The Scope of the Arbitral Award Binding Effect (Interests of «Third Parties» in International Arbitration)

Abstract

Modern business international transactions are multiparty and complicated. Such contracts are usually composed of several contracts which can contain bilateral dispute resolution arrangements. According to the principle of parties autonomy dispute arising between two persons bound by an arbitration agreement in connection with a multiparty project will be resolved by arbitration exclusively between these two parties. Other parties cannot participate in the resolution of the dispute through arbitration, even if they have played an active role in the actual project. Notwithstanding any legitimate interest, they might have the outcome of the dispute; these parties will remain alien both to the arbitration proceedings and an arbitral award. Their interests are not taken into consideration and left unprotected. Arbitration proceedings, unlike litigation, usually do not bear any intervention or joinder of parties, which is explained by the contractual nature of arbitration. Thus, the binding power of an arbitral award extends only over parties of an arbitration agreement. Meanwhile, an arbitral award can affect interests of third parties. How can these parties defend their interests in arbitration proceedings and during recognition and enforcement proceedings in national courts? There are two ways of resolving such problem in state court litigation. The first one is the compulsory participation of any third party with any legitimate interest in litigation through intervention, joinder of parties, and consolidation of cases. A court ex officio has to gather all parties that can have any legitimate interest in resolving the dispute. If judgment affects any interest of a party that was not involved in the proceedings judgment should be reversed in appellate court. The second way is also the solution against parallel proceedings. This way is to harmonize the outcome of parallel proceedings by the principle of lis pendens and res judicata. The paper examines the binding and res judicata effects of the arbitral award towards third parties through the Russian and international experience of defending of interests of third parties in international arbitration and litigation.