Court summarily dismisses challenge to tribunal’s jurisdiction

Latest challenge arising from a gas sale and purchase contract

This case is the latest in a series of challenges brought by National Iranian Oil Company (NIOC) to a US$2.4 billion award in favour of the UAE’s Crescent Petroleum (Crescent) in a protracted dispute over a failed gas supply deal. The gas sale and purchase contract (GSPC) from which the dispute arises was governed by Iranian law.

NIOC challenged the tribunal’s jurisdiction under s.67 of the Arbitration Act 1996 (the Act) on the basis that the tribunal had no jurisdiction to determine the liability of Crescent to a partly-owned subsidiary under a separate contract. NIOC submitted an Iranian law expert report which argued that the scope of the arbitration agreement in the GSPC did not cover the aforementioned claim.

In response, Crescent applied for a determination that (i) as a preliminary issue, NIOC had not raised this jurisdictional challenge before the tribunal and was therefore precluded by s.73 of the Act from doing so, and (ii) NIOC’s challenge should be summarily dismissed as it had no real prospect of success. These applications were heard together.

The court summarily dismisses NIOC’s application

In its summary dismissal application, Crescent argued that even if the Iranian law expert report was admissible (which it disputed), NIOC’s s.67 challenge had no real prospect of success and was bound to fail. The court accepted this argument.

The court’s starting point was to emphasise that while the Iranian law expert could provide authority on the principles of construction of the arbitration clause under Iranian law, the expert’s view as to how the court should interpret the contract was inadmissible and irrelevant. It was for the court to apply the principles of construction to interpret the arbitration clause. 

Applying those principles, the court found that Iranian law adopts a restrictive approach in interpreting the scope of arbitration provisions (in contrast to the English law Fiona Trust principle that arbitration clauses are to be interpreted widely). Yet, even under a narrow, literalist interpretation, NIOC’s case that the claim fell outside the scope of the arbitration clause had no realistic prospect of success. 

Notably, the court was willing to reach this finding notwithstanding the early stage of the expert process (no report from Crescent, no cross-examination etc). In doing so, the court acknowledged that it may be a somewhat rare case in which, notwithstanding a material and disputed issue as to foreign law, a court can give summary judgment. However, in this case, where the court had before it NIOC’s best evidence on the point, the court was able to summarily decide the application. 

For reasons of space, Crescent’s s.73 application, which was rejected, is not addressed in this blog post in any detail. The court’s refinement of the approach to be taken to a case where s.73 is raised as an objection to a s.67 challenge is, however, worth a read (para. 36).

Commentary 

The case demonstrates the court’s robust application to an unmeritorious application under s.67. It is a rare example of the court utilising its summary disposal power – which was recently enshrined in the 2022 edition of the Commercial Court Guide (O8.6) – to dismiss a jurisdictional challenge at an early stage. In fact, the court was willing to do so even though the arguments hinged on a point of foreign law that had not been fully tested. It is unsurprising then that the court said that this was a rare use of its powers in a s.67 case involving foreign law. 

The case is also a reminder that, where a contract is not governed by English law, the role of foreign law experts in relation to issues of contractual interpretation before the English courts is a limited one. Although the expert may identify what the rules of interpretation are, it is the court that will interpret the contract in question. Parties are advised to be aware that the choice of a foreign law to govern the contract (and therefore, potentially, the arbitration agreement) may bring with it a less expansive approach to the interpretation of arbitration clauses than that taken by English law under the Fiona Trust principle. 

Judgment: NIOC v Crescent