Applicability of the arbitration agreement to the actions 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
agreement.
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
merits.

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
plaintiffs claim for damages for wrongful dismissal and negligent
misrepresentation to accept the position.

While the Defendant contends that Statement of Claims the first being for
damages for wrongful termination of employment and breaches of the
employment agreement; and the second being damages for alleged negligent
misrepresentation and breach of duty, in an amount to be determined
following a forensic valuation of the defendants stock shares.

Determining whether the case falls within the ambit of the Arbitration

It is the defendants position - plaintiffs right and obligations are governed by

Shareholders Agreement.

Under their Arbitration Clause, As stated in Par. 8.10(A) of Arbitration Clause

states any disagreement, dispute, controversy or claim arising out of or
relating to the Agreement, or the making, performance or interpretation of
the Agreement shall be settled by arbitration in Chicago, Illinois, or such
other location agreed to by the parties in accordance with the Commercial
Rules of Arbitration of the American Arbitration Association.

Sufficient reason why the dispute should not be referred to Arbitration

The arbitration clause in the Shareholders Agreement generally deals with

claims, disagreements, disputes, or controversies, that may arise from the
transactions that relate to the Shareholders Agreement itself.
The plaintiffs claim is not the making of the Shareholders Agreement but
rather what representations were made to the plaintiff, if any, to induce him
to accept the defendants offer of employment; and how they should be
valued.
The core of the plaintiffs 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.

In the case of Sumitomo Canada vs. Saga Forest Carriers et. Al

Their arbitration clause only states that Arbitration in Vancouver, British
Columbia (BC), with English law to be applied

According to Judge Ross Tweedale, 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. Many law cases and legal principles
have been referred to. This is Confusing, Unclear and Uncertain

But whether few or many words are used, and whatever words are chosen,
the purpose of the words must be to convey meaning.

The case of LeCleir Bros. Contracting Ltd v Canoe Cove Marina laid down rules to follow
that an arbitration agreement is valid :
(1) it must be reasonable and equitable;
(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";
(4) it must be capable of clear expression;

(5) it must not contradict any express term of the contract.

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, the parties will first attempt in
good faith to resolve the matter. 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.
It is abundantly clear to me that the dispute between the parties relates to the different interpretations
of the Agreement. They have clearly agreed that any dispute over their interpretation of the
Agreement is to be dealt with by arbitration. Simply put, in oppression relief, claims should not
automatically oust the jurisdiction of the arbitration clause the parties agreed to.

Applicable standards of review: Whether it is a Full Review or Prima Facie

FULL REVIEW :
In the case of UNCITRAL Model Law, the court will permit full (rather than prima facie) judicial
consideration of jurisdiction.
According to Gary Born, whose expertise on the topic is formidable, these include Germany, New
Zealand, Australia, England, Austria, Spain, Croatia, Mexico, Kenya and Uganda.
These courts approached the issues on validity, operability and incapability of performance by
fully analyzing the evidence and making a finding.
ex. Hong Kong but Prima Facie. The Hong Kong approach in reviewing the given case is by fully
analyzing the evidence and making a finding.
PRIMA FACIE However other jurisdictions preferred prima facie. The core principle of "kompetenzkompetenz" empowers the arbitrators to rule on their own jurisdiction, which means that challenging the
existence or the validity of the arbitration agreement will not prevent the arbitral tribunal from proceeding
with the arbitration.
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, at least at the outset of the arbitral process.
In other words, the courts should limit, at that stage, their review to a prima facie determination that the
agreement is not "null and void, 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.
Where the objection raises disputed question of facts, the arbitration must decide.

Where if it is mixed questions of law and a mixed question of facts the arbitration must decide unless, it
requires superficial consideration of documents.
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, a referral application had to be made prior to the filling of any pleadings on the
substance of the dispute.

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, 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, - 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. The question arises whether
commencing court action; claimant bars it from subsequently invoking the arbitration agreement.
-Some claimants seeking to refer their own action to arbitration and have generally not
been successful.
-Where courts granted referral to claimants who had commenced proceedings for interim
measures of protections.
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 , 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.
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.
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, 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, as the arbitration
agreement becomes inoperative as to the disputed issues.

MAY REFERAL TO ARBITRATION BE DENIED ON THE GROUND THAT THERE IS

NO DISPUTE BETWEEN THE PARTIES?
Yes, in several cases decided by the Court the cases were denied on the
ground that there is no dispute between the parties.
Courts tend to require proof that the party seeking a referral order has
unequivocally admitted claim.
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.
No substantial or Arguable defense will suffice
MULTIPARTY CONTEXT
Court proceedings frequently involve multiple claimants, multiple defendants,
or both multiple claimants and defendants and several issues relating to Article 8 in
such context.
The problem in the Multiparty is that the party involve has the right to
chose its own arbitrator. It could lead on tribunals of an impractical size frustrating
the whole purpose of the arbitration. It is unfair to the fewer parties, which would
less influence the tribunals.
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.
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, courts have done it in several cases.
-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.
-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.
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, and
then courts may nevertheless stay an action on the basis of local procedural action.

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.

In other cases, courts were more sensitive to the fact that the parties had
agreed on multiple dispute resolution mechanisms, 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, since the clause
allowed court proceedings for specifically listed default events (such as the
one submitted to the court), while retaining arbitration for all other disputes

In which arbitration was agreed for all disputes, except of differences

involving a question of law. In all such cases courts found that arbitration
agreement was in the particular case either inoperative orfor the particular
disputenon-existent.