Applicability of the arbitration agreement to the action’s subject-matter

Section 28. Before referring an action to arbitration under article 8, a court must
not only find that the arbitration agreement is neither null and void, inoperative or
incapable of being performed, but also that it is applicable to the dispute to
which the action relates.
As a general rule most national courts will defer to arbitration proceedings
provided the arbitration is in respect of a defined legal relationship, whether
contractual or not, concerning a subject-matter capable of settlement by arbitration
and unless it finds that the agreement is null and void, inoperative or incapable of
being performed. -Julian D M Lew
Under the Model Arbitration Law,

Under Article 8 of MAL, The court is bound to refer the case to
arbitration, ‘‘unless the agreement is null and void, inoperative or
incapable of being performed.
Under Article 16 of MAL, the tribunal may rule on its own jurisdiction,
including any objections regarding the existence or validity of the
Thereby, the same objection (of the validity of the arbitration
agreement) can be resolved either as a preliminary issue in court
proceedings, upon motion to refer the dispute to arbitration, or in the
arbitral proceedings in a separate decision or in the award on the

In order to ascertain whether it falls under the Jurisdiction of Arbitrators or under the
jurisdiction of the Court, the case of Patel vs Kanbay International shall be our basis
wherein :

In this action, the plaintiff claims damages under a number of headings for
wrongful dismissal and negligent misrepresentation with respect to his
employment as the President of Kanbay Managed Solutions Canada Inc. (KMS
Canada) and Kanbay Canada Inc., subsidiaries of Kanbay International Inc.
(Kanbay International), a company incorporated in Illinois, U.S.A.

Kanbay International Inc. (defendant) is insisting that such dispute falls under
the Arbitration in Illinois and beyond jurisdiction of this court.

The Main issue in this case Is whether the claim for shares should be dealt
through the court or through the arbitration pursuant to the Shareholders
Agreement entered into by the Parties .
These are the three (3) factors of determining if it falls under the ambit of
arbitration or under the auspices of the court:
1.) Nature of the dispute
2.) Whether the case falls within the ambit of the arbitration
3.) Sufficient Reason why the dispute should not be referred to arbitration

Determining the Nature of the Dispute

The Plaintif contends that the nature of the dispute is rooted in the
plaintiff’s claim for damages for wrongful dismissal and negligent
misrepresentation to accept the position.

The case of LeCleir Bros.” Sufficient reason why the dispute should not be referred to Arbitration    The arbitration clause in the Shareholders Agreement generally deals with claims. if any. (4) it must be capable of clear expression. • Under their Arbitration Clause. to induce him to accept the defendant’s offer of employment. Al Their arbitration clause only states that “Arbitration in Vancouver. Illinois. Many law cases and legal principles have been referred to. . that may arise from the transactions that relate to the Shareholders Agreement itself. British Columbia (BC). and whatever words are chosen. controversy or claim arising out of or relating to the Agreement. or such other location agreed to by the parties in accordance with the Commercial Rules of Arbitration of the American Arbitration Association.plaintiff’s right and obligations are governed by Shareholders Agreement.10(A) of Arbitration Clause states any “disagreement. This is Confusing. In the case of Sumitomo Canada vs. 8. or controversies. The plaintiff’s claim is not the “making” of the Shareholders Agreement but rather what representations were made to the plaintiff. The core of the plaintiff’s action or relates to his claims for wrongful dismissal and negligent misrepresentation and not to any alleged breaches of the Shareholders Agreement o claims under it. As stated in Par. and how they should be valued. Contracting Ltd v Canoe Cove Marina laid down rules to follow that an arbitration agreement is valid : (1) it must be reasonable and equitable. “one phrase in an incomplete sentence consisting of nine words has caused thousands of words to be written and countless additional words to be spoken. Unclear and Uncertain • But whether few or many words are used. Saga Forest Carriers et. dispute. the purpose of the words must be to convey meaning. or the making. in an amount to be determined following a forensic valuation of the defendants’ stock shares. disagreements. and the second being damages for alleged negligent misrepresentation and breach of duty.• While the Defendant contends that Statement of Claims the first being for damages for wrongful termination of employment and breaches of the employment agreement. disputes. performance or interpretation” of the Agreement shall be settled by arbitration in Chicago. Determining whether the case falls within the ambit of the Arbitration • It is the defendants’ position . (2) it must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it. (3) it must be so obvious that "it goes without saying". with English law to be applied” • According to Judge Ross Tweedale.

An example of a valid arbitration agreement as held in ABOP vs QTRADE Canada states that “If any dispute or difference between the parties arises concerning this Agreement. Applicable standards of review: Whether it is a Full Review or Prima Facie FULL REVIEW : In the case of UNCITRAL Model Law. Because of such inherent power of the domestic courts they should not. in parallel and with the same degree of scrutiny. rule on the same issue. The core principle of "kompetenzkompetenz" empowers the arbitrators to rule on their own jurisdiction. claims should not automatically oust the jurisdiction of the arbitration clause the parties agreed to. Australia. These courts approached the issues on validity. PRIMA FACIE However other jurisdictions preferred prima facie. Hong Kong but Prima Facie. According to Gary Born. their review to a prima facie determination that the agreement is not "null and void. at that stage. inoperative or incapable of being performed Example: Canada – Where the objection of the referral of the case to arbitration only raises questions of law – must be resolved immediately by Court. Any dispute or difference between the parties concerning this Agreement which cannot be settled by the parties will be referred to and finally resolved by arbitration under the Commercial Arbitration Act (BC) Justice Grove states that the case of ABOP vs QTRADE Canada is a good example in order to ascertain the true meaning and intention of the parties in their agreement. . Where the objection raises disputed question of facts.(5) it must not contradict any express term of the contract. Kenya and Uganda. the arbitration must decide. “It is abundantly clear to me that the dispute between the parties relates to the different interpretations of the Agreement. the court will permit full (rather than prima facie) judicial consideration of jurisdiction. whose expertise on the topic is formidable. They have clearly agreed that any dispute over their interpretation of the Agreement is to be dealt with by arbitration. Simply put. these include Germany. Mexico. In other words. New Zealand. ex. which means that challenging the existence or the validity of the arbitration agreement will not prevent the arbitral tribunal from proceeding with the arbitration. in oppression relief. Spain. The Hong Kong approach in reviewing the given case is by fully analyzing the evidence and making a finding. Croatia. the courts should limit. the parties will first attempt in good faith to resolve the matter. Austria. operability and incapability of performance by fully analyzing the evidence and making a finding. England. at least at the outset of the arbitral process.

to constitute step in proceedings depriving a party of its recourse to arbitration. the action of this party must be one which impliedly affirms the correctness of the proceedings and willingness of going to Court. The question arises whether commencing court action. claimant bars it from subsequently invoking the arbitration agreement. it requires superficial consideration of documents. STRICT OR PERMISSIVE APPLICATION OF THE REQUIREMENT? • The court held that the timeliness requirement set out therein had to be applied strictly • But in other cases. PROCEDURAL CONDITION: THE TIMELINESS OF REFERRAL APPLICATION • That a referral to arbitration requested no latter than when party seeking a referral order its statement on the dispute • In other words. . -Where courts granted referral to claimants who had commenced proceedings for interim measures of protections.Where if it is mixed questions of law and a mixed question of facts the arbitration must decide unless. “ EFFECT OF FAILURE TO INVOKE ARTICLE 8 IN A TIMELY MANNER ON SEPARATE BUT RELATED ACTION • Two related actions raising similar issues and same parties. a referral application had to be made prior to the filling of any pleadings on the substance of the dispute. . as the arbitration agreement becomes inoperative as to the disputed issues. WHAT CONSTITUTES STATEMENT ON THE SUBSTANCE OF THE DISPUTE? Statement on the Substance of the Dispute is commonly known as “a step in the proceedings “ Lord Denning held in Eagle Star Insurance vs Yuval Insurance that . -Some claimants seeking to refer their own action to arbitration and have generally not been successful. “A party will not necessarily be barred from seeking a referral of the action to arbitration if it takes a step in the judicial proceedings without invoking the arbitration agreement. failure to invoke Article 8 in a Timely Manner on separate but related action prevents it from seeking the referral of the other action to arbitration.where it is sufficient that a party expressly stated in his defense an intention to invoke arbitration. REFERRAL REQUESTED BY CLAIMANT Typically referral to arbitration is requested by defendant in the court action. court granted permissive approach where the court expressly state that the timeliness ought not to be applied strictly and treated as admissible a referral application filed months after the party seeking referral order had filed its statement of defense.

“No substantial or Arguable defense will suffice” MULTIPARTY CONTEXT Court proceedings frequently involve multiple claimants. It could lead on tribunals of an impractical size frustrating the whole purpose of the arbitration. . The problem in the Multiparty is that the party involve has the right to chose its own arbitrator. The Article 18 of World Intellectual Property Organization (WIPO) laid down rules in order to avoid impractical size frustrating whole purpose of arbitration: There are only three Arbitrators: One selected by the Claimants One Selected by the Respondents The Third Arbitrator shall be selected by the Two (2) Arbitrators chosen by the Claimants and Respondents within 30 days after the appointment of the second arbitrator. Courts tend to require proof that the party seeking a referral order has unequivocally admitted claim. courts have done it in several cases. Possibility of relying on local procedural rules to stay the action or refer the parties to arbitration where requirements of Article 8 are not met Several Cases confirm that the requirements of Article 8 are not met. in several cases decided by the Court the cases were denied on the ground that there is no dispute between the parties. which would less influence the tribunals. It is unfair to the fewer parties. -The court referred the case to a religious tribunal selected by the parties in their arbitration agreement but on a condition that it either proceed with the arbitration on a fixed timetable or clearly indicate its refusal to resolve dispute. MAY A COURT IMPOSE A CONDITIONS TO ORDERS REFERRING TO ARBITRATION? Article 8 is silent about the possibility of imposing conditions on referrals under that provisions. and then courts may nevertheless stay an action on the basis of local procedural action.MAY REFERAL TO ARBITRATION BE DENIED ON THE GROUND THAT THERE IS NO DISPUTE BETWEEN THE PARTIES? Yes. multiple defendants. If a claim is made against him in a matter which is the subject of an arbitration agreement and he does not admit the claim. then there is a dispute within the meaning of the article. -Court order to complete the arbitration swiftly -Courts referred occasionally referred to arbitration on the condition that the defendant undertook not to raise defense of prescription in the arbitration proceedings. or both multiple claimants and defendants and several issues relating to Article 8 in such context.

courts were more sensitive to the fact that the parties had agreed on multiple dispute resolution mechanisms. since the clause allowed ‘‘court proceedings for specifically listed default events’’ (such as the one submitted to the court).Courts have thus reorganized the possibility of relying on the local rules to stay part of an action not falling within the arbitration agreement while the rest of the claim was being arbitrated. ‘‘while retaining arbitration for all other disputes • In which arbitration was agreed for all disputes. except of differences ‘‘involving a question of law’’. • In other cases. In all such cases courts found that arbitration agreement was in the particular case either inoperative or—for the particular dispute—non-existent. . so that a court had refused to refer parties to arbitration because it found that a particular dispute was not covered by the arbitration agreement.