Termination of an arbitration agreement

Arbitration is one of the most widely used forms of alternative dispute resolution (ADR) in Bangladesh. It is particularly famous for its expeditious and cost-efficient nature compared to the courts. The reliance of arbitration in Bangladesh is evident from the fact that almost every agreements and contract, in particular, cross-border agreements, involve a clause through which parties agree to submit themselves to arbitration in case of any dispute between them in connection with the agreement. However, the practice of arbitration in Bangladesh has unfortunately proven to be more harmful than beneficial. The continuous intervention of the court and the lapses left the governing arbitration statute, the Arbitration Act 2001 (AA 2001), makes arbitration unfavourable to parties. One of the biggest flaws within the AA 2001 is that it does not specify how parties can terminate an arbitration agreement, albeit, it specifies the form and contents of an arbitration agreement.[i]

It has been over 17 years since the enactment of the AA 2001 and no attempt has still been made in laying down the means of terminating an arbitration agreement. The lack of a provision on termination of an arbitration agreement puts parties submitting to arbitration and legal counsels advising on arbitration in distress: parties are confused as to whether they can revert back from their submission to arbitration and in the absence of any legislative intervention, lawyers will not be able to provide the apt advice on terminating arbitration agreements. The only helpful piece of legislation available is Section 51(1)(a) of AA 2001 which states that: “Unless otherwise agreed by the parties- (a) an arbitration agreement shall not be discharged by reason of the death of any party thereto, but shall in such event be enforceable by or against the legal representative of the deceased; …” This provision merely provides that death of any party shall not bring the arbitration agreement to an end. It still does not provide the answer to the question: how can an arbitration agreement be terminated?

Nevertheless, the problem may be resolved by putting into the practice the methods of termination of arbitration agreement applied in other jurisdictions. It must be noted that although such methods are validly used in other jurisdictions, they may not bear the same degree of validity in Bangladesh.

It is imperative for us to first understand the nature of an arbitration clause prior to discussing the means to terminate it. An arbitration clause is distinct from other clauses in the contract.[ii] In fact, even if a contract is void, the arbitral clause has to be considered as an independent agreement and will not suffer the consequences of being void.[iii] An arbitration clause stands apart from the rest of the contract.[iv]An arbitrator’s decision that the contract is null and void shall not affect ipso jure the validity of the arbitration clause.[v] Lord Macmillan in the case of Heyman v. Darwin (Heyman)[vi] stated that an arbitration clause “… is quite distinct from the other clauses. The other clauses set out the obligations which the parties undertake towards each other hinc inde, but the arbitration clause does not impose on one of the parties an obligation in favour of the other. It embodies the agreement of both parties that, if any dispute arises with regard to the obligations which the one party has undertaken to the other, such dispute shall be settled by a tribunal of their own constitution. And there is this very material difference, that whereas in an ordinary contract the obligations of the parties to each other cannot in general be specifically enforced and breach of them results only in damages, the arbitration clause can be specifically enforced by the machinery of the Arbitration Acts. The appropriate remedy for breach of the agreement to arbitrate is not damages, but its enforcement. …

In fact, a contract with an arbitration clause, as P.C. Mallick, J states in Damodar Shah vs Union Of India (Damodar Shah)[vii], “rolls as it were, two contracts into one”.[viii] However, it is to be noted, as was highlighted by P.C. Mallick, J in Damodar Shah that “No doubt if the main contract does not exist, the arbitration agreement also cannot exist.[ix] If there has never been a contract at all, there has never been as part of it an agreement to arbitrate.[x] The greater includes the less.[xi] Therefore, it cannot be laid as an abstract proposition that whenever the contracted work is completed, all the rights and obligations of the parties under the contract, ipso facto, come to an end and the arbitration agreement also perishes with the contract.[xii] Each case is required to be considered on its own facts.[xiii]

An agreement to arbitrate can be terminated by agreement between the parties. Section 23 (4) of the Arbitration Act 1996 (AA 1996) of the UK allows parties to terminate an arbitration agreement expressly. Section 23(4) of AA 1996 states that: “Revocation of the authority of an arbitrator by the parties acting jointly must be agreed in writing unless the parties also agree (whether or not in writing) to terminate the arbitration agreement.” The termination of arbitration agreement by agreement between the parties is justified on the ground that arbitration is, itself, consensual. Therefore, there seems to be no reason as to why parties will not be able to agree to vary their arbitration agreement by bringing about its termination.

Although Section 23(4) of the AA 1996 allows an arbitration agreement to be terminated by agreement, it does not specify the form of agreement required for its termination. This creates the possibility of terminating an agreement to arbitrate by oral agreement. Nevertheless, a written record is preferable in any case for evidential purposes. Additionally, the case of JSC Zestafoni G Nikoladze Ferroalloy Plant vs. Ronly Holdings Ltd (Ronly)[xiv] suggests that if the matrix contract requires variations to be made in writing, it is likely that this requirement shall apply to arbitration agreement as well. In this case, Colman J stated that: “…Although it is open to a party, who contracts jointly and severally, to enforce without joining his co-contractor an agreement into which he has entered on a joint and several basis, including an agreement to arbitrate, it would be quite another thing for him to be able to vary it or to terminate it without the agreement of the other group member unless the agreement so provided. …[xv] It is to be noted that, a reference to mediation or some other non-binding process will not rescind an agreement to refer to disputes to arbitration.[xvi]

However, abandonment of right to arbitration by delay or inaction[xvii] or by commencing court proceedings in violation of an agreement to arbitrate can result in termination of an arbitration agreement. It is noteworthy that the courts will not readily treat such abandonment as termination of an arbitration agreement. There must be concrete evidence exhibiting a desire or intention to abandon the right arbitrate along with reliance by the other party to his or her detriment.[xviii] Even if a right to arbitrate a particular dispute has been abandoned, that does not necessarily mean that the arbitration agreement itself has been abandoned.[xix]

In addition to abandonment of right to arbitration and agreement to terminate arbitration agreement, an arbitration agreement can be terminated by repudiation. However, repudiation of right to arbitration by one party must be accepted by the other party.

An arbitration agreement can be repudiated expressly or it can be deduced from conducts of a party. In case of implied repudiation, the case of Traube vs. Perelman[xx] suggest that the conducts of the party must be inconsistent with the existence of the arbitration clause and the conducts must suggest that the concerned party does not wish to be bound by it. The actions must go to the root of the arbitration agreement.[xxi] Thus, a failure to uphold the general duty of doing all things required for the proper and expeditious conduct of arbitration will not repudiate the arbitration agreement.[xxii]

It has been mentioned earlier that repudiation of right to arbitration by one party must be accepted by the other party and this acceptance can be express or inferred from conducts. In the case of Downing vs. Al Tameer Establishment[xxiii], commencement of court proceedings amounted to acceptance of repudiation of arbitration agreement. However, it is to be noted that commencement of court proceedings will not be inferred by the court as renouncement of obligation to arbitrate. The case of BEA Hotels NV v Bellway LLC[xxiv] suggested that, in deciding whether commencement of court proceedings amounted to repudiation, the Court will look at the reasons for pursuing the court proceedings. The court will look at the surrounding circumstances, to see whether, despite issuing the court proceedings, the party intended to pursue the arbitration.[xxv] Even if the party was running the same claims in the court proceedings as it would in the arbitration, this did not necessarily amount to a repudiation of the arbitration agreement, as long as the party intended to continue with the arbitration alongside the court proceedings.[xxvi] Thus, in the event of confusion in relation to the appropriate course of conduct, it is unlikely that the court will infer repudiation.

In the context of English law, Russel opines that, if there is a dispute about whether the arbitration agreement has been repudiated, that is a question going to the jurisdiction of the tribunal and is, therefore, to be determined by the tribunal.[xxvii]

It can be inferred from above that an arbitration agreement can be terminated in three ways: (i) by agreement between the parties; (ii) by repudiation; and (iii) by abandonment of the right to arbitrate. None of these modes of termination is impracticable within the jurisdiction of Bangladesh. In fact, their application can be easily extrapolated to Bangladesh. Nevertheless, in the absence of judicial decision or legislative intervention, all these assertions will only remain mere opinions and will be devoid of the force of application.

References

[i] AA 2001, s 9

[ii] Dr P C Markanda, Naresh Markanda and Rajesh Markanda, Arbitration: Step by step (2nd edn, LexisNexis 2017) 41

[iii] ibid

[iv] ibid

[v] ibid

[vi] (1942) 1 All ER 337

[vii] on 23 March, 1959, AIR 1959 Cal 526

[viii] Damodar Shah [16]

[ix] ibid

[x] Heyman [Lord Macmillan]

[xi] ibid

[xii] DHV BV vs. Tahal Consulting Engineers Ltd., (2007) 8 SCC 321 : AIR 2007 SC 3113: 2007 (4) Raj 85 [14] [D.K. Jain, J]

[xiii] ibid

[xiv] [2004] 2 Lloyds Rep 335; [2004] EWHC 245 (Comm)

[xv] Ronly [18]

[xvi] Frota Oceanica Brasiliera SA vs. Steamship Mutual Underwriting Association (Bermuda) Ltd (The “Frotanorte”) [1996] Lloyd’s Rep. 461; [1997] C.L.C. 230, CA (Civ Div)

[xvii] Wakefield (Tower Hill Trinity Square) Trust vs. Janson Green Properties Ltd [1998] E.G. 95 (C.S.); [1998] N.P.C. 104, Ch D

[xviii] Shell International Petroleum Co Ltd vs. Coral Oil Co Ltd (No. 1 [1999] 1 Lloyd’s Rep. 72, QBD (Comm)

[xix] David St. John Sutton, Judith Gill and Matthew Gearing, Russel On Arbitration (23rd edn, Sweet and Maxwell Ltd 2007) 91

[xx] [2001] W.L. 1251816

[xxi] Elektrim SA vs. Vivendi Universal SA [2007] EWHC 11 (Comm); [2007] 1 Lloyd’s Rep. 693; [2007] 1 C.L.C. 16

[xxii] ibid

[xxiii] [2002] EWCA Civ 721; [2002] 2 A11 E.R. (Comm) 545

[xxiv] [2007] EWHC 1363 (Comm), [2007], QBD (Comm)

[xxv] James Levy, “Losing the right to arbitrate” [2007] 7282 New Law Journal <https://www.newlawjournal.co.uk/content/losing-right-arbitrate> accessed 25 May 2018

[xxvi] ibid

[xxvii] David St. John Sutton, Judith Gill and Matthew Gearing, Russel On Arbitration (23rd edn, Sweet and Maxwell Ltd 2007) 91

 

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Mohammad Taqi Yasir

Mohammad Taqi Yasir is a LLB graduate of the University of London International Programmes. He is one of the 15 students around the world who was awarded first class in 2017 by the University of London. After completing his LLB in 2017, he commenced his legal career at a leading law firm in Dhaka and is currently practicing in civil law, more specifically in the areas of company law. He is also an entrepreneur holding board position at a digital marketing and event management company, Planet X Incorporated. His interests extend to the field of philanthropy as well and he current performs the role of an advisor for a charity called Born To Smile and holds the position of Vice President of a social enterprise named, Footsteps Foundation.

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