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17 THE EFFECT OF ARBITRATION ON THIRD PARTIES

Arbitration Law

Chapter 17 THE EFFECT OF ARBITRATION ON THIRD PARTIES THE PARTIES TO AN ARBITRATION AGREEMENT 17.1 The identities of the parties to an arbitration will generally be apparent from the outset. There may nevertheless be disputes as to whether the signatory to the arbitration agreement is a full party or merely a guarantor or agent, 1 or as to whether the named party was wrongly identified as a party to the arbitration. In the latter situation, the identity of the true contracting party is to be determined objectively in accordance with the ordinary principles for the construction of a contract, by reference to the notice of arbitration and the surrounding circumstances. 2 It is also possible for the identity of one of the parties to change before or after the dispute has arisen, so that proceedings which name the new entity will be valid, 3 and in the same way proceedings erroneously brought in the name of the superseded entity will be valid as long as it is clear on objective grounds who the intended applicant really was. The question to be asked is “who would reasonably have been understood by the party against whom the claim was asserted to be the entity bringing the claim?” 4 There may also be a consensual assignment of the contract containing the arbitration clause or a transfer of rights by operation of law. 5 Again, there may be a novation, as where the contract between two parties is made by one of them on behalf of itself and nominees, and in such a case the nominee may seek to be joined as an additional party to the arbitration: in Charles M Willie & Co (Shipping) Ltd v. Ocean Laser Shipping Ltd 6 Rix J expressed the view that in these circumstances the nominee was a contracting party in its own right, with a right to join the arbitration on notice, thereby avoiding two arbitrations on what are likely to be the same issues. 7 Moreover, in some situations the court may find an ad hoc agreement between the original parties and a third party for the third party to join the arbitration proceedings. 8 In general terms, however, an arbitrator has no jurisdiction over a dispute between one or both of the parties and a third party. This proposition is self-evident, and is demonstrated by Mercantile and General Reinsurance Co plc v. London Assurance , 9 in which reinsurers under a reinsurance agreement containing an arbitration clause commenced subrogation proceedings in arbitration against a third party who allegedly owed various sums to the reinsured; there was no arbitration agreement between the reinsured and the third party. The Court of Appeal held that the asserted arbitration proceedings were “impossible to fathom”; there was no arbitration agreement between the reinsured and the third party, and in any event the reinsurers had not commenced the proceedings in the reinsured’s name (the essence of subrogation) but in their own name. The law applicable to the substantive agreement is to be used to determine the identity of the parties to the agreement. 10 However, the rather different question of whether a third party can be joined to an arbitration has to be resolved under the law of the place of the signatory’s incorporation and not the law governing the substantive agreement. In Egiazaryan v. OJSC OEK Finance 11 the question was whether a parent company was a party to an arbitration agreement entered into by its subsidiary. The subsidiary was incorporated in Russia, and Burton J applied Russian law to ascertain whether the subsidiary’s signature was binding on the parent company so that it could be joined to the arbitration. 12 That was found to be the case. As was noted by Burton J, if a company incorporated in England entered into a contract governed by the law of Ruritania, the question of whether its shareholders could be joined to the arbitration was a matter for English law and not for the law of Ruritania.

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