On April 11, 2005, a Latvian buyer entered into a contract to purchase grain from a Canadian seller. The buyer gave the seller a deposit of $413,000 as specified in the contract. However, the seller refused to deliver the grain and to return the deposit, alleging that the buyer had breached the contract. Consequently, the buyer commenced an action against the seller and two of its principals, alleging fraudulent misrepresentation (according to the buyer, the seller was part of a fraudulent scheme aiming to collecting deposits from other parties without performing delivery) and claiming avoidance of contract ab initio.
An arbitration clause in the contract designated CISG and the laws of Canada as the law governing any dispute that might arise under the contract. However, the buyer argued that although an arbitration tribunal normally has jurisdiction to decide issues relating to contract interpretation and application, it does not have the authority to declare a contract void ab initio. Furthermore, the buyer could not have given valid consent to submit to arbitration, since it had been a victim of the seller’s false representation.
Referring to domestic case law, the Court held that an annulment of a contract and false representation are not excluded from the scope and application of an arbitration clause. Consequently, it transferred the action to arbitration and dismissed the case (except with respect to the two principals that were not parties to the arbitration clause, to which the Court however suggested a motion be made to dismiss the case on the basis of the forum non conveniens principle).
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