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When can an arbitration agreement bind a third party?

18 May 2013
The Court of Appeal has given further guidance in Fortress Value Recovery Fund  I LLC v Blue Skye Special Opportunities Fund LP and others [2013] EWCA Civ 367.

The Court upheld a first instance decision that third party appellants were not to be treated as parties to an arbitration agreement under section 8(1) of the Contracts (Rights of Third Parties) Act 1999 ("CRTPA"). Section 8(1) CRTPA provides that a third party enforcing rights under the CRTPA in a contract to which he is not party may be bound by any arbitration agreement in the relevant contract. In the Fortress decision, it was held that whether the right of a third party to benefit from an exclusion clause in a contract is subject to an obligation to submit to arbitration pursuant to an arbitration agreement in the contract is a matter of construction. There was no express provision which made the clauses on which the third party sought to rely subject to the arbitration clause, so it was necessary for the Court to look at the parties' intentions. In this instance, it was not possible to infer that the parties had intended that the appellants should be bound by arbitration proceedings that they had not initiated, with Tomlinson LJ stating that "it is … to impute to the parties a really very far reaching intention if it is to be inferred that they positively intended to bring about the result that third parties would be bound by the outcome of arbitration proceedings which they had not themselves initiated in order to secure a benefit apparently conferred upon them by the [relevant contract]".

This case provides a significant analysis of one of the circumstances in which a third party may or may not become bound by an arbitration agreement, and must be viewed in the wider context of situations in which third parties may become bound by arbitration agreements in contracts to which they are not party. It also highlights that care needs to be taken when drafting transactional documents that may confer a right on a third party to ensure that the parties intentions' as to the resolution of disputes involving those third parties are properly addressed.

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