signatory affiliate to be bound through its involvement in negotiating or performing the contract - the group of companies doctrine. English law does not. In Peterson Farms Inc v C&M Farming Ltd [2004] EWHC 121 (Comm), the court held that the doctrine forms no part of English law and set aside an award that had bound non-signatory group entities.
So you cannot reach an affiliate simply because it belongs to the same corporate group as a signatory. If you need affiliates bound, name them as parties or have them sign up to the arbitration agreement.
Drafting for the parties you need
Decide at the outset who must be capable of being brought into an arbitration - guarantors, affiliates, group financiers, key counterparties - and secure their consent expressly, by making them parties, by an express incorporation, or by separate arbitration agreements.
For multi-contract and multi-party structures, add consolidation and joinder provisions that are consistent across the related agreements, so that linked disputes can be heard together rather than fragmenting across forums.
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Practical checklist
- Start from consent: only those who agreed are bound by the arbitration clause.
- Do not assume a guarantor is bound - incorporate the arbitration clause expressly or give the guarantee its own (Dallah v Pakistan [2010] UKSC 46).
- Expect an assignee to be bound, taking the right with the clause (s.82(2) Arbitration Act 1996; The Jay Bola [1997] 2 Lloyd's Rep 279).
- Do not rely on the group of companies doctrine - it is no part of English law (Peterson Farms v C&M Farming [2004] EWHC 121 (Comm)).
- If you need affiliates bound, make them parties or have them sign the arbitration agreement.
- Add consistent consolidation and joinder provisions across related contracts in multi-party deals.
This guide is informational only and is not legal advice. It does not replace advice from licensed counsel on the facts of a specific transaction.
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