National Iranian Oil Co. v. State of Israel

The National Iranian Oil Co. (NIOC) (defendant) and the state of Israel (Israel) (plaintiff) contracted for NIOC to use Israeli territory to deliver oil. The contract contained an arbitration clause, which stated that NIOC and Israel would each appoint one arbitrator. If the arbitrators failed to settle the dispute or agree on a third arbitrator, the president of the Chamber of Commerce in Paris would make the appointment. After a dispute arose, Israel failed to appoint an arbitrator and a French court of appeal made an appointment on Israel’s behalf. In arbitration, Israel opposed NIOC’s claims and asked the tribunal to find that it did not have jurisdiction to hear the dispute because the French court’s appointment of an arbitrator on Israel’s behalf was improper. The arbitral tribunal issued a partial award, which stated that the French court’s appointment was proper. The tribunal stated that although the arbitration clause did not contain a provision establishing the proper next steps if a party failed to appoint an arbitrator, such an omission was not a mechanism that allowed Israel to avoid arbitration by refusing to appoint an arbitrator. The tribunal stated that because Israel failed to fulfill its duty to appoint an arbitrator, NIOC was entitled to turn to the courts for a remedy. Israel filed an appeal in the Swiss Federal Supreme Court, seeking annulment of the partial award. Israel argued that the parties intentionally omitted a provision establishing a procedure for the failure of a party to appoint an arbitrator and intended that if such a failure were to occur, arbitration would not take place at all. The arbitrators found no evidence supporting Israel’s argument that NIOC intended that the arbitration clause be interpreted as Israel described.