The purpose of this bulletin, the tenth in our “Dispute Resolution Clauses - Two Minute Drafting Tips” series, is to provide parties involved in negotiating commercial agreements with quick, actionable tips for crafting effective dispute resolution clauses. This bulletin highlights the importance of considering, at the stage of negotiating a commercial agreement, the potential for third parties to be involved in or implicated by a future dispute. This issue has implications beyond drafting a clause, and extends to whether to include an arbitration clause at all.
Arbitration is fundamentally contractual. This can be significant when disputes involve people or entities that did not sign the arbitration agreement. Unlike courts, arbitral tribunals generally lack jurisdiction over non signatories. If a dispute implicates, for instance, a parent company, subsidiary, guarantor, or key project participant that is not a party to the arbitration agreement, a party may face multiple proceedings or be left without arbitral recourse.
Drafting with Other Parties in Mind
There are strategies that can be considered when negotiating a commercial agreement to reduce the risk of redundant proceedings or being left without recourse due to the involvement of other entities or persons.
- Multi-party arbitration agreement: Consider whether, as part of a commercial negotiation, other entities will agree to be bound by the arbitration agreement. The arbitration agreement could, in effect, be separated from the remainder of the commercial terms with parties signing on to the dispute resolution provisions only.
- Parent company control: Consider whether a contracting party will agree to cause subsidiaries within their control to consent to becoming a party to a future arbitration that implicates them.
- Reliance on institutional rules: Consider incorporating, as part of the arbitration clause, the rules of an arbitral institution that provides greater flexibility when dealing with non-signatories. Some institutional rules allow a party to apply unilaterally to join a third party to an arbitration. For example, under the 2026 International Chamber of Commerce (ICC) Arbitration rules a party may request joinder of an additional party[1]. This is much easier to do before any arbitrator is confirmed or appointed, since after that, acceptance by both the tribunal and the additional party is required. The International Centre for Dispute Resolution (ICDR) rules have similar provisions[2]. That said, a non signatory typically cannot be forced into arbitration under these rules absent a legal basis tying it to the agreement.
In addition, the ICC[3] and ICDR[4] rules allow parties to apply to consolidate multiple arbitrations on the same subject matter or involving overlapping parties.
- Consider litigation in courts: If your transaction structure makes it unlikely that all necessary parties will consent to arbitration, it may be worth asking: Is court litigation the better option? Courts generally have broader powers to deal with multi party disputes, including joining necessary third parties and avoiding parallel proceedings.
Ultimately, the key when negotiating an agreement is to think beyond the immediate counterparty. The requirement for privity of contract can pose significant issues in certain disputes, although thoughtful drafting can potentially mitigate this risk and may save significant time and costs later.
In Case You Missed It
For more insights, check out our previous bulletins in the "Dispute Resolution Clauses - Two Minute Drafting Tips" series:
- Bulletin #1 - Using Model Arbitration Clauses and “Administered” Arbitrations
- Bulletin #2 - Addressing Panel Size and Arbitrator Qualifications
- Bulletin #3 - Mandating Arbitration and Clarity of Scope
- Bulletin #4 - Establishing Clear Procedures for the Appointment of Arbitrators
- Bulletin #5 - The Importance of Considering Emergency Measures in Dispute Resolution Clauses
- Bulletin #6 - When Should Your Contract Contemplate Expedited Arbitration Procedures
- Bulletin #7 - The Pros and Cons of Multi-Tiered/Escalating Dispute Resolution Clauses
- Bulletin #8 - The “Governing Law” of a Contract is Distinct from the Procedural Law of an Arbitration
- Bulletin #9 - Attorning to Court Jurisdiction Doesn’t Mix Well with an Arbitration Clause
