The facts in Fortress Value Recovery Fund LLP and others v Blue Skye Special Opportunities Fund LP (A Firm) and others [2012] EWHC 1486 (Comm) were complicated, but in short, the claimants were creditors and shareholders of one of the limited partners to a partnership deed. Upon a restructuring of assets held in an investment holding structure, the claimants brought court proceedings in England against the defendants, being all partners to the deed, as well as managers of the partnership and other third parties. The defendant managers argued that, under section 8 of CRTPA, they should be treated as parties to the arbitration agreement in the partnership deed, by virtue of the fact that they were entitled to enforce the indemnities and exclusion clause pursuant to section 1(6) of the CRTPA. (Section 1 of the CRTPA allows a third party that is identified in a contract to enforce provisions of the contract where the contract expressly provides that he may, or where the provision in question purports to confer a benefit on him. Section 1(6) of the CRTPA specifically contemplates reliance by third parties on exclusion clauses.) On that basis, they sought a stay of the court proceedings under section 9 of the Arbitration Act 1996.

Blair J rejected the defendants' application for a stay on the basis that they did not have a dispute relating to a substantive term of the contract. They did not, in fact, rely on either the indemnities or the exclusion clause under the partnership deed but, even if they had done so, no stay would have been granted. He emphasised that the exclusion clause provided a contractual defence, rather than a positive right of action. Practically speaking, when third parties benefit from an exclusion clause in a contract to which they are not party, they could be sued in any court in which the claimant can establish jurisdiction, despite the existence of an arbitration clause. They would then need to raise their exclusion defence in that forum.

Blair J's decision follows the 2003 High Court decision in Nisshin Shipping Co Ltd v Cleaves & Co Ltd and others, which involved a claim for commission by a broker under a contract to which it was not party and that referred disputes to arbitration. In contrast to the decision in Fortress, it was held that the broker was entitled (and indeed obliged) to pursue its claim through arbitration. One basis on which Blair J distinguished the earlier decision was that Fortress involved a contractual defence, whereas Nisshin involved a positive right of action, that is, the assignment of a substantive right under the contract.

Given Blair J's emphasis on the distinction between a defence and a right of action, it is not entirely clear what approach would be taken where a third party that is entitled to the benefit of an exclusion clause itself commences proceedings seeking negative declarations as to liability. However, it is suggested that the result in this scenario should be the same, on the basis that the scope of the arbitration agreement, and the application of section 9, should not vary depending upon which party commences proceedings and the precise procedural route by which the exclusion clause come before the court. This approach also appears to be in line with the observations of Andrew Smith J in the recent case of Lombard North Central plc & Anor v GATX Corporation [2012] EWHC 1067 (Comm) to the effect that the availability of a stay under section 9 depends on the nature of the claims made in the proceedings, not the way in which they are formulated (see Legal update, Guidance on stay of court proceedings and inoperative arbitration agreements (Commercial Court)).

The decision also gives rise to an additional question: that of the enforcement of arbitral awards involving third parties. Had the defendant managers been entitled to stay the proceedings in favour of arbitration, and received a favourable award, an element of uncertainty would remain. Under the New York Convention (Articles II and IV), in order to enforce an award there is a requirement for the party to be a party to the arbitration agreement and produce the original arbitration agreement in writing. Under the English Arbitration Act 1996 (section 82(2)), "references to a party to an arbitration agreement include any person claiming under or through a party to the agreement". However, the position is less clear elsewhere where enforcement may take place. As such, the right for third parties to avail themselves of arbitration agreements, even where they are enforcing substantive rights, as explained in the Fortress case, does not give the whole picture as regards the usefulness of arbitration as a mechanism for third parties to resolve their disputes.

Finally, it is important to note that, according to the decision in AES Ust-Kameogorsk Hydrowpower Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC [2011] EWCA Civ 647, whether a third party's right may be enforced by arbitration is to be determined by the law of the arbitration agreement, while whether the right is enjoyed by the third party at all is to be determined by the proper law of the contract (see Legal update, Anti-suit injunction where no arbitration in prospect (Court of Appeal)).