Commercial arbitration - Competence-Competence

Main purpose of the principle of Competence-Competence:

1. Allocation of jurisdiction between the arbitral tribunal
2. timing of the court to intervene
3. nature of intervention

Is it possible to derogate from this principle? yes - Section 30 of UK arbitration law provides: "unless parties decide otherwise".  NY Convention  is neutral regarding competence- competence, although its true that some provisions -  articles 2 and 5 imply that both arbitral tribunal and court have a “say” on deciding about jurisdiction. Article 5.3 of the 1961 European convention has express provision. Relevant provisions in UNCITRAL ML are articles 8 and 16. Article 16 (1) refers to the positive effect of this principle, and 16 (3) decision on jurisdiction either as a preliminary question or together with the merits. There is 30 days to appeal in the court – after having received the notice (on decision of jurisdiction).

Article 8. Arbitration agreement and substantive claim before court

(1) A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his fi rst statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.

(2) Where an action referred to in paragraph (1) of this article has been brought, arbitral proceedings may nevertheless be commenced or continued, and an award may be made, while the issue is pending before the court.

Article 16. Competence of arbitral tribunal to rule on its jurisdiction

(1) The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail  ipso jure the invalidity of the arbitration clause.
(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence. A party is not precluded from raising such a plea by the fact that he has appointed, or participated in the appointment of, an arbitrator. A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. The arbitral tribunal may, in either case, admit a later plea if it considers the delay justified.

(3) The arbitral tribunal may rule on a plea referred to in paragraph (2) of this article either as a preliminary question or in an award on the merits. If the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party may request, within thirty days after having received notice of that ruling, the court specifi ed in article 6 to decide the matter, which decision shall be subject to no appeal; while such a request is pending, the arbitral tribunal may continue the arbitral proceedings and make an award.

In Fomento, the Federal Tribunal held that the lis pendens provisions of Article 9 PILA applied to international arbitrations in Switzerland, requiring an arbitral tribunal to stay arbitration proceedings while an action filed earlier in a foreign court was pending. The decision caused concern that parties could now race to initiate state court litigation elsewhere, thereby forcing the stay of arbitral proceedings in Switzerland. Fomento triggered an amendment contained in Article 186(1)bis PILA.

Section 7 of the UK 1996 Arbitration Act  provides:

"Unless otherwise agreed by the parties, an arbitration agreement which forms or was intended to form part of another agreement (whether or not in writing) shall not be regarded as invalid, non-existent or ineffective because that other agreement is invalid, or did not come into existence or has become ineffective, and it shall for that purpose be treated as a distinct agreement."

A major evolutionary step towards a recognition that an arbitration clause is a separate contract which survives the termination of the main contract was taken in Harbour v Kansa [1993] 1 Lloyds Rep 81.  The question of the separability of an arbitration clause was considered again in the recent Court of Appeal case of Fiona Trust & Holding Corporation & Others v Yuri Privalov & Others [2007] EWCA Civ 20 (24 January 2007).

UK Act distinguishes clearly between separability (in arbitration agreement, substantive rule) and competence-competence (in jurisdictional part).

3 scenarios:

1) Rule on own jurisdiction (s 30) plus judicial review (s 67), Party has to object during arbitration proceedings (s 73)

2) Section 32 - refers to the court for clarification of issue – determination of the preliminary question, here the party may refer to the court to determine the issue. – When can you file the case: the parties have agreed to go away from arbitration, second possibility: tribunal allows plus UK court would be satisfied that this would save costs, time; there are good reasons to do so.

3) Section 72 – saving for right of persons who takes no part in proceedings, by taking steps party will be barred from challenging later. Danger with this clause – the court is taking too much power, has been applied very restrictively by the UK courts. Typical situation is when party alleging not being a party to arbitration agreement for injunctions.

Other important articles:

Section 30. - Competence of tribunal to rule on its own jurisdiction.

(1) Unless otherwise agreed by the parties, the arbitral tribunal may rule on its own substantive jurisdiction, that is, as to -  (a) whether there is a valid arbitration agreement,

(c) what matters have been submitted to arbitration in accordance with the arbitration (2) Any such ruling may be challenged by any available arbitral process of appeal or review or in accordance with the provisions of this Part.

Section 32. - Determination of preliminary point of jurisdiction.

(1) The court may, on the application of a party to arbitral proceedings (upon notice to the other parties), determine any question as to the substantive jurisdiction of the tribunal. A party may lose the right to object (see section 73).

(2) An application under this section shall not be considered unless -

(a) it is made with the agreement in writing of all the other parties to the proceedings, or

(b) it is made with the permission of the tribunal and the court is satisfied -

(i) that the determination of the question is likely to produce substantial savings in costs,

(ii) that the application was made without delay, and

(iii) that there is good reason why the matter should be decided by the court.

(3) An application under this section, unless made with the agreement of all the other parties to the proceedings, shall state the grounds on which it is said that the matter should be decided by the court.

(4) Unless otherwise agreed by the parties, the arbitral tribunal may continue the arbitral proceedings and make an award while an application to the court under this section is pending.

(5) Unless the court gives leave, no appeal lies from a decision of the court whether the conditions specified in subsection (2) are met.

(6) The decision of the court on the question of jurisdiction shall be treated as a judgment of the court for the purposes of an appeal. But no appeal lies without the leave of the court which shall not be given unless the court considers that the question involves a point of law which is one of general importance or is one which for some other special reason should be considered by the Court of Appeal.

Section 67. - Challenging the award: substantive jurisdiction.

(1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court -

(a) challenging any award of the arbitral tribunal as to its substantive jurisdiction; or

(b) for an order declaring an award made by the tribunal on the merits to be of no effect, in whole or in part, because the tribunal did not have substantive jurisdiction. A party may lose the right to object (see section 73) and the right to apply is subject to the restrictions in section 70(2) and (3).

(2) The arbitral tribunal may continue the arbitral proceedings and make a further award while an application to the court under this section is pending in relation to an award as to jurisdiction.

(3) On an application under this section challenging an award of the arbitral tribunal as to its substantive jurisdiction, the court may by order  (a) confirm the award,  (b) vary the award, or  (c) set aside the award in whole or in part.

(4) The leave of the court is required for any appeal from a decision of the court under this section.

Section 72. - Saving for rights of person who takes no part in proceedings.

(1) A person alleged to be a party to arbitral proceedings but who takes no part in the proceedings may question -

(a) whether there is a valid arbitration agreement,

(b) whether the tribunal is properly constituted, or

(c) what matters have been submitted to arbitration in accordance with the arbitration agreement, by proceedings in the court for a declaration or injunction or other appropriate relief.

(2) He also has the same right as a party to the arbitral proceedings to challenge an award (a) by an application under section 67 on the ground of lack of substantive jurisdiction in relation to him, or (b) by an application under section 68 on the ground of serious irregularity (within the meaning of that section) affecting him; and section 70(2) (duty to exhaust arbitral procedures) does not apply in his case.

Section 73. - Loss of right to object.

(1) If a party to arbitral proceedings takes part, or continues to take part, in the proceedings without making, either forthwith or within such time as is allowed by the arbitration agreement or the tribunal or by any provision of this Part, any objection -  

(a) that the tribunal lacks substantive jurisdiction,  

(b) that the proceedings have been improperly conducted,

(c) that there has been a failure to comply with the arbitration agreement or with any provision of this Part, or

(d) that there has been any other irregularity affecting the tribunal or the proceedings, he may not raise that objection later, before the tribunal or the court, unless he shows that, at the time he took part or continued to take part in the proceedings, he did not know and could not with reasonable diligence have discovered the grounds for the objection.

(2) Where the arbitral tribunal rules that it has substantive jurisdiction and a party to arbitral proceedings who could have questioned that ruling -

(a) by any available arbitral process of appeal or review, or

(b) by challenging the award,  does not do so, or does not do so within the time allowed by the arbitration agreement or any provision of this Part, he may not object later to the tribunal's substantive jurisdiction on any ground which was the subject of that ruling.

Sources: http://www.alway-associates.co.uk/legal-update/article.asp?id=132

French code on civil procedure http://www.iaiparis.com/lois_en.asp

 

French code on civil procedure provides:

Article 1458 When a dispute submitted to an arbitral tribunal by virtue of an arbitration agreement is brought before a national court, such court shall decline jurisdiction. If the arbitral tribunal has not yet been seized of the matter, the court shall also decline jurisdiction unless the arbitration agreement is manifestly void. In neither case may the court decline jurisdiction on its own motion.

Article 186(1)bis of the Swiss Private International Law (PILA) provides that an arbitral tribunal "shall decide on its jurisdiction notwithstanding an action on the same matter already pending before a State Court or another Arbitral Tribunal, unless there are serious reasons to stay the proceedings."