Damages for the Breach of an Arbitration Agreement: Is It a Viable Remedy?

Abstract

Arbitration and jurisdiction agreements give effect to procedural party autonomy and, thus, are fundamental tools for commercial parties to plan an effective dispute resolution policy. The factual assumption that would give rise to the possibility of claiming damages will be where, despite the existence of a valid and enforceable arbitration agreement, a party seizes a court either because it genuinely believes that the arbitration agreement is null and void or that it does not cover the dispute submitted, or for tactical reasons (delaying the arbitration or obtaining a more favourable decision).

Undoubtedly, the forum where parties litigate their dispute will influence the outcome of the case. Thus, to be forced to litigate in a non-contractual forum when the parties have expressly agreed to resolve their disputes trough arbitration - with the arbitration rules, conflict-of-law rules, etc. - certainly makes a big difference.

The focus of this work is to explore the options available for the innocent party when the breaching party initiates litigation in violation of the arbitration agreement. In that scenario, the main contribution will be to demonstrate that the innocent party should be able to file a claim for monetary relief before the arbitral tribunal, either in the form of an award of damages or in the form of an indemnity against any judgment that might be rendered in the parallel litigation. Additionally, that the claim for damages falls within the arbitral tribunal’s jurisdiction because it is covered by the arbitration agreement.

Keywords: Damages, Arbitration Agreement