Downing v Al Tameer Establishment & Anor

Factual and Procedural Background

The case concerns an appeal by the Plaintiff against a judgment and order of His Honour Judge Kershaw QC dated 2 April 2001. The judge had set aside the issue and service of the writ against the second Defendant on the basis that he was not a party to the contract, but refused to set aside the writ against the first Defendant. However, the judge granted a stay of proceedings pursuant to section 9 of the Arbitration Act 1996, on the grounds that the contract contained a valid arbitration agreement between the Plaintiff and the first Defendant regarding the Plaintiff’s claim for repudiation of the contract.

The Plaintiff is the inventor of a process for separating crude oil from water (referred to as Black D). The first Defendant is a corporation established under the laws of the Kingdom of Saudi Arabia. The second Defendant, a Saudi Arabian national and formerly the sole or majority shareholder of the first Defendant, signed the agreement on behalf of the first Defendant.

The Plaintiff had patented his invention and entered into a written agreement dated 22 February 1991 (the Agreement) with the first Defendant to exploit Black D commercially on an equal participation basis. Clause 13 of the Agreement contained an arbitration clause requiring disputes to be resolved amicably or, failing that, by arbitration through three arbitrators appointed by the parties. Clause 14 provided that the law applicable to the Agreement was the law of the UK.

Following the signing of the Agreement, the Plaintiff submitted evaluation tests demonstrating the viability of the product. However, after an unsuccessful test result by a company instructed by the Defendant, the first Defendant ceased communication and financing, denying any agreement existed. After intermittent correspondence, the Plaintiff accepted the first Defendant’s repudiation by letter dated 12 February 1997 and commenced proceedings against both Defendants.

The procedural history includes the issuance of the writ on 19 February 1997, difficulties and delays in obtaining legal aid, and delayed service of the writ on the Defendants in Saudi Arabia, which was finally effected in September 2000. The Defendants acknowledged service but took no further steps other than applications to set aside the writ and to stay proceedings under the Arbitration Act 1996. These applications were heard on 30 March 2001 by the judge whose decision is under appeal.

Legal Issues Presented

1. Whether the arbitration agreement contained in the contract was still valid and operative between the Plaintiff and the first Defendant at the time of the proceedings.
2. Whether the issue and service of the writ by the Plaintiff constituted an unequivocal acceptance of the first Defendant’s repudiation of the arbitration agreement, thereby rendering the arbitration agreement inoperative.
3. Whether the court should grant a stay of proceedings pursuant to section 9 of the Arbitration Act 1996.
4. Whether England was the appropriate forum for adjudicating the dispute.
5. Whether there was good reason to grant extensions of the validity of the writ in light of delays in service and legal aid application.

Arguments of the Parties

Appellant's Arguments (Plaintiff)

• The first Defendant repudiated the arbitration agreement by denying any contractual relationship in letters dated 22 June 1995 and 24 July 1996.
• By issuing and serving the writ, the Plaintiff unequivocally accepted the repudiation of the arbitration agreement and thereby terminated the obligation to arbitrate.
• The Plaintiff sought to settle disputes amicably and via arbitration before resorting to litigation, as shown in extensive pre-litigation correspondence.
• The arbitration agreement was valid and binding until the Plaintiff accepted repudiation unequivocally.
• England was the appropriate forum due to the governing law clause, location of testing, witnesses, and the Plaintiff’s nationality.
• The delays in service were attributable to the legal aid system, not culpable delay by the Plaintiff.

Respondent's Arguments (First Defendant)

• The first Defendant contended that there was no contract with the Plaintiff and denied any obligation to arbitrate.
• The Defendant argued that the Plaintiff’s issue of writ did not amount to unequivocal acceptance of repudiation of the arbitration agreement.
• The Defendant maintained that the arbitration agreement was valid and operative, and thus a stay of proceedings should be granted.
• It was submitted that the Plaintiff’s failure to apply for legal aid earlier contributed to the delay in service and extension of writ validity was unjustified.
• The Defendant argued that Saudi Arabia was the appropriate forum given the company’s location and where the agreement was concluded.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Hume v. A.A. Mutual International Insurance [1996] LRLR 19	Burden of proof on claimant to show arbitration agreement is null, void, inoperative, or incapable of performance under s.9(4) Arbitration Act 1996.	Cited to affirm that if the defendant raises an arguable case for validity, a stay should be granted.
Bremer Vulkan v. South India Shipping Corporation Limited [1981] AC 909	Doctrine of separability of arbitration agreement from main contract.	Accepted that arbitration agreement is a separate contract surviving repudiation of main contract.
The Splendid Sun [1981] QB 694	Effect of delay on arbitration proceedings.	Referenced to support application of contractual principles to arbitration agreement repudiation.
The Hannah Blumenthal [1983] 1 AC 854	Effect of breach of arbitration agreement and court’s power to stay proceedings.	Used to illustrate approach to arbitration agreement repudiation and stay applications.
The Leonidas D [1985] 2 Lloyd's Rep 18	Effect of breach and delay in arbitration proceedings.	Supports contractual analysis of repudiation of arbitration agreement.
Scott v. Avery (1856) 5 HL Cas 811	Parties may not oust court jurisdiction by arbitration agreement; commencement of proceedings does not prevent arbitration.	Cited to explain that commencement of court proceedings is not necessarily a breach of arbitration agreement.
Vitol SA v. Norelf Limited [1996] AC 800	Acceptance of repudiation requires no particular form; clear and unequivocal communication suffices.	Applied to assess whether writ issuance was unequivocal acceptance of repudiation.
Birse Construction Limited v. Saint David Limited [1999] BLR 194	Court’s options when faced with application for stay under Arbitration Act 1996.	Supports court’s power to decide arbitration agreement is inoperative and refuse stay.
Al-Naimi v. Islamic Press Agency [2000] 1 Lloyd's Rep 522	Approval of Birse Construction approach to stay applications under s.9 Arbitration Act 1996.	Confirmed court’s discretion to refuse stay if arbitration agreement has ended.
Spiliada Maritime Court v. Consulex Limited [1987] AC 460	Principles for determining the appropriate forum for trial.	Applied to reject Defendant’s forum non conveniens argument and uphold England as appropriate forum.
Waddon v. Whitecroft-Scovill Limited [1988] 1 WLR 309	Consideration of legal aid delays in extension of writ validity.	Referenced to explain that delays caused by legal aid system may be good reason for extension.

Court's Reasoning and Analysis

The court approached the issue by applying conventional contractual principles to determine whether the arbitration agreement survived the alleged repudiation. It accepted that the arbitration agreement is a separate contract and can survive the repudiation of the main contract unless unequivocally accepted as repudiated by the other party.

The court found that the first Defendant’s letters dated 22 June 1995 and 24 July 1996, denying any contractual relationship and refusing to arbitrate, amounted to a repudiatory breach of the arbitration agreement. The Plaintiff’s pre-litigation correspondence showed repeated attempts to invoke arbitration, which were ignored or rejected by the first Defendant.

However, the judge had held that the Plaintiff’s issue and service of the writ did not amount to unequivocal acceptance of the repudiation. The appellate court disagreed, reasoning that in the context of the prior communications and refusal to arbitrate, the commencement of court proceedings objectively conveyed that the Plaintiff was treating the arbitration agreement as at an end.

The court rejected the argument that issuing writs could be for reasons other than acceptance of repudiation, such as limitation concerns, finding that the overall conduct and correspondence showed the Plaintiff had abandoned arbitration due to the Defendant’s refusal to arbitrate.

Regarding the stay application under s.9 of the Arbitration Act 1996, the court held that the arbitration agreement was inoperative because it had been effectively brought to an end by accepted repudiation prior to the stay application. Therefore, the stay should be set aside.

On the question of the appropriate forum, the court upheld the judge’s discretion in finding England to be the appropriate forum given the governing law, location of testing, witnesses, and the Plaintiff’s nationality.

In relation to the extension of the writ validity, the court acknowledged some unexplained delay by the Plaintiff in applying for legal aid but found no culpable delay sufficient to refuse extension. Delays caused by the legal aid system were recognized as potentially good reason for extension. The court refused the Defendant’s application for leave to appeal on this ground.

Holding and Implications

The court SET ASIDE the stay of proceedings granted under section 9 of the Arbitration Act 1996, concluding that the arbitration agreement was no longer operative due to the first Defendant’s repudiation and the Plaintiff’s unequivocal acceptance of that repudiation by issuing the writ.

The court refused the first Defendant’s application for leave to appeal on the grounds that England was not the appropriate forum and that the extension of the writ’s validity should not be set aside.

The direct effect of this decision is that the Plaintiff’s claim may proceed in the courts of England and Wales rather than being stayed for arbitration. The decision does not establish new legal precedent but applies established principles of contract repudiation and arbitration law to the facts.