• Arbitration Clauses: Do They Trump Other Requirements?
  • July 28, 2015 | Author: Jacy A. J. Whittaker
  • Law Firm: Parris Whittaker - Freeport Office
  • A recent ruling in the UK’s High Court highlights the importance of arbitration clauses and agreements in commercial disputes, and clarifies when they take precedence. The expert commercial litigation team at Bahamas law firm ParrisWhittaker is highly experienced in advising and representing businesses on their commercial contracts and matters relating to arbitration.

    WHAT WAS THE BACKGROUND?

    A company (WGL Realisations 2010) went into Creditors Voluntary Liquidation in 2010. Two years earlier, it had entered into a construction contract with the respondent (a school) which included both an arbitration clause and an adjudication clause.

    A dispute arose as to who owed money to whom, and the court had to decide the correct forum for resolving the dispute. The company claimed some £615,000 from the school; and the school claimed around £270,000 – submitting a ‘proof of debt’ to the Liquidators in that sum.

    At the date of the court hearing, the liquidators had neither accepted nor rejected the school’s proof of debt, despite rule 4.82(2) of the UK’s Insolvency Rules 1986 stating that:

    “If the liquidator rejects a proof in whole or in part, he shall prepare a written statement of his reasons for doing so, and send it as soon as reasonably practicable to the creditor.”

    The Insolvency Rules are silent as to the mechanism by which an account can be taken, but the liquidators argued that Part 9 of those Rules allowed them to seek directions as to the taking of an account of the balance due between the parties.

    The school argued that the arbitration clause was binding and continued to apply after an administration and liquidation. It argued that under the Arbitration Act 1996, any proceedings taken by the joint liquidators which were not arbitration proceedings, must be stayed unless the arbitration clause is “null and void, inoperative, or incapable of being performed.”

    WHAT WAS THE ISSUE?

    The court had to decide whether the Arbitration Act 1996 trumps the taking of an account under the court’s direction under the Insolvency Rules. It decided that the facts of the case did not fall within the statutory exceptions (contained in sub-section 4) and the Arbitration Act 1996 did indeed trump the taking of an account under the court’s directions.

    In addition, the arbitration clause/agreement did not become inoperative following the liquidation or in consequence of the statutory set-off. In addition, the school had not compromised its right to arbitration.

    Notably, the judge commented that it remained open to both parties to follow the adjudication process. It was noted that the UK Parliament had chosen to strengthen the impact of arbitration clauses, which undoubtedly influenced the court’s ruling in this case.

    WHAT DOES THIS MEAN?

    The ruling makes clear that a claim for an account in the context of rule 4.90 involves the resolution of a dispute; and highlights the importance of arbitration clauses and agreements in commercial disputes. In addition, section 9 of the Arbitration Act 1996 is mandatory, meaning that in the absence of the statutory exceptions, the arbitration clause will prevail.

    Rulings in the UK courts have a persuasive effect on the courts in The Bahamas. This is an important ruling in an era when arbitration is an increasingly preferred route to resolve commercial disputes.