UBS AG and its affiliates (“UBS”) commenced arbitration against Lakah Funding Limited, the primary obligor and issuer of certain Eurobonds, and against four guarantors of the bonds. Ramy and Michel Lakah (the “Lakahs”) were also named as respondents in the arbitration, even though Michel was not a signatory to the arbitration agreements at issue and Ramy signed those agreements on behalf of Lakah Funding and the guarantors, but not in his personal capacity.
The Lakahs petitioned the New York Supreme Court to stay the arbitration against them on the grounds that they were not parties to the relevant arbitration agreements. UBS removed the action to the U.S. District Court for the Southern District of New York. While the action was pending, the chairman of the arbitration panel advised all of the parties that the panel would move forward in the arbitration by addressing the issue of whether it had arbitral jurisdiction over the Lakahs. The Lakahs then moved for a preliminary injunction to prohibit any further proceedings in the arbitration.
In granting the Lakahs’ motion for injunctive relief, the court noted that the determination of whether a party is bound by an arbitration agreement must be decided by the court, and not the arbitrators, unless the agreement clearly and unmistakably provides otherwise (which it did not). Thus, the court found that the Lakahs would be irreparably harmed if the arbitration panel engaged in proceedings to determine its jurisdiction, as the Lakahs would be forced to spend significant time and resources litigating before a body lacking authority to decide the issue. Although the court did not discuss whether the Lakahs demonstrated the other element required for preliminary injunctive relief—likelihood of success on the merits or sufficiently serious questions going to the merits and a balance of hardships favoring the Lakahs—the decision implicitly suggests this prong was satisfied given the court’s recognition of a panel’s limited authority to decide matters of arbitrability.
A copy of the decision, Lakah v. UBS AG, No. 07-cv-2799 (MGC) (S.D.N.Y., Mar. 6, 2009), can be found here.