Validity of arbitration agreements

Arbitration News – Jurisdiction of courts or tribunals to uphold validity of arbitration agreements

(Article by Dr. A. Tsavdaridis, published in the Arbitration Newsletter of the ILO on February 05, 2015)

Although the non-existence or invalidity of  arbitration agreements constitute grounds to challenge
an arbitral award, it cannot be raised as such if a court has previously issued a final decision in favour
of the agreement’s existence or validity in the course of staying court proceedings and referring the
dispute to arbitration. State courts have jurisdiction to decide on the existence or validity of an
arbitration agreement, unless these matters have been specifically referred to arbitration.


In a construction dispute that arose out of a contract for work in 2003, the contractor filed a civil writ
before the state courts requesting an outstanding portion of his fee. The principal disputed the
jurisdiction of the state court and asked for the dispute to be referred to arbitration, pursuant to an
arbitration clause contained in the underlying contract. The respondent filed a counterclaim
requesting a refund of part of the fee already paid as unjust enrichment, on condition that the court
upheld its jurisdiction. The court found that there was a valid arbitration agreement between the
parties and referred the whole dispute (claim and counterclaim) to arbitration.(1) As no appeal was
filed against that first-instance judgment, it became final and binding. The claimant then initiated
arbitration proceedings and requested the appointment of a sole arbitrator (as provided in the
arbitration clause) by the competent court. The arbitrator proceeded and heard both the claim and
counterclaim, and issued an award in favour of the respondent by dismissing the claim and
upholding the counterclaim.

The claimant sought to set aside the award, asserting that the arbitrator had exceeded his power by
deciding on the counterclaim. He also questioned the validity of the arbitration agreement, asserting
that what the parties had agreed on was not arbitration, but valuation (arbitrage-expertise).

The Court of Appeal held that the arbitrator had not exceeded his powers as the state court had
referred the entire dispute to arbitration.(2) The court also held that as the first-instance judgment
which had referred the matter to arbitration was not appealed, it had become final and binding. The
claimant appealed before the Supreme Court.


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