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

Two companies in different countries signed a supply contract containing a clause that sends any dispute to arbitration. A dispute arises and one company starts court proceedings instead. Which statement best describes the likely position?

The court will normally stay the court proceedings and send the dispute to arbitration. The parties freely agreed to arbitrate in their contract, and courts generally respect and enforce such agreements rather than letting one party ignore them.

  1. AThe court will usually stay the proceedings and refer the parties to arbitration, because they agreed to it in the contractCorrect
  2. BThe court must hear the case because parties cannot remove a court's jurisdiction by agreement
  3. CThe court will hear the case, but only if the other party consents in writing after the dispute arises

Explanation

An arbitration agreement is binding on the parties. Courts in most jurisdictions, and under the New York Convention, will normally stay court proceedings and refer the matter to arbitration. The second option is wrong because parties may validly choose arbitration instead of the courts.

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