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ACCA Applied Skills · Corporate and Business Law (Global) · Alternative dispute resolution mechanisms

A contract between Zeta Inc and Omega Ltd contains a clause requiring the parties to refer any dispute to an arbitrator whose award will be final. A dispute arises and Zeta starts court proceedings instead. Which statement is most accurate?

Omega can generally ask the court to stay the proceedings, because the parties agreed to arbitrate and courts usually uphold a valid arbitration agreement. Parties may lawfully choose arbitration over court, and the arbitrator does not need to be named in the contract.

  1. AOmega can generally ask the court to stay the proceedings because the parties agreed to arbitrateCorrect
  2. BThe court must hear the case because parties cannot lawfully contract out of court jurisdiction
  3. CThe clause is only binding if the arbitrator was named in the contract

Explanation

Courts generally respect a valid arbitration agreement and will usually stay court proceedings so the dispute goes to arbitration. Option B is wrong because parties may agree to arbitrate. Option C is wrong because an arbitrator need not be named; a method of appointment suffices.

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