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Court of Chancery Explains Third Party Obligation To Arbitrate

Posted In Arbitration

NAMA Holdings, LLC v. Related World Market Center LLC, C.A. No. 2755 (Del. Ch. April 27, 2007).

The rights and obligations of a third party beneficiary to a contract are not clear. This decision illustrates that uncertainty and resolves the issues of when a third party beneficiary may be compelled to arbitrate a dispute.

The Court held that a third party beneficiary may be compelled to arbitrate a dispute when the agreement provides that the right the third party seeks to enforce is subject to the arbitration provisions of the agreement. In addition, the theory of equitable estoppel will compel a third party to arbitrate if it has received a direct benefit from the contracts' performance such that it would be inequitable to refuse to comply with the general intent of the agreement that disputes are to be arbitrated.

The court declined to order arbitration because the right the third party beneficiary sought to enforce was not covered by the arbitration clause .

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