There are many reasons why a party to arbitration proceedings may wish to end such proceedings before the final award is published, for example, due to financial difficulties or strategic concerns. In such circumstances, is a party entitled to terminate the arbitral proceedings unilaterally by giving the other party a notice? Also, after termination, what is the position regarding any counterclaim in those arbitral proceedings?
Unilateral Termination or By Consent?
As pointed out by Mustill & Boyd in Commercial Arbitration (2nd edition; 1989), termination of an arbitration or abandonment of the claim in arbitration should be distinguished from abandonment of the agreement to arbitrate:-
“‘I do not wish to pursue my claim against the respondent’ is not the same as ‘I refuse to perform my obligation to submit the claim to arbitration’. The claimant can of course effectively give up his right to recover what he originally claimed, and such an abandonment may be inferred from conduct as well as words. It does not, however, dispose of the contract to arbitrate.”
A claimant is always entitled to discontinue arbitral proceedings, and it would be unjust to force them to continue the proceedings. As such, the claimant can terminate the arbitral proceedings unilaterally by serving a notice on the other party. This should be contrasted with termination of an arbitration agreement, which cannot be brought to an end unilaterally.
While a party is entitled to withdraw its claim and give up their right to recover, the right to enforce the arbitration agreement is a right which cannot be taken away by a party’s unilateral act. If the respondent to the proceedings has a counterclaim, the respondent is still entitled to refer that counterclaim to arbitration, pursuant to the arbitration agreement, if such counterclaim has not yet been raised in the terminated arbitration.
Counterclaim: Fresh Proceedings
If the limitation period for a respondent’s counterclaim (yet to be raised in the terminated proceedings) will expire soon after such termination, the respondent should immediately commence arbitration for their counterclaim in accordance with the arbitration agreement, by giving a fresh notice of arbitration to the claimant. This is to avoid the counterclaim being time-barred by the statutory limitation period under the Limitation Ordinance (Cap. 347), which applies to arbitral proceedings by virtue of section 14 of the Arbitration Ordinance (Cap. 609).
Where a claimant has terminated the arbitration after a respondent has already raised a counterclaim, the arbitration will not be terminated. In such case, the respondent can continue with their counterclaim in the same arbitration. In such case, there would be no question of expiry of the limitation period since section 35 of the Limitation Ordinance provides that the counterclaim made in the course of any arbitral proceedings shall be deemed to have commenced on the same date as the original arbitral proceedings.
Accordingly, upon a claimant’s termination of arbitration proceedings, the respondent should immediately reassess and satisfy themselves that they have put forward any counterclaims they have, to avoid being time-barred from raising the same under the Limitation Ordinance.