As part of a merger transaction in which shareholders in the target company sold their shares to the acquiring company, an Israeli company wholly held by an Australian ASX traded company, the acquiring company undertook to provide a loan for the benefit of the target company. While the share purchase agreements were made only with the shareholders and included an arbitration clause, the loan agreement that was entered into due to the abovementioned undertaking was entered into between the acquiring company and the target company only and included a Court only jurisdiction clause, but the target company refused to repay the loan by virtue of an offset claim with damages caused by the breach of the share purchase agreements by the acquiring company.
The Court held that the case is to be settled in arbitration even though the target company is not a party to the arbitration agreement. Although an arbitration agreement binds only the parties to it, insofar as there are indications of personal agreement on the part of a party who has not executed the arbitration agreement, it can be added to the proceeding and the provisions of the arbitration clause can be applied to it. This consent can be either explicit or implicit. Here, the target company adopted the purchase agreements for its convenience when it contended that their breach entitles it to the right of offset. Hence, it is deemed, even by implication, to have consented to the arbitration clause that appears in these agreements.