Does the assignment of a claim in respect of which arbitration has been agreed lead to a lack of jurisdiction of the court?

Nowadays, parties are increasingly choosing to have their disputes settled by means of arbitration. An arbitration agreement results in, among other things, a lack of jurisdiction of the court. However, the arbitration clause Provision in which parties agree to settle any future disputes by arbitration
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arbitration clause
only has effect between the parties. So what happens if a third party takes over a claim in respect of which arbitration has been agreed by the original creditor and debtor? Onno Hennis, a lawyer specializing in procedural law, explains who is competent in such a case: the judge or the arbitrator.

Arbitration

Parties may agree to arbitration in the case of disputes in which they are free to determine the legal consequences. Arbitration can be described as a private form of settling disputes. Instead of referring the dispute to the court, the parties appoint an arbitrator to judge their dispute. The judgment of the arbitrator is binding on the parties and results in an enforceable title.

Benefits of arbitration

There are various reasons to agree to arbitration. For example, the parties can choose their arbitrator(s) themselves. This can be useful when, for example, specific technical expertise is required to properly judge a dispute. Furthermore, the arbitration procedure is generally confidential (as opposed to government courts, where hearings and the verdict are public). However, the main reason for choosing arbitration is usually the fact that arbitral awards can easily be enforced internationally.

Government courts

By agreeing on arbitration, the parties will block regular legal proceedings. The law requires a judge to decline jurisdiction when one of the parties invokes a valid arbitration agreement. The same applies in the reverse situation: an arbitration court is only competent if and insofar as there is a legally agreed arbitration clause between the parties. If there is no valid arbitration agreement, only the “normal” court has jurisdiction.

Claim transfer

In practice, the parties often transfer claims. The transfer of a legal claim is called an assignment. The “assignor” is the person who transfers the claim to the “assignee”. The original debtor of the assignor is called the “assigned debtor”.

Assignment of a claim with an arbitration clause

Now imagine the following scenario. A contract has been concluded between A and B. On the basis of this contract, A has a monetary claim against B. In the contract, A and B have agreed to arbitration. A transferred his claim to C at one point. If C wants to collect his claim against B, the question arises whether he should initiate court proceedings or settle the dispute through arbitration.

Transfer does not affect defenses

The law states that assignment does not affect the means of defense of the assigned debtor. The idea behind this is that the legal position of the debtor should not become worse as a result of the transfer, which takes place entirely without his involvement.

The defenses also include all formal defenses.

Therefore, if C were to initiate court proceedings, B would be able to invoke the court’s lack of jurisdiction, because a valid arbitration agreement was concluded between B and A, and C was bound by that agreement. The court will then decline jurisdiction. C will therefore have to refer his claim to the court.

Obligation of the assignee

The fact that C is bound by the arbitration clause (despite the fact that he was not involved in its establishment) is justified, among other things, by the fact that C knew or at least could have known that the contract between A and B included arbitration when he took over the claim. If he did not want to be bound by it, he could have decided not to take over the claim.

The reverse situation

What about the reverse situation? What if C wants to enforce his claim through arbitration, but B prefers to settle the dispute in court? Can B dispute the competence of the arbitrator in the arbitration proceedings initiated by C on the ground that no arbitration has been agreed between him and C? Or is B (also) bound by the arbitration clause vis-à-vis C?

Transfer of ancillary rights

The answer is that B is also bound by the arbitration clause vis-à-vis C. This is because the law stipulates that in the case of assignment all ancillary rights (such as agreed interest, etc.) are also transferred to the assignee along with the right to claim. The Supreme Court of the Netherlands already determined in 1933 that an arbitration clause is an ancillary right and that this clause can therefore successfully be invoked against the assigned debtor by the assignee.

Obligation of the assigned debtor

It is logical that B is bound by the arbitration clause vis-à-vis C (although they never agreed on arbitration with each other). When concluding the contract, B chose arbitration instead of a government court. The fact that he now has a new counterparty does not alter that fundamental choice. If B had wanted to ensure that he would only be bound by arbitration with A and not with C, he should have stipulated that in the contract.

AMS Advocaten: legal assistance in arbitration proceedings

Are you involved in arbitration proceedings or do you wish to initiate arbitration proceedings, and are you looking for experienced and expert assistance? If so, please contact one of the specialists of AMS Advocaten without obligation.

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