Claims against or from third parties to an agreement containing an arbitration clause often give rise to the question of whether such third parties are bound by, or can invoke, the arbitration clause.
Dispute resolution by arbitration requires agreement between the parties. The question of whether there is an arbitration agreement between the parties depends generally on the ordinary rules on formation of contracts. The Norwegian Arbitration Act contains no requirement regarding form to make an arbitration agreement valid. As such, an arbitration agreement is normally in writing and often in the form of an arbitration clause in the agreement in question.
Since arbitration requires agreement between the parties, a third party is not normally bound by, or entitled to invoke, an arbitration clause. However, there are exceptions to the rule.
Section 10 (2) of the Arbitration Act provides that arbitration clauses apply to third parties in the case of transfer of the legal relationship to which the arbitration agreement applies. The arbitration agreement is considered as included in the transfer and can be invoked by and towards the successor, unless otherwise agreed between the parties to the agreement. Thus if A and B enter into an agreement with an arbitration clause, and B transfers the agreement to C, disputes between A and C under the agreement will be subject to arbitration.
The Arbitration Act does not have any other rules concerning the position of third parties. However, the preparatory works to the act mention the situation where a third party's claim is not based – at least not exclusively – on an agreement between other parties, but on legislation. The preparatory works conclude that there does not seem to be sufficient basis for the third party to be bound by the arbitration clause in this situation.
Another example is an arbitration clause in a bill of lading, where the arbitration clause will normally be binding in the relationship between the carrier and either the consignee or the endorsee of the bill of lading (depending on the jurisdictions involved). Such arbitration clauses were not binding on the consignee or endorsee under the law before the Arbitration Act, as previously the requirement was that the arbitration had to be agreed in writing by both parties.
Particular problems may arise for a bill of lading issued under a charterparty where:
- the bill of lading incorporates the terms of the charterparty; and
- there is an arbitration clause in the charterparty.
The question in such circumstances is whether the arbitration clause has been accepted. This is one of the reasons why it is recommended to mention specifically the arbitration clause in the bill of lading.
Charterparties often contain commission clauses and a question which arises is whether the broker may invoke, or is bound by, an arbitration clause in the charterparty. The charterparty is entered into between the owners and the charterers, and its terms – including the arbitration clause – apply only as a starting point between the owners and the charterers. The commission clause may set out:
- the amount of commission to which the broker is entitled; and
- how commission payments shall be divided between the owners and the charterers.
However, the legal basis for the broker's right to commission is normally not the commission clause in the charterparty, but the brokerage agreement with the owners and/or the charterers, which may be in writing or an oral agreement. In such cases the commission clause may constitute evidence of the commission agreed in the brokerage agreement, but the broker will normally not be regarded as party to the charterparty and is therefore normally neither bound by, nor entitled to invoke, any of the provisions in the charterparty, including the commission clause and the arbitration clause.
It is recommended, when drafting arbitration clauses, to take into account not only the position of the contractual parties, but also the position of possible third parties, since this may reduce or avoid the risk of difficult procedural questions that may arise if claims are later made by or against a third party.
For further information on this topic please contact Anders W Færden, Herman Steen or Bård Breda Bjerken at Wikborg Rein by telephone (+47 22 82 75 00) or email (email@example.com, firstname.lastname@example.org or email@example.com). The Wikborg Rein website can be accessed at www.wr.no.
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