Businesses sometimes involve a network of commercial relationships that often involve different parties, and these relationships are developed under complex contractual structures, sometimes resulting in multiple contracts that may bind all or only some of the parties, or even the absence of a contract among some of the parties that make up the intricate commercial network. This has generated an interesting debate regarding the application or non-application of arbitration clauses to third parties who were non-signatories to such clauses.
Therefore, we now address three recent rulings of the First Chamber of the Supreme Court of Justice on this topic.
A. Judgment 002079-C-S1-2021 of 11/18/2021: Non-extension of the arbitration clause from a main construction contract to an ancillary insurance contract.
In this case, the application of a performance bond insurance was sought, which guarantees the payment that the contractor had to make to the subcontractor related to a construction contract.
The defendant insurance company requested the extension of the arbitration clause contained in the construction contract, of which the insurance company was not a party. It was argued that the extension of the clause applies when a non-signatory third party is significantly involved in the contract containing the arbitration clause.
In this case, the position of the First Chamber was that the claims of the plaintiff were limited to the application of the performance bond insurance, without requesting in their lawsuit that any breach of the construction contract be declared. From this perspective, it was considered that the subject matter of the litigation was unrelated to the construction contract, and therefore the extension of the arbitration clause was not applicable.
“At this point, it is essential to clarify that, as can be inferred from the claims made by the plaintiff, the performance bond contract under discussion was created to guarantee payment (…) in relation to the construction contract. From this perspective, it is possible to observe a relationship between both businesses; however, this mere connection is not sufficient to conclude that the effects of one extend automatically and in any scenario to the other because they both respond to different causes and involve other parties. Ultimately, they are two separate agreements. (…) Thus, since the object of this dispute does not extend to the construction contract or any conduct of Fertismo S.A., there is no basis for the arbitration agreement in question to cover this dispute.” (emphasis added)
B. Judgment 000136C-S1-2022 of 01/27/2022: Effects of the arbitration clause contained in a guarantee trust agreement.
Ordinary process initiated by the settlor/debtor against the creditor and the trustee. The plaintiff sought a declaration that no payment demand had been made for the collection of the loan obligation secured by a trust agreement. In its response, the trustee raised the exception of the arbitration clause contained in the trust agreement.
In response to the trustee’s argument, the plaintiff contended that the arbitration clause was only included in the trust agreement, so its effects did not extend to the credit agreement. The plaintiff also argued that the creditor had not signed the trust agreement and, therefore, was not a party to the clause.
The First Chamber, when deciding on the matter, considered that the plaintiff’s claims were for a declaration that the defendants (all parties to the trust) had not made the payment demand in accordance with the provisions of the trust agreement. Therefore, since the claim was directed against parties who were signatories to the contract, it cannot be concluded that the arbitration clause contained in the contractual provisions does not apply.
Of interest for this discussion, the following reasoning of the First Chamber regarding the general principle in the application of an arbitration clause and the scenarios posed by complex relationships is highlighted:
“Unlike ordinary justice, arbitral jurisdiction arises only when the parties to a legal relationship express their willingness to submit to the judgment of an arbitrator; hence the unquestionable contractual nature of the arbitration agreement. In this regard, this Chamber has stated: ‘It is worth reiterating that the negative effect of an arbitration clause is the waiver of ordinary jurisdiction, a waiver that cannot be merely implicit but must be express, even if not formal.’ (Resolution of 11:10 am on June 25, 2003, corresponding to vote no. 357). Thus, as a general principle, this institution only reaches its effects to those who are expressly and voluntarily parties to the contractual relationship that gives rise to it, i.e., the arbitration agreement. Conversely, it has been understood that no one can be brought into arbitration without having freely expressed their willingness to submit certain disputes to the knowledge of an arbitrator. However, in commercial practice, the presence of overlapping contracts, within a complex of a vertical and horizontal nature, that link different persons or legal entities through different contracts connected in some way, is increasingly common. In this network of contractual relationships, it may be the case that not all the entities that make it up formally participate in an arbitration agreement that, in reality, is intended to cover the entire legal relationship.” (emphasis added)
C. Judgment 000700-C-S1-2022 of 03/22/2022: Non-extension of the arbitration clause to non-signatory parties.
The judgment was rendered in an ordinary process in which the payment of compensation was sought in accordance with the Law on Protection of Foreign House Representatives.
In the process, the defendant, consisting of three different companies, raised the exception of an arbitration agreement, arguing the existence of an arbitration clause within distribution contracts signed by the plaintiff and one of the three defendant companies.
In this regard, the criterion of the First Chamber was that the case should continue to be heard in the civil jurisdiction since the clause had not been signed by all the parties involved in the dispute. In this sense, it stated the following:
“From the above, it can be inferred that the contracts containing the arbitration clause were not signed by Abbot Logistics BV and Abbot Laboratories International LLC, and therefore the waiver of ordinary jurisdiction agreed upon in the contracts mentioned does not have binding force for third parties. It must be noted that contracts only have effects between the contracting parties, and their establishment cannot affect third parties, as stated in Article 1025 of the Civil Code. Consequently, in accordance with what has been indicated, the present case must be heard in the Civil jurisdiction, specifically before the First Collegiate Court of First Instance of the First Judicial Circuit of San José.”
I. From the first two precedents, it is relevant to highlight the preponderance of the claims when discussing the application or non-application of an arbitration clause in a litigation. Thus, a proper drafting of the claims can be decisive when the extension of an arbitration clause is being debated.
II. Despite the existence of complex relationships that may give rise to discussions about the extension of an arbitration clause, in the judgments presented in this discussion, we see that the First Chamber maintains a restrictive criterion when deciding on the extension of the waiver of ordinary jurisdiction to non-signatory parties of the arbitration clause.
The aforementioned judgments can be consulted at the following links:
Judgment 002079-C-S1-2021 of 11/18/2021: [link] Judgment 000136C-S1-2022 of 01/27/2022: [link] Judgment 000700-C-S1-2022 of 03/22/2022: [link]
Litigation & Arbitration Department. You can contact us through the following email addresses:
Andrés Martínez Chaves, firstname.lastname@example.org