Enforcement of Arbitration Agreements against Non-Signatories: which law (the chicken and the egg)?
By Albert Monichino QC
Assume a court proceeding is brought by a plaintiff against a defendant who seeks to stay the proceeding on the grounds that the dispute before the Court has been agreed between the parties to be referred to arbitration. The defendant is not named as a party to the arbitration agreement. However, it is related to the counter-party that the plaintiff has contracted with. The putative arbitration agreement provides for arbitration in a foreign seat with the merits to be determined by the law of that seat. In considering whether there is a binding arbitration agreement between the plaintiff and the defendant, for the purposes of the stay application, should the court apply its own law or the law of the putative arbitration agreement (ie the law of the foreign seat)? Does it matter that an arbitration between the parties has been commenced by the defendant, an arbitrator has ruled that he has jurisdiction, and the court of the seat of the arbitration has upheld that ruling?
Introduction Under the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (‘New York Convention’), the question of whether a non-signatory to a main contract containing an arbitration clause is bound by the arbitration agreement constituted by that arbitration clause, is a question that may be faced by a national court at different stages of the arbitral process. First, when called upon to enforce an arbitration agreement and stay its court process (under Article II).1 Secondly, when requested to enforce an arbitral award (under Article V).2 In both situations, the preliminary question arises: what system of law should be applied in determining whether the parties before the court are bound by the alleged arbitration agreement? While Article V contains an express choice of law (in particular, the law of the putative arbitration agreement, alternatively the law of the seat),3 Article II is silent as to the choice of law to be applied. Where a proceeding is brought against a defendant who alleges that there is an arbitration agreement between it and the plaintiff, the existence of which is denied by the plaintiff, should a national court entertaining an application by the defendant to stay the proceeding apply its own conflict of law rules to determine the relevant law to be applied to determine the question of whether the plaintiff is bound by the arbitration agreement? Alternatively, should the court apply the choice of law rule expressed in Article V (ie the law of the putative arbitration agreement) on the basis that Article II impliedly selects the same choice of law rule?