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

Alder Ltd and Brenner Co signed a supply contract containing a clause stating that any dispute arising from the contract must be referred to arbitration. A dispute arises and Alder Ltd starts court proceedings. Brenner Co objects, relying on the clause. What is the most likely result under the usual rules on arbitration agreements?

The court will normally stay or decline the proceedings and send the dispute to arbitration. A valid arbitration clause is binding, and the parties have agreed to resolve disputes by arbitration rather than litigation, so courts generally respect that agreement.

  1. AThe court will normally stay or decline the proceedings and leave the dispute to arbitrationCorrect
  2. BThe court must hear the case because parties cannot exclude the courts
  3. CThe court must hear the case because arbitration is allowed only after a court judgment
  4. DThe court will decide the case and the arbitrator will then review its judgment

Explanation

A valid arbitration agreement is binding and courts generally respect it by staying or declining proceedings brought in breach of it. Parties may contract out of court litigation by agreeing to arbitrate. The suggestion that courts cannot be excluded is wrong because arbitration is a consensual alternative to litigation.

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