Not so Fast – English Commercial Court Finds that LCIA Award does not bind Third Parties
In PJSC National Bank Trust and another v Boris Mints and others  EWHC 871 (Comm), Foxton J of the English Commercial Court was tasked with deciding whether to allow the Claimant banks to amend their pleadings to include an allegation that findings from an award of the London Court of International Arbitration (the “LCIA”), involving parties allegedly under the control of the Claimants in the arbitration, bound the First, Second and Third Defendants in the Court proceedings (collectively the “Defendants”). Foxton J found that the arbitral award did not bind third parties, though he did not shut the door entirely for a different conclusion to be reached in the future on a different set of facts.
Background to the litigation
The Claimant banks brought an Application in the Commercial Court to amend their Particulars of Claim to allege that the Defendants in the Court proceedings were privies of the claimants to the LCIA arbitration with the result that the Defendants in the Court proceedings were estopped from denying certain allegations or it would be an abuse of process for them to do so.
Foxton J refused the Claimants’ Application to amend their Particulars of Claim. He also rejected the Claimants’ argument that: (1) the Defendants should be estopped from mounting a defence that was inconsistent with the findings in the LCIA arbitration, and (2) that it was an abuse of process for the Defendants to do so.
In arriving at his decision on issue estoppel, Foxton J considered whether the Defendants and claimants to the LCIA Arbitration were “Gleeson privies.” Foxton J applied the test for issue estoppel laid out by Megarry VC in Gleeson v Wippell & Co Ltd  1 WLR 510, Ch D. In that case, Megarry VC described the doctrine of privity as being “narrow” and went on to state that “having due regard to the subject matter of the dispute, there must be a sufficient degree of identification between the two to make it just to hold that the decision to which one was party should be binding in proceedings to which the other is party”.
Foxton J accepted that entities under the control of the Defendants in the Court proceeding (i.e., the claimants in the arbitration) were the “moving spirits” behind the arbitration. However, Foxton J identified certain features of the arbitral process which require “a more restrictive approach to giving an award a preclusive effect in the context of Gleeson privies”. The factors Foxton J cited in arriving at his decision include:
- Non-parties to arbitrations generally have no or limited rights to participate in the arbitration process owing to the contractual foundation of arbitration;
- The UK Arbitration Act 1996 restricts the ability of parties to challenge arbitral awards. However, Foxton J noted that the LCIA arbitration rules (which applied in this case) do provide for a limited exception to this position; and
- The confidential nature of arbitration proceedings, compared to the public nature of court proceedings which “militates against the award binding non-parties save in exceptional cases, both as a matter of practicality, and because it illustrates the difference between the private, bilateral and consensual character of arbitral proceedings, as against the public, sovereign and coercive character of court proceedings.”
In relation to the abuse of process issue, Foxton J found that the Claimant banks failed to identify some “special feature” such that there would be an abuse of process should the Defendants raise issues inconsistent with the findings of the LCIA award. Foxton J pointed to the strength of the arguments of the Defendants with respect to why there was no abuse of process. These arguments included, among other things, that: (i) the Defendants were seeking to defend the claims of the Claimant banks rather than seeking substantive relief; (ii) the Defendants to the litigation were not parties to the LCIA arbitration; and (iii) the Claimant banks had reserved their right to advance a case that was inconsistent with the arbitration.
Significance of the decision
Foxton J’s decision does not close the door to the Court finding that non-parties to an arbitration could be estopped from challenging arbitral award. It is possible that on a different set of facts, the Court could find that non-parties are “Gleeson privies”. Nevertheless, Foxton J stated that “any attempt to establish the preclusive effect of an award against anyone except the parties or their contractual privies will be an extremely challenging task.” Ultimately, given the common features of arbitration, it appears that any party will encounter similar hurdles in trying to establish that non-parties to an arbitration are “Gleeson privies”.
Gleeson v Wippell & Co Ltd  1 WLR 510, Ch D, at 515.
PJSC National Bank Trust and another v Boris Mints and others  EWHC 871 (Comm), at para. 38.
PJSC National Bank Trust and another v Boris Mints and others  EWHC 871 (Comm), at para. 27 (emphasis in original).
PJSC National Bank Trust and another v Boris Mints and others  EWHC 871 (Comm), at para. 27.
PJSC National Bank Trust and another v Boris Mints and others  EWHC 871 (Comm), at para. 83.
PJSC National Bank Trust and another v Boris Mints and others  EWHC 871 (Comm), at para. 26.
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