Track Record: Court Declares Itself Without Jurisdiction Due to Valid Arbitration Clause Despite Wrong Institution Name

Mr. Vincent Besters represented a Dutch company in a jurisdictional challenge based on an international arbitration agreement

In April 2017, the Gelderland District Court (Arnhem) issued a judgment in an interlocutory incident in which mr. V.M. Besters acted as counsel for the Dutch defendant company. A Turkish company had filed a claim before the Dutch courts, but the company defended itself by invoking an arbitration clause in their framework agreement. The court declared itself without jurisdiction.

What was the case about?

A Turkish company and a Dutch private limited company had concluded a framework agreement containing a dispute resolution clause providing that any disputes would be settled by the "German International Economic and Trade Commission in Munich" — an institution that does not, in fact, exist under that name.

When a dispute arose, the Turkish company went to the Dutch courts. The Dutch company raised a jurisdictional objection: the matter had to be resolved through arbitration, not by the courts. The Turkish company challenged the validity of the arbitration clause precisely because of the incorrect name.

The claimant's arguments

The Turkish company argued that:

• The named arbitration institution simply did not exist.
• Therefore, there was no clear and definitive intention to arbitrate, as required under Turkish law.
• Since the procedural rules of the institution were unknown, the parties did not know where they stood.

What did the court decide?

The court rejected these arguments and declared itself without jurisdiction:

• The intention to arbitrate was established. The parties had expressly agreed to resolve disputes through arbitration. The incorrect name of the institution did not detract from that clear mutual intention.
• The error was explicable. Mr. Besters explained on behalf of the company that when drafting the agreement, reference had been made to a Chinese arbitration institution affiliated with the German Institution of Arbitration in Munich — the only institution in Munich that handles arbitration. In the translation, "China" had accidentally been replaced by "German", but the intention was clear.
• Turkish law permitted this. Under Turkish law, an arbitration clause is valid if the intention for final arbitral resolution is clearly evident — which was the case here.
• Article 10:166 of the Dutch Civil Code allowed it. The Dutch private international law rule provides that an arbitration agreement is materially valid if it is valid under the law of one of the designated legal systems (Turkish or German law). That requirement was met.

The court declared itself without jurisdiction and rejected the claim for security from the Dutch company.

What does this mean for entrepreneurs?

This ruling offers concrete lessons for entrepreneurs entering into international contracts:

• An arbitration clause with an incorrect name can still be valid. As long as the mutual intention to arbitrate is clear, a typo in the name of the institution cannot simply render the clause invalid.
• Arbitration excludes access to the courts. If you have a valid arbitration clause in your contract, the state courts are in principle not competent — even if your counterparty would prefer otherwise.
• International contracting requires attention to applicable law. The validity of an arbitration agreement can be assessed under multiple legal systems simultaneously (including the New York Convention and Article 10:166 of the Dutch Civil Code).
• Always verify that the named arbitration institution actually exists. An error like this can lead to lengthy jurisdictional proceedings, even if you ultimately prevail.

Case Reference

This post is based on ECLI:NL:RBGEL:2017:2844.

Mr. V.M. Besters acted as counsel for the defendant in this case.