Arbitration Clause

[Nicola Palmer]

Hi,

Can anyone help me?

We have a contract with an arbitration clause in case of dispute. The company is saying that they are terminating the contract - however, we are disputing the termination.
My question is - can they legally terminate the contract without it going to arbitration first, as they are saying that they will terminate it next Monday.

Thanks for your help.

 

[Michael Gerard]

I cannot comment on whether the contract entitles the party to terminate performance (the contract is not terminated, it is the performance of the other party that is terminated under the contract, hence the arbitration clause will survive termination), without seeing the contract, but even if there is a term allowing termination for a specific breach, arbitration is separate from termination as this is the route to refer the dispute to.

Since you are not in the construction industry (unfortunately), I am not going to 'volunteer' my services, but you should firstly request them to identify the relevant clause under the contract which gives them the right to terminate, as if the termination is wrong, this is known as repudiatory breach and you then become the aggrieved party.

If there is a tidy sum at stake, it will be worth your while to instruct a competent and experienced solicitor.

 

[The Resolver]

As Charlie says arbitration clauses are there to prevent any party to a contract pursuing a claim through the courts. These are very useful in cases involving an international aspect, as I presume in your case, given you rent out foreign properties.

They do not stop a party breaching the contract or claiming a right to terminate when the other does not think he has such a right. The other party cannot dispute your right to arbitrate (subject to anything unusual in the wording of your contract) but the ball is in your court (pun unintended) to state your claim to wrongful termination and hold them to the contract. This means issuing arbitration notice to instigate the process. If they fail to participate then you can get a walk over ruling which can be enforced as a court order.

Arbitration, however, suffers from the same problem as court action benig that it is often destructive of the business relationship. You will claim your finnacial loss from their failure to continue with the contract. If you win they will never give you an business again. Mediation on the other hand succeeds by creating a solution that is often other than what either a judge or arbitrator are permitted to provide and, importantly, one to which both parties agree. It helps you resolve the dispute that has led them to want to terminate and, at same time, help you both continue to do business together in the future. Obviously this is not always the case because the other party may have committed themselves elsewhere but it helps preserve the business whenever it is possible to do so whereas the court or arbitrator almost always destroys the business relationship whatever the underlying prospects. At best you win a judgment for money for at best the remainder of the conract term but you lose a client and all profit from their future and perhaps expanded business. Replacing a client in a recession is very costly.

I would be happy to explain to you in more detail how I can help you resolve this or instigate the arbitration clause. Although my office is in London I mainly work at my home which is 15 miles from your office in Chester. Coincidentally I am currently in Argentina speaking at a lawyers conference on the subject of using technology to help mediate and arbitrate in international commercial disputes. Foreign property rental disputes is a relevant area of dipsutes for such technology. I´ll be back by Friday and would behappy to call in to you office to explain further if you wish.