Arbitration and Disputes Involving Multiple Parties - Part 5 Chapter 12 - The Practice of International Litigation - 2nd Edition
Lawrence W. Newman has been a partner in the New York office of Baker & McKenzie since 1971, when, together with the late Professor Henry deVries, he founded the litigation department in that office. He is the author/editor of 4 works on international litigation/arbitration.
Michael Burrows, Formerly, Of Counsel, Baker & McKenzie, New York.
Disputes involving multiple parties arise in a wide array of business relationships, including in contractor and subcontractor transactions; indemnification and surety relationships; chain transactions; agent and principal relationships; and in a variety of corporate structures and arrangements. Multiple-party disputes present a number of legal and planning issues involving arbitration. These include being compelled to arbitrate, being obliged to participate in someone else’s arbitration, being obliged to conduct one’s arbitration together with someone else’s arbitration and being bound by the outcome of an arbitration involving other parties.
Issues involving the obligation of non-signatories to arbitrate are for the court, not the arbitrators, to resolve. Courts have shown a willingness to enforce an arbitration agreement against, or on behalf of, a party that is not a signatory to the agreement to arbitrate in a variety of situations. A court may determine that a party has agreed to arbitrate a dispute because of the incorporation into its contract of an arbitration provision contained in another contract to which the party is not a signatory. In such a case, the parties to the contract incorporating the arbitration clause contained in the other contract may be compelled to arbitrate. Such parties may also enforce the arbitration agreement by compelling arbitration of claims asserted against them. Although courts have frequently found a valid incorporation by reference of an arbitration agreement contained in another contract, they have not, when there has been no such implicit incorporation and there is no other basis for a finding that a non-signatory is bound by an arbitration agreement, enforced arbitration agreements against non-signatories—even though the disputes involving the non-signatories may have been closely related to the disputes between the parties who signed the arbitration agreements.
Courts frequently have construed broadly worded arbitration clauses as sufficiently broad to encompass third-party claims for contributions or indemnity. They have also allowed the assignee of a party to an arbitration agreement to enforce the agreement, even where the language in the contract could be interpreted as prohibiting non-parties from enforcing the arbitration agreement. In addition, a party that is a third-party beneficiary of a contract containing an agreement to arbitrate has been held to be entitled to enforce that agreement. In some cases, however, courts have first determined whether the parties actually intended the non-party to be a third-party beneficiary of the contract.