In this case, Dongsan (Claimant) subcontracted RBSD (Respondent) services for developing part of the design of a hospital in Saudi Arabia. The Claimant agreed to pay 20% of the 2,5 million dollar fee in advance of Respondent’s performance. Respondent provided Claimant a Letter of Guarantee to secure the full amount of the advancement payment.
The Subcontract contained an arbitration clause, selecting the ICC Rules and specifying a seat of arbitration in Paris.
When the amount secured by the Letter of Guarantee was down to approximately 150,000 dollars, a dispute arose with respect to RBSD’s performance. Claimant notified Respondent of its intent to complete certain of RBSD’s obligations itself, effecting a partial termination of the Subcontract, and indicating that it would not pay the remaining balance under the Subcontract.
RBSD filed a complaint before the Southern District Court of NY alleging breach of contract by Dongsan and seeking 900,000 dollars owed by Dongsan, and a preliminary injunction prohibiting Dongsan from calling the Letter of Guarantee. The Court entered a temporary restraining order against Dongsan enjoining it from calling the letter of guarantee. Subsequently, Dongsan filed a motion to dismiss or stay the action pending arbitration.
The Court granted Dongsan’s motion to stay the proceeding pending arbitration. However, it held that the fact that the dispute was to be arbitrated did not deprive the Court of its authority to provide provisional remedies. RBSD’s motion was granted and Dongsan was enjoined from calling the Letter of Guarantee at least until the proper arbitral award was rendered.
Indeed, under the New York Convention and the Federal Arbitration Act, courts shall enforce an agreement to arbitrate and stay judicial proceedings pending the arbitration.
It was clear that the dispute fell within the arbitration clause, which was not optional, contrary to RBSD’s allegations, and Dongsan had not waived its right to arbitrate the dispute.
The court assigned a 30-day period for Dongsan to initiate proceedings, otherwise the court would find its conduct tantamount to a waiver.