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Disputes and Jurisdiction Clauses
The legality of using clauses which seek to force members of an association to submit to arbitration as a condition precedent to going to courts of law 1 was tested long ago in the case of Scott v Avery . 2 This case, which gave rise to the well-known “ Scott v Avery Clause”, concerned an arbitration clause in the rules of a mutual Marine Hull Association. The decision of the House of Lords was that it was a principle of law that parties cannot by contract oust the jurisdiction of the court; but any party may covenant that no right of action shall accrue until a third party has decided any difference that may arise between the two parties to the contract. 3 The jurisdiction of the court may not be superseded by an agreement between the parties to refer all disputes to arbitration, but it may be postponed until such time as the arbitrator has given his award. The distinction was put by the Lord Chancellor in Scott v Avery in the following terms 4 :
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