In a third party beneficiary contract, two parties stipulate that performance is to be rendered to a third party. If a third party beneficiary contract contains an arbitration clause, a number of questions arise, e.g. who has the right to invoke the arbitration clause and who is under an obligation to do so. After a brief introduction to third party beneficiary contracts, this article discusses the pertinent issues on the basis of different scenarios before addressing the concern that third party beneficiary concepts could be abused as a means for unduly extending the arbitration agreement to third parties.
According to the Swiss Federal Supreme Court and the prevailing view among legal scholars, the third party beneficiary to a genuine third party beneficiary contract has a right to invoke the contract’s arbitration clause, as it is annexed to the right to demand performance as an ancillary right. In the authors’ view, one should rather examine whether it was the intention of the parties to the contract to enter into an arbitration agreement with the third party beneficiary, an intention which generally has to be affirmed.
A different question is whether the third party is also under an obligation to invoke the arbitration clause. The Swiss Federal Supreme Court has not yet decided this issue. In the authors’ view, such an obligation exists as a rule. Promisor and promise are free to subject the right they stipulate in favor of a third party to conditions, including the condition that the third party submit to the arbitration clause for disputes in connection with the third party beneficiary right. As a consequence, the third party can only make use of the right if it also accepts the arbitration clause.ASA Bulletin