ARBITRAŽNI POSTOPEK

Consequences of the Breach of Arbitration Agreements

Dr. Simon Gabriel, LL.M, Dr. Nataša Hadžimanović
 

The present contribution focuses on the consequences of a party's breach of an arbitration agreement in international arbitration proceedings. The question whether or not monetary compensation can be awarded regularly arises in international arbitration practice and clear answers are rare in legal literature.

Monetary compensation for breach of an arbitration agreement in pending arbitration proceedings requires that:

(i) the arbitral tribunal has jurisdiction over the arbitration agreement;
(ii) substantive parts of the arbitration agreement are affected; and
(iii) new substantive claims can still be submitted in the pending proceedings.

If the first requirement should not be fulfilled, a party may still be in a position to submit its claims before a state court.

If the second requirement should not be fulfilled, a party may be limited to request procedural consequences (such as default), but no substantive relief such as damages.

If the third requirement should not be fulfilled, a party may still be in a position to submit its claims in new arbitration proceedings.

Against this background, every analysis on the consequences of the breach of an arbitration agreement should focus on the distinction between substantive and procedural parts of the arbitration agreement in the first place. Only substantive obligations may lead to substantive consequences such as monetary compensation.

The present contribution proposes a test for this distinction and explains its application for the following three typical scenarios: (i) initiation of state court proceedings instead of arbitration, (ii) non-payment of the required advance on costs; and (iii) breach of confidentiality obligations.