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Arbitration Clauses
Last updated: 06-Oct-2014

Heyman v Darwins Ltd. [1942] AC 356, per Lord Macmillan:

I venture to think that not enough attention has been directed to the true nature and function of an arbitration clause in a contract. It 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.

Per Lord Diplock in Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal (The Hannah Blumenthal), [1983] 1 All ER 34 at p.50 on the legal characteristics of an arbitration clause in a commercial contract:

The first characteristic is that which was established by this House in Heyman v Darwins Ltd. [1942] AC 356 . An arbitration clause is collateral to the main contract in which it is incorporated and it gives rise to collateral primary and secondary obligations of its own. Those collateral obligations survive the termination (whether by fundamental breach, breach of condition or frustration) of all primary obligations assumed by the parties under the other clauses in the main contract. In saying this I do no more than paraphrase, in the nomenclature I adopted in Photo Production Ltd v Securicor Transport Ltd. [1980] 1 All ER 556, what was said by Lord Macmillan in Heyman v Darwins Ltd. [1942] AC 356 at 374.

The second characteristic of an arbitration clause is that the primary obligations that it creates are subject to conditions subsequent. The clause comes into operation so as to impose primary obligations on the parties to the contract only on the occurrence of a combination of future events which may or may not occur, viz (1) the coming into existence of a dispute between the parties as to their primary or secondary obligations under the main contract and (2) the invoking of the arbitration clause by a party to the contract (the claimant) who desires to obtain the resolution of that dispute by the procedure for which the arbitration clause provides. It follows from this latter condition subsequent that the arbitration clause may be brought into operation by the claimant at any time before the expiry of the limitation period applicable to the breach of primary obligation under the main contract by the other party (the respondent) of which he complains.

The third characteristic is that the subject matter of an arbitration agreement is not a thing that is susceptible of physical destruction. It is an agreement by the parties (1) to embark on and follow a joint course of action (viz the procedure for which the arbitration clause provides), for the purpose of obtaining from a third party, the arbitrator or arbitral tribunal, a decision of the dispute, and (2) to abide by that decision.


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