1. Introduction

Some questions should simply be answered 'yes', and this is true of the question that appears in the title. It would have the virtue of being a complete sentence and an accurate answer.

Before tackling the reasons for this answer, some clarifications are needed, because the terminology in this field provides significant opportunities for confusion.

First, I use non-signatory in the sense of a party that is not a signatory to the agreement containing the arbitration clause under which an arbitration is conducted. A non-signatory thus may be, but need not be, an affiliate of a signatory. But it may equally have another relationship to one or more signatories, or to the transaction, that has been recognized by some legal authority as conferring the right, or imposing the obligation, to participate in the arbitration.

Some relationships that have been so recognized are:

• parent-subsidiary

• principal-agent

• third-party beneficiary

• employer-employee

• predecessor-successor.

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Alternatively, the non-signatory's relationship to the contract or the transaction may be characterized by some theory of law, such as:

• assumption

• incorporation by reference

• equitable estoppel.

Second, the question whether a non-signatory may insert itself into an arbitration (usually as a claimant) or may be compelled to participate in an arbitration (usually as a defendant) often arises, at least in the united States, in the context of another proceeding, usually litigation in court, in which the roles may be reversed. thus, for example, a defendant in a court proceeding may seek an order from the court compelling the plaintiff in the court proceeding to take the claim to arbitration, rather than to court. If, as often happens, the plaintiff is a non-signatory to the contract containing the arbitration clause, it becomes a claimant in an arbitration, but involuntarily.

That was the case, for example, in Azhar Ali Khan v. Parsons Global Services. 1 The wife of a company employee who had been kidnapped abroad sued her husband's employer in court. The husband's employment contract contained an arbitration clause. The court required the claim to go to arbitration, because the non-signatory wife's claim derived from the husband's contract, which contained an arbitration clause.

If it was the defendant in the court proceeding that was the non-signatory, that defendant would become the defendant in an arbitration, but a voluntary one. For example, in Birmingham Associates v. Abbott Labs., 2 Birmingham had contracted with a subsidiary of Abbott to fund various medical technologies. Birmingham later sued the non-signatory parent company, Abbott, in court for alleged breach of a 'keep well' obligation. The court granted Abbott's motion to compel arbitration, because Abbott's relationship to its subsidiary that was the signatory was close enough to permit the non-signatory parent to rely upon the arbitration agreement.

It is probably therefore better to reframe the question to distinguish between:

• a non-signatory that wishes to participate in an arbitration under an arbitration clause to which it is not a signatory, which will be called a 'willing non-signatory'; and

• a non-signatory that is compelled against its will to participate in such an arbitration, which will be called an 'unwilling non-signatory'.

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It makes considerable practical difference to the non-signatory and to the other parties to the arbitration which of those positions the non-signatory is in.

2. Willing signatories

One way to approach this difference is to look at why a willing non-signatory would wish to become a party to an arbitration under a contract it did not sign. The most common reason, at least in the United States, is to escape a proceeding in court. Much otherwise inexplicable behaviour can be explained by the imperative need, felt by nearly all defendants, to escape from an American court proceeding.

This arises in many contexts. For example, an employee, such as a stockbroker, may be sued in court by an unhappy customer who has lost all his money by following the broker's advice. Judging from the law reports, this happens with appalling frequency. In any event, this was the case in Pritzker v. Merrill Lynch. 3 A broker in such a position will have a strong motive to invoke the arbitration clause in the customer's agreement with his employer, in order to be able to move the dispute from court to arbitration.

As another example, a franchisor that has granted its franchisees the right to sub-franchise might be sued in court by a sub-franchisee for alleged violations of competition law. That was the situation in Sunkist Soft Drinks, Inc. v. Sunkist Growers, Inc. 4 depending on the wording of the arbitration clause in the contract between the franchisee and the sub-franchisee, to which the franchisor is not a party, the franchisor may be able to persuade the court to order the dispute to arbitration under that clause.

As yet another example, the parent of a subsidiary that was a party to a contract may be sued in court (perhaps in tort) by the other party to that contract, or its parent, and may wish to insist that disputes be resolved under the arbitration procedures agreed to between its subsidiary and the other party. An example of this configuration is J.J. Ryan & Sons v. Rhone Poulenc Textile, S.A. 5

A different reason why a willing non-signatory might wish to become a party to an arbitration under a contract it did not sign would be if it felt that some subject in which it had a vital interest was going to be decided in an arbitration between two other parties. For example, the owner of a trademark might wish to intervene in an arbitration between a company to which it had licensed the [Page113:] trademark and another company that the licensee had engaged to manufacture the trademarked item, in order to protect its mark or to take a position on the quality of the goods sold under it. Similarly, a guarantor of a contract containing an arbitration clause, to which the guarantor is not a signatory, may wish to intervene in a dispute between the parties to that contract.

3. Unwilling signatories

It is also worthwhile to look at why one or more of the parties to an arbitration might wish to require an unwilling non-signatory to the contract containing the arbitration clause to participate in the arbitration. Most often, one of the parties fears that the other party lacks either the financial means to pay a monetary award or the necessary authority to carry out a non-monetary award (such as an order to cease using a licensed technology) and seeks to bring in a more solvent affiliate (usually a parent company) or the affiliate in control of the subject of the non-monetary relief sought.

Sometimes the impetus to bring an unwilling non-signatory into an arbitration arises from the need to reconcile multiple agreements among parties, each of which has not signed every agreement. For example, a party seeking to enforce a contract may wish to require a non-signatory to that contract to participate on the grounds that the non-signatory was a party to a separate guaranty or indemnity agreement (which may or may not contain its own arbitration clause), in order to avoid the expense of two proceedings or the risk of inconsistent results in separate proceedings against the guarantor. An example of this is General Electric Co. v. Deutz AG.6

4. Consent

Other contributors to this volume discuss the importance of consent when it comes to extending the reach of an arbitration clause to a non-signatory. Consent seems to me to provide the key distinction between extending the reach of such a clause to a willing non-signatory and extending the reach of such a clause to an unwilling non-signatory. In the case of the willing non-signatory, all the proposed participants in the arbitration have consented to arbitrate with someone. Each party may not [Page114:] have consented to arbitrate with all the parties involved, but at least all parties will have crossed the initial threshold of having agreed in principle to arbitration:

• the signatories to the arbitration clause have consented to arbitrate with each other.

• presumably, all of them will have consented to arbitrate the subject matter in question, by virtue of having signed the same contract.

• Finally, the willing non-signatory has consented to arbitrate with the other parties and to arbitrate the subject matter in question by seeking to participate in the proceeding.

The signatories may not wish to arbitrate the dispute in question with the willing non-signatory - indeed, they may well be seeking to take the willing non-signatory to court. But whether they can be compelled to add another party to the circle of parties with which they have consented to arbitrate seems to me to be qualitatively different from seeking to compel a party that has never consented to arbitration in any form to arbitrate. The analysis simply becomes a question of contract law: do the provisions of the contract concerned support the inclusion of the additional party over the objections of those already bound by the contract?

This reference to the underlying contract law may be seen in a very recent decision of the united States Supreme Court, Arthur Anderson v. Carlisle, 7 which is noteworthy for three reasons. First, the Arthur Anderson case is the first one in which the Supreme Court has directly addressed the rights and obligations of a non-signatory to an arbitration agreement. We have had many court of appeals decisions, but no Supreme Court decision on the subject. Second, the Supreme Court recognized not only that a non-signatory may have rights under an arbitration agreement but also that a non-signatory has the same right as a signatory to take an appeal from a decision of a district court refusing an application to stay a proceeding in court in favour of arbitration.

More significant for the purpose of this discussion is the fact that the Supreme Court held that whether the non-signatory has rights under the contract containing the arbitration clause was a question not of federal arbitration law but of state contract law. thus, for the purpose of deciding whether a contract may be enforced by or against a non-signatory, federal courts are now instructed to look to principles of state contract law. As the Supreme Court put it: 'where state law permits it, a third-party claim is "referable to arbitration [Page115:] under an agreement in writing".' 8 As I am indebted to Paul Friedland for pointing out, this reference to state law is likely to have significant consequences for American arbitration law.

In the parallel case, where an attempt is made to bring into an arbitration an unwilling non-signatory, the consent question seems to me to be different. It may be that ordinary principles of state contract or agency law permit the consent of a signatory to be imputed to the non-signatory. For example, the consent of an agent may be imputed to a principal, or vice versa. or the consent of a subsidiary may be imputed to a parent, in cases where the law would otherwise permit the corporate veil to be pierced. Or the non-signatory may be deemed, by seeking to take advantage of one clause of a contract, to have accepted other provisions of that contract, including the arbitration clause - what American courts call equitable estoppels. In all of these cases, it seems to me, consent is present, even if it is provided by operation of law rather than by a simple signature. 9

However, where no principle of law permits the consent of one party to a contract to be imputed to a stranger to that contract, I do not know of any legal system that will permit an unwilling non-signatory to be forced to arbitrate a dispute under the arbitration clause in that contract if it does not wish to do so. As the Second circuit court of Appeals put it in Merrill Lynch Investment Managers v. Optibase, Ltd.: 10

"[I]t matters whether the party resisting arbitration is a signatory or not. '[A] court should be wary of imposing a contractual duty to arbitrate on a non-contracting party.'"

That, fundamentally, is the difference between extending an arbitration clause to a willing non-signatory and an unwilling non-signatory. Whether the non-signatory is the claimant or defendant in the arbitration concerned seems relatively insignificant compared to whether it wishes to become a party.

5. Conclusion

In the case of the willing non-signatory, the element of consent is present in some form on the part of all parties. the inquiry should then become, I submit, whether one or more of the signatories that is resisting inclusion of the willing non-signatory in the proceeding can demonstrate either: (1) that the contract in which the agreement to arbitrate is found does not countenance the addition of the non-signatory; or (2) that the signatories [Page116:] would in some significant way be prejudiced by the addition of the non-signatory to the arbitration. In the case of the unwilling non-signatory, however, consent must be found somewhere, in some form, or there will be no proper basis for requiring the non-signatory to arbitrate. If the applicable law permits the attribution to the unwilling non-signatory of someone else's consent - as a matter of agency, piercing the corporate veil, succession or assumption, or incorporation by reference - the element of consent is supplied by attribution and the unwilling non-signatory should be compelled to arbitrate. Similarly, if the unwilling non-signatory has sought to take advantage of other elements of the contract in which the arbitration clause appears, it would be unseemly to permit it to do so without also holding it to the arbitration clause. that also seems an acceptable form of consent.

Absent one form of consent or another, however, it would seem to be bad law and bad policy to compel an unwilling non-signatory to participate in an arbitration, whether as a claimant or as a defendant.

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1
480 F. Supp.2d 327 (d.d.c. 2007).

2
547 F. Supp2d 295 (S.d.n.y. 2008).

3
7 F.3d 1110 (3rd cir. 1993

4
10 F.3d 753 (11th cir. 1993).

5
863 F.2d 315 (4th cir. 1988). Another example, InterGen N.V. v. Grina, 344 F.3d 134 (1st cir. 2003), was discussed by the present author in 'non-Signatories in International Arbitration - An American perspective', International Arbitration 2006: Back to Basics, International council for commercial Arbitration congress Series no. 13 (2007).

6
270 F.3d 144 (3rd cir. 2001)

7
129 S.ct. 1896 (2009),

8
129 S.ct. at 1902, note 6. I am indebted to Paul Friedland for pointing out that this reference to state law is likely to have significant consequences for uS arbitration law.

9
The implications of this sort of attribution of consent are learnedly discussed by professor W.W. Park in 'non-signatories and International contracts: An Arbitrator's dilemma', in Multiple Party Actions in International Arbitration 3 (2009), adapted from 'non-Signatories and International Arbitration', Leading Arbitrators' Guide to International Arbitration, 2nd edn. (L. Newman & R. Hill, 2008) p. 553; reprinted in Dispute Res. Int'l 2 (2008) p. 84. 10 337 F.3d 125, 131 (2d cir. 2003).