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Guidance on the interplay between the Contracts (Rights of Third Parties) Act 1999 and the Arbitration Act 1996
Practical Law UK Legal Update Case Report 0-519-7204 (Approx. 3 pages)
Guidance on the interplay between the Contracts (Rights of Third Parties) Act 1999 and the Arbitration Act 1996
by PLC Arbitration
| Published on 06 Jun 2012 • England, Wales |
In Fortress Value Recovery Fund LLP and others v Blue Skye Special Opportunities Fund LP (A Firm) and others [2012] EWHC 1486 (Comm), one issue for consideration by the court was the interplay between the Contracts (Rights of Third Parties) Act 1999 and the Arbitration Act 1996.
NOTE: The Court of Appeal has dismissed an appeal of this decision, legal update to follow.
Blair J has provided clarification on the interplay between the Contracts (Rights of Third Parties) Act 1999 (C(RTP)A99) and the Arbitration Act 1996 (AA96) in the context of an application to stay proceedings under section 9 of the AA96, made by two defendants who were not party to the partnership deed containing the arbitration agreement.
The decision is of interest as Blair J distinguished Nisshin Shipping Co Ltd v Cleaves & Co Ltd [2003] EWHC 2602 (Comm), the leading case on the effect of section 8(1) of the C(RTP)A99, where it was held that, by virtue of section 8(1), a broker could directly advance a claim for commission in arbitration against shipowners, even though he was not party to the charterparty containing the arbitration agreements. In Nisshin, the right to enforce the substantive term on commission was subject to the arbitration clause, and the broker was obliged to refer the dispute to arbitration. In the present case, Blair J drew the following distinctions:
- Although the two defendants had referred to an indemnity provision and an exclusion clause in the partnership deed, they were not seeking to enforce those terms of the partnership deed. Accordingly, section 8(1) would not allow them to be treated as parties to the arbitration agreement based on those provisions. The fact that they might amend their defence did not alter things.
- An exclusion clause is by its very nature defensive rather than conferring a positive right of action. It would not make sense to say that a contractual defence (in contrast to a contractual right of action) was subject to the arbitration clause; furthermore, an application to stay proceedings under section 9 of the AA96, would be assessed by reference to the claims, rather than the defences raised.