What is the approach of local courts towards a party commencing litigation in apparent breach of an arbitration agreement?
International Arbitration (4th edition)
Art. 1656 of the NCCC states that the arbitration agreement obliges the parties to comply with what has been agreed therein and excludes the competence of judicial courts over disputes submitted to arbitration, except when the arbitral tribunal has not yet been constituted or the agreement appears to be manifestly null or inapplicable. In case of doubt, the arbitration agreement shall have the fullest possible effects.
Based on these principles, Argentine courts practice is that if the respondent to a court proceeding proves that the dispute brought by the claimant is covered by a valid arbitration agreement, the court shall declare its lack of jurisdiction and refer the matter to arbitration – either seated in Argentina or abroad, provided that Argentine rules on prorogatio fori are observed. The court does not have any discretionary power to act otherwise.
The approach of Austrian courts towards a party who commences court proceedings in breach of an arbitration agreement will simply be to dismiss the action, unless the other party enters into the merits of the dispute without raising a jurisdictional objection, or if — after an objection has been raised — the court finds that the arbitration agreement does not exist or is incapable of being performed. If arbitral proceedings are already pending, no parallel court proceeding regarding the same matter may be initiated and any court action will generally be dismissed.
The arbitration agreement itself does not affect the competence of the court to hear the dispute in relation to which the agreement is entered into. Nevertheless, pursuant to Art.8 of ICAA, if the respondent raises an objection that the dispute should be subject to arbitration proceedings within the term for the submission of the statement of defense, the court is obliged to terminate the case, the court resolution being subject to further appeal.
The court may terminate the case unless it finds that the arbitration agreement is null and void or that it has lost its validity or it is impossible to be executed. If the court decides that it is not prevented from hearing the case, this finding is not subject to a separate appeal, but may be appealed along with the judgment on the merits of the case.
On the other hand, when the claimant has ignored the arbitration agreement and has brought an action to the court, and the respondent within the time limit does not object to the jurisdiction of the court, it is deemed that the parties’ consent to arbitrate the same dispute no longer exists and the arbitration agreement is terminated. In this case, the jurisdiction of the arbitration is also terminated and the court of law has to consider the case.
Most of the arbitration acts do not give the courts the discretion to hear a dispute in the face of a binding and applicable arbitration agreement. Courts are required to stay the legal proceedings and force the parties to arbitrate.
In international arbitrations, courts are required to stay or dismiss actions in favour of arbitration on the timely application of a party unless the arbitration agreement is void, inoperative or incapable of being performed. The test for whether an agreement exists is whether the party applying for the stay of the court action can show an arguable case that an arbitration agreement exists. The arbitrator will then get to determine their jurisdiction and the validity of the arbitration agreement, after the court has ordered a stay.
In domestic arbitrations, courts are typically required to stay or dismiss all or part of an action in favour of arbitration unless there are reasons not to enforce the arbitration agreement. Most of the domestic acts provide legislative exceptions to the requirement to order a stay. These can include incapacity of a party when the agreement was entered, the agreement itself is invalid, the subject matter of the dispute is prohibited from being arbitrated, delay in seeking a stay or the matter can be dealt with by default or summary judgment. Otherwise, the courts will order a stay and allow the arbitrator to determine their own jurisdiction. Another issue that might arise is which party can seek a stay. In Ontario and Alberta, only the party that did not initiate the court proceedings may seek a stay. In British Columbia and Quebec, any party may seek a stay.
When a party commences litigation in apparent breach of an arbitration agreement, the adverse party can file a motion to compel arbitration with the court in which the arbitration will be seated. The court has jurisdiction to determine the validity of the arbitration agreement and its own jurisdiction. Upon granting a motion to compel, a court will generally either dismiss the lawsuit or stay the proceedings until the arbitration is concluded. The court may also find that the party commencing arbitration has waived its right to arbitrate, if it later seeks to enforce the arbitration agreement to the detriment of the adverse party. See, e.g., Grumhaus v. Comerica Sec., Inc., 223 F.3d 648, 653 (7th Cir. 2000).
The courts tend to stay the court procedure provided the breach is raised early on and there’s no apparent reason not to have the dispute arbitrated instead of adjudicated.
The court proceedings may be terminated if the other party objects on the grounds that there is an arbitration clause. This objection must be raised no later than in the first action of court proceedings., otherwise the court proceeds with the civil litigation.
Claimants may attempt to bypass a contractually required arbitration process and file their claim directly with the courts.
Before the UAE Arbitration Law, the applicable provision of the UAE Civil Procedure Law (Federal law no. 11 of 1992 for the Promulgation of the Law on Civil Procedure) dictated that a party was required to object at the first hearing to litigation proceedings filed by the other party, failing which it would be deemed to have waived its right to arbitrate.
However, this provision has now been repealed by the UAE Arbitration Law, although the practice of filing an objection at the very first hearing is likely to remain.
UAE - Common Law Jurisdictions
The DIFC Arbitration Law (Article 23) empowers an Arbitral Tribunal to rule on its own jurisdiction. This is further supported by the DIFC-LCIA Arbitration Rules (Article 23).
If a party commences court proceedings in the jurisdiction in breach of the arbitration agreement, the court has the power to grant a stay on an application by the party against whom legal proceedings are brought (s.9(1)). The courts are also empowered to issue anti-suit injunctions where a party has commenced court proceedings in another jurisdiction, except in cases where the litigation is commenced before a European court which is within the regime of the Brussels Regulation or the Lugano Convention.
Pursuant to s 6(1) of the IAA, where a party to an arbitration agreement institutes proceedings in any court against another party to the same agreement in relation to any matter within the scope of their agreement to arbitrate, ‘any party to the agreement may, at any time after appearance and before delivering any pleading or taking any other step in the proceedings, apply to that court to stay the proceedings so far as the proceedings relate to that matter’. In such a case, s 6(2) of the IAA provides that the relevant court ‘shall make an order, upon such terms or conditions as it may think fit, staying the proceedings so far as the proceedings relate to the matter, unless it is satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed’. At s 6(3), the IAA further clarifies that, where such an order has been made, ‘the court may, for the purpose of preserving the rights of parties, make such interim or supplementary orders as it may think fit in relation to any property which is the subject of the dispute to which the order under that subsection relates’.
If a party commences an action in a Korean court in breach of an arbitration agreement, and the defendant in the action raises a valid objection, the court is required under the Arbitration Act (the “Act”) to dismiss the action (Article 9(1) of the Act). Such objection must be raised no later than the defendant’s submission of its statement on the merits of the dispute (Article 9(2) of the Act).
Although Korean jurisprudence has increasingly favored arbitration in line with the spirit of the Act, courts’ approaches to an apparent breach of arbitration agreement have varied in practice. While most courts would hear jurisdictional challenges as a preliminary matter, some courts have reserved ruling on jurisdiction and proceeded to hear on the merits.
If litigation proceedings are commenced in breach of the arbitration agreement, the local court will deal with the issue of jurisdiction if respondent invokes the arbitration clause in order to contest the admissibility of the lawsuit, section 1032 (1) ZPO. The defendant must object prior to the hearing on the merits.
The principle of Kompetenz Kompetenz is well recognized in India under the Section 16 of Arbitration & Conciliation Act, 1996 which explains the competence of arbitral tribunal to rule on its jurisdiction.
Section 16. Competence of arbitral tribunal to rule on its jurisdiction.—
- The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,—
- An arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and
- A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.
The party wants to challenge the jurisdiction of the Tribunal, has to file the application under section 16 of the Arbitration and Conciliation Act, 1996 prior to filing of his defence to the substance of the matter. Merely a party participated in the process of appointment of arbitrator, does not debar him from challenging the jurisdiction of the Tribunal. In appropriate cases, the Tribunal can also condone the delay in filing such application.
If the Tribunal rejects the plea regarding challenge to its own jurisdiction, then the Tribunal has to proceed with passing the Award and such Award can be challenge under section 34 of the Arbitration and Conciliation Act, 1996.
If the Tribunal allows the plea regarding challenge to its own jurisdiction, then the aggrieved party can file an appeal before the Hon’ble Court under section 37 of the Arbitration and Conciliation Act, 1996.
At present after coming force of the amendment to the Arbitration and Conciliation Act 1996 in 2015, there is an increase in number of challenge.
Under the Arbitration Law, the court is required to refuse jurisdiction if the parties in dispute are bound by an arbitration agreement. While in theory the court is obliged to do so ex officio, in practice the respondent may need to invoke a jurisdictional challenge based on the existence of an arbitration agreement. The court may assume jurisdiction even when an arbitration agreement exists between the parties in dispute if the cause of action is, in the court’s view, outside the scope of the arbitration agreement.
If a plaintiff files a lawsuit in a matter which falls within the scope of an arbitration agreement, the court has to dismiss the action for formal reasons unless the defendant files submissions on the merits of the dispute or argues the matter in a hearing without raising an objection (see § 601 para. 1 Liechtenstein CCP).
In the event a party commences litigation in breach of an arbitration agreement, Section 10 of the Arbitration Act allows the aggrieved party to apply for a stay of the court proceedings and refer the dispute to arbitration, unless the agreement is null and void, inoperative or incapable of being performed, or if the party applying for a stay has taken steps in the proceedings.
The Malaysian Federal Court in Press Metal Sarawak Sdn Bhd v Etiqa Takaful Bhd  5 MLJ 417 held, inter alia, that ‘The court should lean more towards granting a stay pending arbitration under s 10(1) of the 2005 Act, even in cases where the court is in some doubt about the validity of the arbitration clause or where it is arguable whether the subject matter of the claim falls within or outside the ambit of the arbitration clause.’
The general principles set out in the Press Metal case were followed by the Federal Court in the case of Far East Holdings Bhd & Anor v Majlis Ugama Islam dan Adat Resam Melayu Pahang & Other Appeals  1 CLJ 693.
As mentioned at 19., pursuant to FCCP Article 1448, a French court must decline jurisdiction when a dispute is brought before it despite the existence of an arbitration agreement unless the matter has not yet been referred to the arbitral tribunal and the arbitration agreement is manifestly void or manifestly unenforceable.
Therefore, if the dispute is subject to an arbitration agreement, the court will declare itself incompetent unless the arbitration proceedings have not commenced and the agreement is manifestly null and void or inapplicable (French Court of Cassation, First Civil Chamber, 28 November 2006, No. 04-10384).
Egyptian courts are under a legal obligation to dismiss litigation with respect to disputes subject to an arbitration agreement if the defendant, at the commencement of the proceedings, advances a plea pertaining to the existence of an arbitration agreement. (article 13.1) In this respect, it is worth noting that article 13.1 of the EAL, which partially reproduces article 8 of the UNCITRAL Model law, has excluded the ‘referral exception’ whereby the state court may accept to decide over jurisdiction if it finds that the arbitration agreement is null and void, inoperative or incapable of being performed. This entails that the arbitral tribunal enjoys the priority to decide its competence over state courts. However, the court is not under an obligation to reject the case ex officio for the mere existence of an arbitration agreement; the defendant must raise its objection at the commencement of the proceedings. This is principally due to the fact that an arbitration agreement is not constitutive of public policy. In the absence of a plea by the defendant in litigation, parallel proceedings will be conducted before the arbitral tribunals and the courts and decisions will be rendered irrespective of the parties’ prior agreement to arbitrate. In the event that the two decisions are contradictory, the successful party in the arbitration may elevate the conflict to the Supreme Constitutional Court in accordance with the law.
According to article 1424 of the Commerce Code, the judge to whom a dispute is submitted on a matter that is subject of an arbitration agreement, shall refer the parties to arbitration at the time any of them request it, unless that it is proven that this agreement is null, ineffective or impossible to execute.
Nigerian courts consider arbitration agreements to be binding on the parties and have been consistent in holding parties bound by their arbitration agreements. See M. V. Lupex v NOC & S Ltd. (2003) 15 NWLR (Pt. 844) 469. Where a party to an arbitration agreement commences an action in court with respect to any matter that is the subject of an arbitration agreement, any party to the arbitration agreement may, at any time after appearance or before delivering any pleadings or taking any other steps on the proceedings, apply to the court for an order of stay of proceedings. If the court is satisfied that there is no reason why the matter should not be referred to arbitration in accordance with the arbitration agreement and that the applicant is still willing and ready to submit to arbitration, the court may order a stay of proceedings. See sections 4 and 5, ACA. In May 2017, the Chief Justice of Nigeria in collaboration with the National Judicial Institute issued a policy statement and directives mandating Nigerian courts to insist on enforcing arbitration agreements.
Arbitration agreements are enforceable in Norway. The Norwegian courts will dismiss claims or actions subject to arbitration at a party’s request, provided that the request is made before or at the latest when reviewing the merits of the claim or action. The party which asserts that the claim or action is subject to arbitration must prove the existence of the arbitration agreement.
If one of the parties claims that the arbitration agreement is void, the court has jurisdiction to decide on its validity (and the rest of the case, provided that the agreement is actually declared void). However, if arbitral proceedings are already commenced when the action is brought before an ordinary court, the court will dismiss the action, unless it is clear that the arbitration agreement is void. If the arbitral tribunal has declared that it has jurisdiction, the decision can be appealed to the ordinary courts.
Local courts may refer the parties to arbitration in accordance with the agreement, upon request by the other party to the arbitration agreement not later than the pre-trial conference. The local court may also refer to parties to arbitration if the request for referral is made with the agreement of both parties. (Rules 4.1. to 4.2, Special ADR Rules).
If a party filed its claim with the court first, and the other party timely asserted its right to arbitration under the agreement, the court would dismiss the claim on jurisdictional grounds, if the court determines that the parties have agreed to arbitration.
According to Art, 7 of the LAM, when the parties have agreed to arbitration, the judges must be inhibited from knowing the lawsuit, except for the exceptions provided in the LAM. This article also provides that the principle in dubio pro arbitri, whereby, in cases of doubt, judges must be in favor of the dispute being resolved in arbitration.
Art. 8 of the LAM provides that, (i) parties may give up in writing by mutual agreement to the arbitration agreement; (ii) if the claim is filed before the judges, and the defendant responds to the claim without alleging the existence of an arbitration agreement, it will be understood that the parties have given up to the arbitration agreement and the judges will now be competent to hear the dispute. These are the only exceptions referred to in Art. 7.
The matter is expressly addressed by Article 8 of the ICA Act, which states that a court before an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so request not later than when submitting his first statements on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.
For domestic arbitration, there are not direct provisions on the matter. However, the local legal doctrine thinks that the result should be the same because of the binding effect of the arbitration agreement. There are judicial decisions supporting this account.
At least with regard to arbitral tribunals seated in Switzerland, Swiss court practice has established principles favouring arbitration over state court litigation. As per the "negative effect" of "Kompetenz-Kompetenz", if the jurisdiction of the state court seized is contested based on the existence of an arbitration agreement, the state court ought to refer the matter for review to the arbitral tribunal stipulated in the arbitration agreement in question, unless the arbitration agreement on its face appears to be invalid and incapable of being performed by the parties (art. 7 PILA). Thus, if an arbitration agreement provides for an arbitral tribunal seated in Switzerland, a state court seized by a party will only summarily examine whether the alleged arbitration agreement is invalid and/or not covering the dispute.
The idea that a party initiating litigation proceedings before State Courts is in breach of an obligation to arbitrate is somewhat odd to Greek case law. Courts place emphasis on the principle that such a complaint is to be regarded admissible since the existence of a valid arbitration clause is fashioned as a procedural defense to be pleaded by defendant and not as an admissibility requirement. For that reason it is highly unlikely that a claim for damages would succeed even if the breach of the arbitration agreement is apparent.
Courts are receptive to objections raised to challenge their competence if there is a valid arbitration agreement or clause between the parties.