Refusal to Pay Arbitrator Did Not Repudiate Contract

3rd September 2014 10:16 am Leave your thoughts

Not every breach of contract will be treated as ‘repudiatory’ – the legal term for a breach in which one side has refused to perform its side of the contract.

Recently, the High Court ruled that one party’s refusal to pay an arbitrator’s fees in advance did not ‘go to the root’ of the parties’ agreement as to how any disputes between them were to be resolved and so was not a repudiatory breach of their contract.

Company A had sued company B claiming to be due substantial ‘success fees’ in relation to a consultancy agreement. The contract contained a clause which conferred exclusive jurisdiction on an arbitrator to resolve any disputes or differences that might arise between the parties.

Company A duly submitted the dispute to an arbitrator appointed by the London Chamber of Commerce. However, company B had declined to pay the arbitrator’s fees in advance on the basis that, before doing so, it wished to obtain security for its costs against company A. This procedure is used when one party to a dispute is concerned that the other side may not be able to pay its legal costs arising from the dispute.

In those circumstances, the arbitrator deemed that the proceedings before him had been withdrawn and company A instead launched a civil claim against company B. It was submitted that company B’s refusal to pay the fees in advance amounted to a repudiatory beach of the arbitration clause and that the Court therefore had jurisdiction to consider the matter.

However, in staying the proceedings under Section 9 of the Arbitration Act 1996, the Court found that it was not a case in which company B had declined to participate in the arbitration. Company B’s ‘refusal to play by the rules’ was limited to the issue of payment of the arbitrator’s fees in advance.

It had been open to company A to proceed with the arbitration by itself paying company B’s share of the advance fees. Company A had not been deprived of substantially the whole benefit of the arbitration clause and it could thus not be said that company B’s breach went to the root of the contract.

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This post was written by Colemans Solicitors LLP

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