Reviewing the case by state court when there is an arbitration agreement

February 23, 2015

We had an issue in practice, what should the state court do when it receives the claim regarding the violation of the works contract, which has the arbitration clause.

At first sight, the court must either reject the claim or return it to claimant before commencing the proceedings, or stop the proceedings or dismiss the claim without prejudice at the stage of preparation the case for the trial. However, existing civil procedure legislation does not oblige to do so. In other words, the legislation lets the state court to commence the proceedings even if there is an arbitration agreement, which we believe is not correct due to the following reasons.

First of all, judges regularly complain about the overload. In this regard, it is hard to understand why there is still no obligation of courts not to review the case subject to arbitration. The point is that commencing proceedings, preparation the case for the trial (which includes not only summoning the claimant but also mailing the claim to the defendant), listing the case for the trial – all these actions take time and require certain expenses (paper, courier service and so on).

Secondly, pursuant to the Article 6-1.1 of the Law of Kazakhstan “On international arbitrage”, the court of general jurisdiction, which received the case subject to arbitration, must send the parties to arbitration, if one of the parties requires it before making the first statement about the merits of the case and if the court does not find the arbitration agreement invalid or that arbitration agreement cannot be fulfilled. Therefore, the law enables the state court to review the case if the defendant expresses its opinion about the merits of the case before it demands to submit the case to arbitration in accordance with the arbitration clause (due to forgetfulness or ignorance of law) or if the court does not agree with the defendant’s arguments that the case has to be reviewed by arbitration.

Thirdly, if the court reviews the case in spite of the defendant’s request to submit the case to arbitration, the practical issue arises: how defendant should appeal the decision? If defendant simply insists on illegal refusal by the court to submit the case to arbitration, the upper courts may think that defendant is indeed guilty in violation of the contract and that is why it does not have anything to say about the merits of the case. If the defendant includes arguments about the merits of the case into the appeal, the upper courts may conclude that defendant had agreed with the reviewing the case by state courts and now insists on the claim dismissal under the substantive arguments.

In the light of the above, and taking into consideration the fact that the draft of a new Civil Procedure Code is being discussed in the Kazakhstani Parliament nowadays, we believe that legislators should oblige the courts to reject the claim if the dispute is subject to arbitration, or dismiss the claim if one of the parties states about the application of the arbitration agreement (and not only when the parties concluded the agreement on submission of this particular dispute to the arbitration, as it is now provided by the Civil Procedure Code). And, of course, the court must check that the arbitration agreement is valid and can be fulfilled before rejecting or dismissing the claim.

Nurlan Makenov