HEYMAN V.

DARWINS
HOUSE OF LORDS
 
FACTS : the respondents own a co. of steelworks in Sheffield . They appoint the
appellants as their exclusive agents for selling their products in a wide market. This
agreement is in effect from 1st april 1938 for a three year period. It is important to note
that the agreement had a arbitration clause which stated all disagreements would be
settled by arbitration. The respondents have to be paid a certain fixed amount for
each product sold , and the appellants may sell it for any price they get above that.
This extra price is remitted from the respondents to the A once the full payment has
come to them. In the course of time some differences arose regarding the remittances,
which were retained as the R had to deal with claims from dissatisfied customers. It
was alleged by the R that the A had sold the products to people whose needs weren’t
met by their product . Then A filed for a declaration of repudiation on the part of R
in the kings bench, which was granted ( the request by R for an order of staying of
legal proceedings to proceed with arbitration was denied). The court of appeal said
the arbitration clause applied and over ruled the kings bench. Hence the appeal.
Issues : once the contract has been repudiated , and the repudiation is accepted 1,
would an arbitration clause in the contract stand?

Rule/reasoning :
The term repudiation means a party refuses to perform his obligations any further.
The other party may accept this which will result in rescission. This casts away the
mutual obligations but the contract is not dead. There are other questions such as
damages etc to be determined.
Now in case of an arbitration clause, its enforcement depends on the words used in
it. If it is wide enough to cover all disputes regarding the contract and arising out of
the contract (as is the case here) then the arbitration clause stays despite rescission.
The argument by the A that when repudiation is accepted it puts an end to the
contract and thereby the arbitration clause does not stand was rejected by the HL
saying that irrespective of acceptance of repudiation, if the words of the clause cover
it , the arbitration clause stands , because only obligations are put an end to and not
the contract in case of repudiation.

Held : the appeal was dismissed, the arbitration clause stands.

NOTE : just for clarity of the concepts , if the arbitration clause has wide and
general terms then this is the position of the law as stated by Lord VISCOUNT
SIMON in this case
An arbitration clause is a written submission, agreed to by the parties to the contract,
and, like other written submissions to arbitration, must be construed according to its
language and in the light of the circumstances in which it is made. If the dispute is
whether the contract which contains the clause has ever been entered into at all, that
issue cannot go to arbitration under the clause, for the party who denies that he has
ever entered into the contract is thereby denying that he has ever joined in the

1
Remember just because one party repudiates a contract does not mean the contract is at an end.
The other party must ACCEPT the repudiation and this is called RESCISSION .
submission. Similarly, if one party to the alleged contract is contending that it is void
ab initio (because, for example, the making of such a contract is illegal), the
arbitration clause cannot operate, for on this view the clause itself also is void. But, in
a situation where the parties are at one in asserting that they entered into a binding
contract, but a difference has arisen between them whether there has been a breach by
one side or the other, or whether circumstances have arisen which have discharged
one or both parties from further performance, such differences should be regarded as
differences which have arisen "in respect of," or "with regard to," or "under" the
contract, and an arbitration clause which uses these, or similar, expressions should be
construed accordingly

As per Lord Macmillan

A claim to set aside a contract on such grounds as fraud, duress or essential error
cannot be the subject-matter of a reference under an arbitration clause in the contract
sought to be set aside
If the parties substitute a new contract for the contract which they have abrogated the
arbitration clause in the abrogated contract cannot be invoked for the determination of
questions under the new agreement.
If a contract is put to an end by mutual consent of both parties , the arbitration clause
dies with it .
The appropriate remedy for breach of the agreement to arbitrate is not damages, but
its enforcement

Lord Macmillan, Lord Russell of Killowen, Lord Wright and Lord Porter agreed.
 
Appeal dismissed.
 
Coram: Viscount Simon LC, Lord Wright, Lord Macmillan, Lord Russell of
Killowen, Lord Porter 
An arbitration clause will survive a repudiatory breach: ‘I agree with the Lord
Chancellor in thinking that the true ground of the decision in Jureidini v National
British and Irish Millers Insurance Co Ltd was the narrowness of the field of
submission and the fact that no dispute had arisen on the only point submitted to
arbitration.’ 
If one party to a contract repudiates it and that repudiation is accepted, then ‘By that
acceptance he is discharged from further performance and may bring an action for
damages, but the contract itself is not rescinded.’ The primary obligations under the
contract may come to an end, but secondary obligations then arise, among them being
the obligation to compensate the innocent party. The original rights may not then be
enforced. But a consequential right arises in the innocent party to obtain a remedy
from the party who repudiated the contract for his failure in performance.
Lord Porter said that in differentiating between disputes ‘arising under’ and ‘arising
out of’ the agreement, the former should be given a narrower meaning. 
As to the right to rescind, he said: ‘The three sets of circumstances giving rise to a
discharge of contract are tabulated by Anson as: (1) renunciation by a party of his
liabilities under it; (2) impossibility created by his own act; and (3) total or partial
failure of performance. In the case of the first two, the renunciation may occur or
impossibility be created either before or at the time for performance. In the case of the
third, it can occur only at the time or during the course of performance.’