Jurisdiction of Tribunal to decide on nullity of contract

>>Jurisdiction of Tribunal to decide on nullity of contract

Jurisdiction of Tribunal to decide on nullity of contract

In a recent case under the Rules of Arbitration Centre of Iran Chamber (ACIC), which I sat as the president of the Tribunal, a question arose as to the jurisdiction of arbitral tribunal in Iran law in order to decide about the nullity of the contract.

While the Claimant requested for reimbursement of damages, arising out of the Respondent’s failure to comply with its obligations, the Respondent defended that the contract was null ab inito, due to the Claimant’s incapacity at the time of concluding the contract, and therefore, there was no obligation to be fulfilled by the Respondent. The Respondent, further, counterclaimed that the Claimant should reimburse the costs it incurred, arising out of concluding a contract which it did not have the required capacity to conclude. The Claimant rejected the Respondent’s position and, among other things, claimed that the Tribunal lacked jurisdiction to rule on the nullity of the Contract, and therefore, the counterclaims. The Claimant, in particular, referred to the arbitration clause, which did not have a clear reference to the matter of nullity of the contract in defining the scope of the Tribunal’s jurisdiction.

According to the Claimant’s position, the matter of nullity of contract, as well as the jurisdiction of arbitral tribunal in Iran law, should have been first decided by the court, as required by article 461 of the Iran Civil Procedure Code which governs the domestic arbitrations:

In the event that there is a dispute between the parties about the original transaction or on the arbitration agreement, the court shall first decide on such dispute and proclaim its view on the issue.

(for more information on Iran domestic arbitration regime, click here)

The Arbitration clause was a standard ACIC clause as below:

All disputes and claims arising from or relating to the present contract including its conclusion, validity, termination or   breach, and its interpretation or application shall be submitted to the Arbitration Center of the Iran Chamber (ACIC) for binding and final arbitration by one or three arbitrators in accordance with the Law of Statute of the Arbitration Center of the Iran Chamber and Arbitration Rules of ACIC. In addition to the applicable laws and regulations, the arbitrator(s) shall take into account the relevant trade usages. The present arbitration clause shall be treated as an agreement independent of this contract and shall in any case be binding.

The Tribunal decided to bifurcate the matter of jurisdiction, before entering into the merits. In a partial award on jurisdiction, the Tribunal held that it had jurisdiction to decide on the nullity of the contract, and therefore, hear the counterclaims, for below reasons:

  • First, the wording of arbitration clause was comprehensive enough to cover all disputes and claims arising from or relating to the contract, with clearly no exception;
  • Second, the terms “conclusion, validity, termination, breach, interpretation, application” referred to in the arbitration clause were mere examples and therefore, any other contractual question can be added to this list.
  • Third, the term “validity of contract” is broad enough to entail any question regarding the nullity of the contract; and
  • Fourth, the clause is a standard ACIC arbitration clause –with no modification. The precedent of many awards rendered by the ACIC proves that the standard clause is intended to cover any and all disputes arising out of the contract, including the nullity, which is also a matter of validity of agreement and jurisdiction of arbitral tribunal in Iran law.