Downing v Al Tameer Establishment & Anor

An arbitration agreement may be repudiated separately from the main contract. A party’s unequivocal denial of any contractual relationship, made after requests to arbitrate, can amount to repudiation of the agreement to arbitrate.

Whether commencing court proceedings accepts that repudiation depends on the parties’ prior communications and is assessed objectively. Proceedings will constitute acceptance where they plainly respond to the other party’s refusal to arbitrate and communicate that the claimant has abandoned arbitration in favour of litigation. The arbitration agreement is then inoperative for the purposes of section 9(4) of the Arbitration Act 1996, so a stay must be refused.

The claimant and the first defendant entered an English-law agreement to exploit an oil-and-water separation process. Clause 13 provided for disputes to be resolved by arbitration. After the claimant sought to initiate arbitration, the first defendant repeatedly denied that any contractual relationship existed and refused further dealings.

The claimant accepted repudiation of the main agreement and issued proceedings. His Honour Judge Kershaw QC held that the defendant had repudiated the arbitration agreement, but that issue and service of the writ had not unequivocally accepted that repudiation. He therefore stayed the action under section 9 of the Arbitration Act 1996.

The claimant appealed against the stay. The defendant conditionally sought permission to challenge rulings on forum and renewal of the writ. The central issue was whether the arbitration agreement had become inoperative through repudiation accepted by the claimant.

1. Appeal allowed unanimously. Potter LJ, with whom Keene LJ and Sumner J agreed, held that the first defendant’s repeated denial of any contractual relationship and refusal to co-operate in appointing arbitrators was an unequivocal repudiation of the separate agreement to arbitrate.

2. Conventional contractual principles govern whether a collateral arbitration agreement has been repudiated and whether the repudiation has been accepted. The separability of the arbitration agreement does not prevent it being ended by an accepted repudiation.

3. The judge took too refined a view of the effect of issue and service of proceedings. There is no universal rule that proceedings either do or do not accept repudiation of an arbitration agreement. The question is objective and depends on the prior communications.

4. Proceedings will amount to unequivocal acceptance where, viewed in context, they respond to the defendant’s refusal to recognise or perform the arbitration agreement and communicate the claimant’s consequent choice to abandon arbitration for litigation. On the correspondence, the claimant had first sought arbitration and resorted to proceedings only because the defendant had rejected any obligation to arbitrate. The proceedings therefore accepted the repudiation.

5. The agreement to arbitrate was consequently inoperative under section 9(4) of the Arbitration Act 1996. The stay was set aside. The defendant’s applications for permission to appeal on forum and renewal of the writ were refused; England was the appropriate forum, and no error was shown in the renewal decision.

• Court of Appeal (Civil Division): Allowed the claimant’s appeal and set aside the stay under section 9 of the Arbitration Act 1996: [2002] EWCA Civ 721.
• High Court, Queen’s Bench Division, Manchester District Registry (HH Judge Kershaw QC): On 2 April 2001, set aside issue and service against the second defendant, refused to set aside the writ against the first defendant, and stayed the proceedings under section 9.