Date: Mon, 24 Nov 2003 09:22:30

From: Robert Stevens

Subject: Privity

Where the right arises by virtue of the presumption (as in Nisshin), I don't think there is any difference between Andrew Tettenborn's view and mine. The process of construction of the deal which is expected by the commentators (Burrows, Ambrose, Diamond) is an almost impossible one where the parties have never thought about the issue. Consequently where the TPs rights arise because of the operation of the presumption, I think it should be presumed that the TPs right is subject to all of the conditions to which the promisee is subject. Unfortunately for me, there is no support for this approach in the Report, the Explanatory Notes, the wording of the Act or the work of any commentator.

However

1) I think the approach to section 8(1) must be the same as for section 1(4). 8(1) was only included because of the peculiarities of the Arbitration Act. If the result can only be reached through the wording of section 8(1) it would lead to strange differences between the treatment of exclusive jurisdiction and arbitration clauses.

2) Treating the right under section 1 as a "statutory assignment to the third party by operation of law" as Colman J (para 47) does and therefore always presumptively subject to all the conditions of enforcement applicable to the promisee is the equivalent of an amendment to the Bill tabled by the construction industry: H.L. Deb. vol. 601 at col. 1050. This amendment was rejected. Where the TPs rights arise because of the express intentions of the parties the conditions to which it is subject should be a matter of interpretation.

Robert Stevens

From: Andrew Tettenborn
Sent: Friday, November 21, 2003 3:37 PM
Subject: ODG: Re: privity

The difficulty with the argument of Clare Ambrose et al, as nicely put by Robert Stevens, is that it does seem to go against the natural interpretation of s.8. Section 8(1)(a) refers to an arbitration agreement, not an arbitration agreement which is intended to apply to claims by the third party. And two points can be made in favour of Colman J's approach:

(1) In my submission, the assignment analogy still leaves it open to the original parties to agree, with legal effect, that despite the existence of the arb clause the third party shall *not* be bound to arbitrate and can sue in the ordinary courts. This is because in assignment law it is open to the parties to give the assignee greater rights than the assignor by saying he takes free of equities, since the rule that the assignee takes subject to equities is adjustable either way: see Phoenix Assurance v Earls Court (1913) 30 T.L.R. 50 and Re Blakeley Ordnance (1867) 3 Ch. App. 154.

(2) If that is right, what we have is merely a rule that third parties are bound by an arbitration clause unless the parties specifically say he isn't. And given that most contracts don't specifically envisage third parties suing on them at all, this seems a sensible solution.

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