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Arbitration Clause Trumps Foreign Court Jurisdiction

In the context of a contractual dispute, a party to the agreement who launched legal proceedings in a foreign jurisdiction in violation of an arbitration clause has been ordered to desist. In granting an injunction, the High Court ruled that the underlying dispute between the parties was subject to the arbitration clause and that the foreign proceedings amounted to a clear breach of that agreement.

The contract, which was expressed to be under English law, was for the sale of about 1,500 metric tons of Brazilian raw cotton. The buyer failed to meet its commitments under the agreement and the seller invoked the arbitration clause, claiming almost $3.5 million in damages for breach of contract.

The buyer did not take part in the arbitration and instead, without warning, launched proceedings against the seller in Bangladesh. By those proceedings, the buyer sought a declaration that the contract was illegal and void in the light of restrictions on the import of cotton into Bangladesh or that it had been frustrated by the events that had happened. A Bangladeshi court granted the buyer an anti-suit injunction restraining the seller from pursuing any claim in relation to the contract.

It was argued by the buyer that the nature of the dispute between the parties did not fall within the ambit of the arbitration clause. However, the High Court rejected that plea and found that the underlying dispute was subject to the arbitration agreement and that the Bangladeshi proceedings amounted to a breach of contract.

In circumstances where there was an established breach of contract, the court found that there were ‘strong reasons’ to grant an injunction to prohibit the buyer from taking any further steps in the Bangladeshi proceedings and to require the same to be discontinued.

The court also granted the seller a declaration that the buyer was obliged to arbitrate all disputes relating to the contract and that the Bangladeshi proceedings themselves constituted a breach of contract. Any challenge to the arbitrator’s jurisdiction, or to the validity of the arbitration clause, had to be pursued before the arbitrator himself or before the High Court in the exercise of its supervisory jurisdiction.