English High Court considers res judicata effect of an arbitral award against non-parties
In a recent judgment (PJSC National Bank Trust & Anor v Mints and Others  EWHC 871 (Comm)) the English High Court considered the degree to which an arbitration award could have preclusive effects against non-parties to the arbitral proceedings. Although it did not completely rule this out, it set a high bar.
In the litigation before the court, two claimant banks had brought tort claims under foreign law against a number of defendants. Broadly speaking, these concerned allegations that the defendants had acted dishonestly in relation to a transaction whereby one of the banks (O) had released security provided to it by certain Cypriot companies.
In relation to that transaction, those Cypriot companies had commenced arbitrations against that bank (the relevant documentation having contained LCIA arbitration agreements) for declarations that the release was valid. The tribunal, however, rejected that request and accepted a counterclaim by O to the effect that the Cypriot companies had acted dishonestly, and this was attributable to acts of certain of the defendants who they were alleged to be associated with.
Before the court the banks therefore attempted to say that the defendants should be precluded from re-litigating these conclusions even though it was the Cypriot companies (and not the defendants) who were party to the arbitration.
Arbitral awards as res judicata against a non-party
In the face of English authority that the binding effect of court judgments extends beyond parties to their “privies” (Gleeson; “privies” in that context not having a strict contractual meaning), the defendants’ main argument was that, in the arbitration context, such an extension should not apply; i.e. binding effect should be limited to those party, in a contractual sense, to the arbitration agreement .
Although the judge acknowledged the “attractions” of such an argument, in his view the issues were not, on the face of it, the same. In particular the question of the binding effect of an award was capable of raising public interest finality issues and, furthermore, the doctrine of issue estoppel was more concerned with a rule of law of the "receiving" tribunal, rather than the nature of the rights adjudicated on by the "transmitting" tribunal. As a matter of principle, therefore, the issues fell to be treated differently (which also avoided a number of potential difficulties with not doing so – outlined at ). In the judge’s view, however, this did not mean that the arbitration context was irrelevant; features of the process such as its contractual foundation and the fact that a non-party would generally be excluded from any participation meant that a more restrictive approach to any application of Gleeson should be taken .
Having so concluded, the judge then turned to consider whether this hurdle was cleared in the case before him. After declining an invitation to delve into whether Gleeson was wrongly decided [28-31], and considering some indicia from what was an “essentially conclusory” test [32-36], the judge concluded that it was “not realistically arguable” that the matters relied upon by the Banks, even if established at trial, could support a finding of privity. These included allegations that some of the defendants controlled or funded the Cypriot companies in the arbitrations, and gave evidence for them in those proceedings. These features, the judge noted, were (in addition to issues already highlighted such as the exceptional nature of Gleeson and its even more restricted application in the arbitration context), factors over which previous authority had urged caution on the basis of separate corporate personality [39-42]
Separately, the judge also concluded that, in the event that the award raised no issue estoppel, the defendants should not, by way of abuse of process, be barred from litigating the issues. In the judge’s view the same factors which meant that there was no res judicata effect weighed heavily in favour of such a conclusion [81-82].
Comment and conclusion
This case deals with a novel point, upon which the court’s conclusion is interesting in its characterisation of the issue as, ultimately, a procedural rule of the lex fori. And in that respect, the court takes a highly pragmatic approach to its resolution. In particular, although the judge confirms that, before the English courts, there is no absolute rule against an arbitration award having res judicata effects against an entity that is not (in a contractual sense) party to the arbitration agreement, his approach reconciles that power with the consensual nature of arbitration by, in his words, making it “extremely challenging” to persuade the court that this will, in any given case, be appropriate. It would seem, therefore, that it may take a somewhat exceptional case for that bar to be cleared and, on the facts before the court, this was not it.
Click here for a copy of the judgmentStephen Lacey would like to thank Maria Bisila Torao for her assistance in the preparation of this article.