In a novel case, the English Commercial Court grappled with the question of whether an arbitration award can bind non-parties who are connected with but not party to an arbitration to prevent them from running arguments in court proceedings. Whilst the issue arises more commonly in the context of court findings estopping non-parties running the same arguments in a different set of proceedings, the issue has received little judicial attention in the context of arbitration awards.
In declining to accept that an arbitration award bound non-parties to the arbitration, the court in PJSC National Bank Trust & Others v Mints & Others (2022) provided useful guidance on how parties should approach a situation where an arbitral tribunal has made findings against one party in an award but where a third-party runs the same argument in court proceedings.
The case concerned a complicated set of facts and various proceedings issued both in arbitration and before the Cypriot, Russian and English courts.
In the proceedings before the English courts, two banks brought tort claims against individuals alleging they had acted dishonestly in respect of a transaction where one bank had agreed to release security provided by Cypriot borrowers.
In January 2018, the Cypriot borrowers commenced LCIA proceedings against the bank seeking a declaration that the security had been released and that they were not liable to the bank. In August 2021, the LCIA tribunal issued an arbitration award rejecting the borrower’s claim and upholding the bank’s counterclaim that the borrowers (and certain of the individuals behind the borrowers) had acted dishonestly.
On the basis of the award, the bank sought permission from the court to preclude certain of the individual defendants from running the same defence the Cypriot borrowers had run in the LCIA proceedings in respect of the bank’s counterclaim on the basis that the LCIA tribunal had rejected them.
Res-judicata and issue estoppel in respect of third parties arising from an arbitration award
It is well established that an issue estoppel can arise where the same parties to an arbitration award seek to relitigate the same issue in court proceedings (see for example the Court of Appeal decision in Fidelitas Shipping Co Ltd v V/O Exportchleb (1966)).
Whilst the Judge accepted that it was arguable that the individual defendants to the court proceedings “were the moving spirits behind the decision of the [Cypriot borrowers] to commence and progress the LCIA Arbitrations”, the issue in this case was whether those individual defendants could be bound by the tribunal’s findings where they were not parties to the LCIA arbitration.
Arbitration is a creature of contract between parties who contractually agree to refer their disputes to arbitration (which under English law are conducted confidentially unless the parties agree otherwise). That means a third party cannot participate in arbitration proceedings or seek to challenge any award issued unless they and the other parties to the arbitration agree otherwise. This is to be contrasted with the wider powers available in court proceedings where in appropriate cases third-parties can apply to participate in the proceedings and/or seek permission to appeal a judgment.
The question the court therefore had to determine was whether an issue estoppel can arise against non-parties who were closely connected to the arbitration proceedings but were not parties themselves.
As a matter of English law, issue estoppel which arises from a court judgment binds not only the parties but also their “privies.” Decisions have sought to develop the concept of "privy" not only to the parties’ successors in title in respect of the litigated right which has given rise to the issue estoppel, but also a wider class of persons where “having due regard to the subject matter of the dispute, there [is] a sufficient degree of identification between the two to make it just to hold that the decision to which one was a party should be binding in proceedings to which the other is party” (Gleeson v Wippell & Co (1977)).
However, it was accepted that there is no definitive clear test as to what amounts to a “privy”. The judge accepted that he did not need to determine the test of what amounts to a “privy” on the basis that he first had to establish whether an arbitration award could bind a non-party first.
The issue of whether findings in an arbitration award can be binding on non-party “privies” has received little judicial attention to date. Dyson LJ in Dadourian v Simms (2004) stated that the issue of what amounts to being “privy to an arbitration” was “one of some considerable difficulty” and “a difficult area of law in which there is some uncertainty”. In Teekay Tankers v STX Offshore & Shipbuilding Co (2017) and Golden Ocean Group v Humpuss Intermoda Transportasi (2013), the parties accepted that "privies" to an arbitration award could be bound by it but both judges rejected to determine that on the facts in those cases.
In the absence of clear authorities determining whether arbitration awards can be binding on non-party “privies”, the Judge approached his determination from first principles. The Judge found that a more restrictive approach needs to be taken in the context of arbitration awards than court judgments. Key to his decision was the fundamental principle that arbitration arises from privity of contract. It is a contractual agreement between two or more parties to litigate their disputes by arbitration in a confidential forum. As set out above, a third party can only be permitted to intervene in arbitration proceedings or otherwise challenge an award if all parties agree.
Accordingly, the Judge refused the banks’ application for permission to estop the individual Defendants from running arguments which the LCIA tribunal had found against the Cypriot borrowers on.
The decision is of note to arbitration users on what effect an arbitration tribunal’s findings can have on non-parties to an arbitration award. Whilst the Judge accepted that there is no absolute prohibition on determining the principle of res-judicata may apply to arbitration awards against connected parties, it provides useful guidance that it is a high bar to overcome.
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