Issues related to the involvement of third parties in arbitration can be particularly challenging in practice given that few Canadian court decisions address this topic. The purpose of this blog is to address the following three key issues related to third parties in arbitration:
- Compelling third parties to arbitrate;
- Joinder of third parties and consolidation; and
- Obtaining evidence from third parties in arbitration.
1. Compelling Third Parties to Arbitrate
The (fairly) recent Alberta Court of Appeal decision of Husky Oil Operations Limited v Technip Stone & Webster Process Technology Inc., 2024 ABCA 369 (“Technip”) provides important guidance on the requirements to bind a non-party to arbitration.
Background facts –The owner of a construction project (the “Project Owner”) filed a Statement of Claim against the equipment suppliers (the “Subcontractors”) on the project, alleging breach of warranties and negligence in manufacture (the “Action”). The defendant Subcontractors brought an application to dismiss or stay the Action in favour of arbitration. They argued that the contract between the Subcontractors and the General Contractor (the “General Contractor”) for the project (the “Contract”) required that any warranty claims of the Project Owner be arbitrated. The Project Owner was not a party to the Contract.
The Applications Judge decision – He found that the Project Owner was not required to arbitrate its warranty claims; it was not a party to the Contract. The Applications Judge also noted while the Project Owner was the beneficiary of certain Subcontractors’ warranties in the Contract, the Contract did not expressly state that the Project Owner must pursue its warranty claims by arbitration. The Applications Judge dismissed the Subcontractors’ application and allowed the Project Owner to pursue its warranty claims by way of its court Action.
The Chambers Justice decision – The Subcontractors appealed the decision of the Applications Judge to a Chambers Justice of the Court of King’s Bench of Alberta. This was a de novo appeal and accordingly no deference was owed to the decision of the Applications Judge. The Chambers Justice reviewed the stepped dispute resolution clause in the Contract. That clause culminated in mandatory arbitration. He interpreted the clause and held that while some of the clauses in the dispute resolution provision applied to the “Parties”, meaning the General Contractor and Subcontractors, other clauses in the dispute resolution provision did not refer to the “Parties” and instead covered “all disputes arising”. The Chambers Justice reasoned that the wider scope of the words “all disputes arising” was intended to capture other types of disputes arising from the Contract, including disputes arising from the Project Owner’s enforcement of its warranty rights against the Subcontractors.
In addition, the Chambers Judge considered whether this interpretation of the Contract was an impermissible imposition on the Project Owner, as a non-party to the Contract, without consent. The Chambers Justice concluded that it was not impermissible because it was within the Subcontractors’ power to decide whether any conditions or terms should attach to the warranty rights that it extended to the Project Owner as a non-party to the Contract. This included terms that limited the Project Owner’s warranty rights by requiring arbitration.
The Chambers Justice concluded that the Project Owner’s warranty claims against the Subcontractors must be arbitrated. The Court permitted the Project Owner’s negligence-based claims to proceed in court given that those claims did not arise from the Contract.
Court of Appeal decision – The Project Owner appealed the decision of the Chambers Justice to the Alberta Court of Appeal. It argued that the Chambers Justice erred in finding that the arbitration provision in the Contract applied to its warranty claims.
The Court explained that because of privity of contract, courts are appropriately wary when contracting parties assert that non-signatories should be bound by the terms of a contract, including dispute resolution terms. The Court emphasized that as a general principle, a contract cannot confer rights or impose obligations on any party except the parties to that contract (citing London Drugs Ltd v Kuehne & Nagel International Ltd, [1992] 3 SCR 299 (SCC) (“London Drugs”)). The Court noted, however, that there is an exception to the principle of privity of contract where there is “‘an express or implied stipulation by the contracting parties that the benefit of the clause will also be shared by” the non-party” (at para 26, citing London Drugs). This means that while the intentions of the contracting parties can fairly determine the benefits conferred by those contracting parties to non-parties, their intentions cannot fairly determine what obligations are owed by non-parties. Citing T Co Metals LLC v Federal Ems (Vessel), 2012 FCA 284, the Court stated that:
“There is little reason for the law to restrict those who, by agreement, wish to confer a benefit on a person who is a stranger to their agreement. However, the question of privity has a different cast when parties seek, by their agreement, to impose an obligation upon a stranger. The law has little interest, outside the law of tort, in imposing obligations on those who have not agreed to them” (at para 28).
The Court emphasized that there is no court authority that has determined whether contracting parties can contractually bind a non-party to arbitration. The Court held that if it is possible to do this, “the requirement to arbitrate must be manifest” and “expressed in clear and explicit language” in the contract (at para 31). The Court explained that it is not enough to rely on principles of contract interpretation to find that a non-party has an obligation to arbitrate given that the exercise of contract interpretation requires that the court consider the intentions of the parties at the time of contracting and non-parties will not be aware of those intentions. In addition, the Court explained that if the obligation to arbitrate is not clear and explicit in the contract, and the non-party starts an action that is subsequently stayed in favour of arbitration, the non-party could be time-barred from commencing arbitration within its limitation period because it has proceeded in the wrong forum.
The Court held that the Chambers Justice’s determination turned on an interpretation of the Contract that “was not supported by clear and explicit wording” (at para 35). The Court explained that the Contract did not say expressly state that the “[Project Owner] must pursue the warranty claim by arbitration” (at para 35). The Court held that this is type of clear language that was required, at minimum, to require that the Project Owner arbitrate its warranty claims. Given that the Contract did not contain this language, the Court held that the Project Owner could not be required to arbitrate its warranty claims. The Court granted the Project Owner’s appeal.
The Technip decision makes clear that it is difficult to enforce arbitration clauses against non-parties even if the contract confers a benefit to that non-party. Of note, the decision suggests that a non-party could theoretically be forced to arbitrate, even if it does not want to do so, if there is clear and express language in the contract that requires the non-party to arbitrate. This suggests that non-parties that receive a benefit from a contract should carefully review that contract to confirm whether it includes a mandatory arbitration provision that requires the non-party to arbitrate claims.
The Technip decision is addressed in Arbitration Matters case note #784 by Emily Sherkey.
2. Joinder of Third Parties and consolidation
Joinder – Sometimes contracting parties will seek to have one or more non-parties added to an arbitration, at the request of the contracting parties or the non-parties, for efficiency in having issues determined by one arbitrator in one proceeding rather than in multiple proceedings. These circumstances may arise at the outset of the arbitration or after the existing parties to the arbitration have already taken steps in the arbitration. The ADR Institute of Canada Rules (2025) (“ADRIC Rules”), the International Centre for Dispute Resolution Canada (2015) Rules (“ICDR Canada Rules”), the International Chamber of Commerce Rules (2021) (“ICC Rules”), and other institutional rules, expressly provide that non-parties may join an arbitration if the existing parties and the new party agree (Art 4.3.1 of the ADRIC Rules; Art 7(1) of the ICDR Canada Rules; Art 7(1) of the ICC Rules).
Consolidation – A related procedure is consolidation. This is common in litigation proceedings but much less common in arbitration given that parties will commence arbitrations pursuant contracts that have different arbitration agreements. However, some arbitral institutional rules permit (or require) it after arbitration has started under the same Rules.
The ICDR Canada Rules and a number of international arbitration institutions, including the ICC, expressly provide for consolidation. They state that a party may apply to have a consolidation arbitrator appointed. The consolidation arbitrator may permit consolidation of two or more ICDR or AAA arbitrations if: (a) the parties to the arbitrations expressly agree to consolidation; (b) all claims are made under the same arbitration agreement, or (c) the claims are made under more than one arbitration agreement but involve the same parties, the dispute arises in connection with the same legal relationship, and the consolidation arbitrator finds the arbitration agreements to be compatible (Art 8(1)). In determining whether to consolidate, the consolidation arbitrator must consult the parties and may take into account all relevant circumstances, including: (a) applicable law; (b) whether one or more arbitrators have been appointed in more than one of the arbitrations and, if so, whether the same or different persons have been appointed; (c) whether progress has already made in the arbitrations; (d) whether the arbitrations raise common issues of law and/or facts; and (e) whether the consolidation of the arbitrations would serve the interests of justice and efficiency (Art 8(3)).
The ICC Rules for consolidation are very similar. The ICC Court’s discretion is broad. It may consider any relevant circumstances in determining whether to consolidate two or more arbitrations that are pending under the ICC Rules (Art 10).
Notably, both the ICDR Canada Rules and the ICC Rules permit the institution to require consolidation even if the parties do not agree (ICDR Canada Rules, Art 8(1); ICC Rules, Art 10). Parties should be aware of that these institutions have this authority when selecting their arbitration rules.
3. Obtaining Evidence from Third Parties in Arbitration
Arbitrators, unlike decision-makers in the courts, do not have the jurisdiction to compel third-party witnesses to provide evidence in an arbitration. The reason for this is party autonomy. The arbitrator derives their authority from an agreement between contracting parties (Seidel v TELUS Communications Inc, 2011 SCC 15 at para 39). An exception to the rule that arbitrators do not have the authority to bind third parties is reflected in Canadian domestic arbitration legislation related to summonses. For example, section 29(1) of the Ontario Arbitration Act, 1991, SO 1991, c 17 (“Arbitration Act”) provides that parties may serve a summons issued by an arbitrator that requires a non-party to attend the arbitration hearing
Section 29(1) of the Arbitration Act was recently considered in Royal and Sunalliance Insurance v Ontario Provincial Police, 2024 ONSC 5505 (“Royal”). The Court explained that this provision is distinct from section 29(4) of the Arbitration Act that permits a party to apply to the court for an order “with respect to the taking of evidence for an arbitration as if it were a court proceeding”. The Court explained that while section 29(1) of the Arbitration Act permits the arbitrator to compel a third party to give evidence at the hearing, court intervention is required to compel a third party to provide pre-hearing disclosure. Presumably this includes pre-hearing document disclosure and pre-hearing oral examinations, although this was not discussed by the Court. The Royal decision is addressed in an earlier Arbitration Matters case note by Timothy Hughes (https://arbitrationmatters.com/ontario-court-endorses-pre-hearing-disclosure-from-non-parties-to-assist-arbitration-876/).
The requirement that a party must apply to the court for third-party pre-hearing evidence is consistent with Article 27 of the Model Law, which is incorporated by reference into the Canadian International Commercial Arbitration Acts (see, for example, the International Commercial Arbitration Act, RSA 2000, C I-5). Article 27), which say that: “The arbitral tribunal or a party with the approval of the arbitral tribunal may request from a competent court of this State assistance in taking evidence. The court may execute the request within its competence and according to its rules on taking evidence.”
Notably, the Court in Jardine Lloyd Thompson Canada Inc. v SJO Catlin, 2006 ABCA 18 commented that Article 27 of the Model Law does not distinguish between “pre-hearing” evidence and “hearing” evidence. The Court held that parties may apply to the court for direction on the taking of any pre-hearing evidence from third parties.
While parties to both domestic and international arbitrations in Canada will need to apply to the court for pre-hearing disclosure from third parties, parties to domestic arbitrations should review their provincial legislation to determine whether their arbitrator may issue a summons to compel a third party to attend the arbitration hearing, as is permitted by section 29(1) of the Ontario Arbitration Act.