International Arbitration: Lecture 6

International Arbitration: Lecture 6
Dr. Matteo Zambelli
[email protected]
University of West London
School of Law
1
Overview
A. Jurisdictional issues.
B. Kompetenz-kompetenz and separability.
C. The approach of the courts.
D. Effect on enforcement.
E. Jurisdiction and Powers of Arbitrators.
F. Q&A.
2
What is a jurisdictional issue?
A tribunal’s power to resolve a dispute between parties stems from the
arbitration agreement between these parties.
A jurisdictional issue arises where a party to an arbitration or to a
proposed arbitration claims that the tribunal lacks substantive jurisdiction
to determine the claims referred to arbitration. This type of objection is
made to the arbitral tribunal or, in some cases, to the national court.
A party may argue, for example, that:
There is no valid arbitration agreement between the parties.
The tribunal has not been properly constituted.
The reference is not wide enough to resolve a particular aspect of the
dispute.
The matter has not been submitted to arbitration in accordance with the
arbitration agreement.
3
Significance of jurisdiction
Jurisdictional challenges:
are of great significance because they can affect the validity, recognition
and enforcement of any award made by the tribunal;
they can add significantly to the time and costs involved in resolving a
dispute; and
they are sometimes used as a tactical tool to increase costs and delay
resolution of the dispute.
4
(cont.)
Attack on the award itself: the tribunal’s power to make a binding
award depends on the existence of a valid, binding arbitration agreement
that is broad enough in scope to apply to the disputes between the
parties. The award itself is exposed to challenge if the tribunal lacks
substantive jurisdiction.
Under the UNCITRAL Model Law, it is possible to challenge an award
before a national court and argue that it should be set aside on the
ground that it deals with a dispute “
not contemplated by or not falling
within the terms of the submission to arbitration or contains decisions on
matters beyond the scope of the submission to arbitration
” and when
the subject matter of the dispute is not capable of settlement” (article 34,
UNCITRAL Model Law).
5
(cont.)
Attack on recognition or enforcement of the award: a party may
oppose recognition or enforcement of an award on jurisdictional grounds
under the law at the site of the award or under the New York Convention,
if the award is being enforced in another jurisdiction.
Article V(2)(a) of the New York Convention provides that enforcement
can be refused if the matter was not arbitrable.
Article 36 of the UNCITRAL Model Law refers to an attack on recognition
or enforcement of the award on the ground that the award deals with a
dispute “
not contemplated by or not falling within the terms of the
submission to arbitration or contains decisions on matters beyond the
scope of the submission to arbitration
” and when “the subject matter of
the dispute is not capable of settlement
“.
6
Court or tribunal: relevant policies
Jurisdictional issues may be determined by the arbitral tribunal or by national courts.
Several policies are relevant to determining the appropriate forum for raising
jurisdictional challenges.
Party autonomy: one of the fundamental underlying principles in international
arbitration is that the parties should be allowed, indeed are required, to resolve
their disputes by arbitration, if that is the method they chose by agreement to be
the way in which their disputes are to be resolved (
Vale de Rio doce Navegacao
SA v Shanghai Bao Steel Ocean Shipping Co Ltd
[2000] 2 All ER (Comm) 70).
It is this agreement that delineates the ambit of the jurisdiction of the arbitral
tribunal to resolve the dispute that may arise between the parties. If the dispute
that has arisen does not fall within the terms of the parties’ agreement, the tribunal
does not have jurisdiction to resolve it and any resulting award could then be
regarded as invalid.
7
(cont.)
Intention to avoid courts: a fundamental underlying principle in international
arbitration is that, the parties having chosen arbitration for the resolution of their
disputes, their intention is to restrict the role of the court by providing for the fair
resolution of disputes by an impartial tribunal without unnecessary delay or
expense (
ABB Lummus Global Ltd v Keppel Fils Ltd [1999] 2 Lloyd’s Rep 24).
Article 5 of the UNCITRAL Model Law provides that no court shall intervene in an
arbitration, except as provided in that Model Law.
Rulings by tribunal not court: the two above mentioned principles have the
consequence that, in most countries, the national arbitration regime confirms a
preference for any jurisdictional challenge to be made to the court after the
tribunal has ruled on the issue. Accordingly, the basic rule is that the tribunal
should rule on its own jurisdiction.
8
(cont.)
Almost every country’s arbitration regime enshrines the principle that the tribunal
should rule on its own jurisdiction:
France: arbitrators have the authority to decide jurisdictional issues as a
preliminary matter. Although the determination is subject to review, the review
does not occur until conclusion of the arbitration. It is only if the tribunal has not
been seised of the matter that a court may undertake a limited scrutiny regarding
the existence, validity and scope of the arbitration agreement and retains
jurisdiction only if the arbitration agreement is manifestly null.
Switzerland: an application to stay court proceedings because there is an
apparently valid arbitration agreement between the parties must be made before
pleadings on the merits (article 178, Private International Law Act (PILA)). The
stay will be granted unless the arbitration agreement is null, void or ineffective
(article 7, PILA). The court undertakes a summary examination of the
prima facie
existence of an arbitration agreement so as not to prejudge the decision of the
tribunal on its own competence.
9
(cont.)
England: under the Arbitration Act 1996 there are various ways in which a court
can be the first port of call:
Section 9 provides for an application to stay court proceedings on the ground that the matters
are governed by an apparently valid arbitration agreement.
Section 32 sets out the circumstances under which it is possible to apply to the court in the first
instance to determine a question about the substantive jurisdiction of the tribunal.
Section 72(1) provides that a person alleged to be a party to arbitration proceedings, but who
takes no part in those proceedings, may challenge the tribunal’s substantive jurisdiction by
proceedings in court for a declaration, injunction or other relief.
USA: a court can stay proceedings related to a matter the parties have agreed to
arbitrate unless the agreement is null and void, inoperative or incapable of being
performed (section 201, Federal Arbitration Act, which incorporates article II(3),
New York Convention). Some US courts also have held that arbitral awards may
be vacated based on the arbitrator’s manifest disregard of the law: “
Manifest
disregard can be established only where a governing legal principle is well
defined, explicit, and clearly applicable to the case, and where the arbitrator
ignored it after it was brought to the arbitrator’s attention in a way that assures
that the arbitrator knew its controlling nature
” (Goldman v. Architectural Iron Co.,
306 F.3d 1214, 1216 (2d Cir. 2002)).
10
Kompetenz-kompetenz
The concept of kompetenz-kompetenz concerns the relationship between the
tribunal and the court in deciding questions about the tribunal’s jurisdiction. It
explains and justifies the tribunal’s ability to rule on its own jurisdiction, in
accordance with the policy in favour of party autonomy. Unless otherwise agreed
by the parties, and subject to challenge, the arbitral tribunal may usually rule on its
own jurisdiction, including any objections to the existence or validity of the
arbitration agreement, without having recourse to a court.
The UNCITRAL Model Law embodies the principle of kompetenz-kompetenz in
article 16(1). Article 16(3) provides that the tribunal can determine jurisdiction
either as a preliminary question or in an award on the merits.
The ICC Rules provide that any decision on jurisdiction shall be made by the
tribunal itself (1998 Rules, article 6.2; 2012, 2017 and 2021 Rules, article 6.3).
The ICC is unique in that the ICC Court scrutinises the arbitral tribunal’s draft of
the award and has the authority to require modifications as to the form of the
award and to draw the tribunal’s attention to points of substance, which provides a
safeguard given that ICC arbitral awards are not subject to appeal.
11
(cont.)
In relation to arbitrations seated in England, section 30(1) of the Arbitration Act
1996 states that the arbitral tribunal may rule on its own substantive jurisdiction,
including whether there is a valid arbitration agreement. This is the simplest type
of jurisdictional issue: where there is no valid arbitration agreement at all. This
type of issue may arise in a number of ways:
There may be issues relating to agency: for example, the arbitration agreement may
have been concluded without authority. See, for example,
MVV Environment Devonport
Ltd v NTO Shipping GmbH & Co KG & others
[2020] EWHC 1371 (Comm). Here, the
court found that a shipping agency did not have express or implied, actual or ostensible
authority to enter into a contract of carriage, evidenced by a bill of lading, with a shipping
company on behalf of the claimant.
The arbitration may have been commenced against the wrong party, that is, against a
person who is not party to the relevant arbitration agreement (see, for example,
Internaut
Shipping GmbH v Fercometal SARL
[2004] EWCA Civ 812).
The arbitration clause may not have been validly incorporated into the parties’ contract.
12
(cont.)
The contract between the parties (including the arbitration agreement) may never have
come into existence – for example because of mistake or illegality. However, the concept
of separability means that the invalidity of the underlying contract will only rarely affect an
arbitration clause.
Where an arbitration agreement is repudiated and that repudiation is accepted, the
parties cannot contend that there is a valid and enforceable arbitration agreement and
therefore a tribunal will lack jurisdiction (see
Downing v Al Tameer Establishment [2002]
EWCA Civ 721).
Where the disputes referred to arbitration falls outside the scope of an (otherwise valid)
arbitration agreement. This type of issue is extremely common and raises issues relating
to the interpretation of arbitration agreements.
Issues of arbitrability (that is, whether a particular claim or dispute is capable of being
arbitrated – for example, because its determination by arbitration would offend public
policy) are something of a grey area. The better view is probably that where a dispute or
claim is not arbitrable, the tribunal will lack jurisdiction to hear or determine it (see, for
example, the views of Colman J in
Azov Shipping Co v Baltic Shipping Co [1999] 1 All
ER (Comm) 716).
Where one of the parties has ceased to exist, for example where a company has been
dissolved (see Ga-Hyun Chung (as the former statutory trustee of
Homer Hulbert
Maritime Co Ltd) v Silver Dry Bulk Co Ltd
[2019] EWHC 1147 (Comm)).
13
(cont.)
The second category of jurisdictional issue under section 30 of the Arbitration Act
1996 focuses upon the appointment and characteristics of the tribunal. Issues of
this kind may arise out of:
A failure to appoint the right number of arbitrators to the tribunal.
A failure to follow the prescribed appointment procedure, including any pre-appointment
procedures (such as mediation) which are a pre-condition of the right to appoint an
arbitral tribunal. This would include, for example, requirements relating to the approval or
vetting of potential arbitrators (for an example, see
Sumukan Ltd v Commonwealth
Secretariat Rev 1
[2007] EWCA Civ 1148).
A failure to appoint an arbitrator that is due to the fact that one of the parties to the
arbitration has ceased to exist (see Ga-Hyun Chung (as the former statutory trustee of
Homer Hulbert Maritime Co Ltd) v Silver Dry Bulk Co Ltd [2019] EWHC 1147 (Comm)).
It may also be possible to argue a tribunal does not have jurisdiction where an arbitrator
who is appointed does not have the qualifications that were stipulated for in the
arbitration agreement. However, the more obvious route for challenge would be to seek
his or her removal under section 24 of the Arbitration Act 1996.
14
(cont.)
The final category of jurisdictional issues under section 30 of the Arbitration Act
1996 would cover the following:
Disputes which do not arise until after the commencement of arbitration cannot be
introduced into the reference. Unless the parties conclude an ad hoc agreement
conferring jurisdiction, the tribunal will lack jurisdiction to hear such claims. Some
arbitration rules, notably the LMAA Terms, expressly include a term permitting the
tribunal to admit post-commencement claims.
Similarly, claims which arose pre-commencement, but which were not included in the
original reference of claims to arbitration will fall outside the scope of the arbitrators’
jurisdiction unless the parties conclude an ad hoc agreement permitting the tribunal to
hear and determine them.
Questions concerning the validity of a notice of arbitration probably also raise
jurisdictional issues. In
JT Mackley and Co Ltd v Gosport Marina Ltd [2002] EWHC 1315
(TCC), it was left open the question of whether section 30(1)(c) encompassed a case
where no matters had been submitted to arbitration in accordance with the arbitration
agreement. However, the better view is probably that section 30(1)(c) does cover such a
situation and that, therefore, any invalid notice of arbitration will raise a jurisdictional
issue. For an example of a case in which an award was set aside, pursuant to section 72
of the Act, following invalid service of the notice of arbitration, see
Sino Channel Asia Ltd
v Dana Shipping and Trading PTE Singapore and another
[2016] EWHC 1118 (Comm).
15
(cont.)
Section 31 (4) of the Arbitration Act 1996 allows the tribunal to determine the
question of jurisdiction either in an award as to jurisdiction or in the award on
merits. Where the parties have agreed on which course they would like the
tribunal to take, the tribunal is bound to adopt this approach.
The principle may require arbitrators to consider submissions that they are not
competent to act (for example, for reasons of bias) (
Weissfisch v Julius and others
[2006] All ER (D) 123).
16
(cont.)
Under French law, kompetenz-kompetenz is twofold, as it yields both a positive
and a negative effect.
The positive aspect of kompetenz-kompetenz is stated in Article 1465 of the Code
of Civil Procedure (CCP): “
The arbitral tribunal has exclusive jurisdiction to rule on
objections to its jurisdiction
“.
In other words, the arbitral tribunal has the authority to decide on its own
jurisdiction, and on the existence and validity of the arbitration agreement.
If a party fails without cause to object in a timely manner to the arbitral tribunal’s
jurisdiction before the tribunal itself, it is deemed to have waived its right to raise
such an objection (Article 1466, CCP). Although the CCP does not specify when
exactly an objection to jurisdiction must be raised, most legal commentators
support a stringent application of this rule, according to which an objection to
jurisdiction must be raised in
limine litis, that is, before any defence on the merits
(see
Paris Court of Appeal, Case No 2001/16532 (22 May 2003)).
17
(cont.)
The negative aspect of kompetenz-kompetenz is laid down in Article 1448 of the
CCP: “
When a dispute subject to an arbitration agreement is brought before a
court, such court shall decline jurisdiction, except if an arbitral tribunal has not
been seised of the dispute and if the arbitration agreement is manifestly void or
manifestly not applicable. A court may not decline jurisdiction of its own motion
.”
Therefore, French courts decline jurisdiction to hear a matter whenever there is
already a pending arbitration and whenever a party claims the dispute is subject to
arbitration, unless the arbitration agreement is prima facie void or not applicable.
Under French law, the principle of kompetenz-kompetenz does not grant arbitral
tribunals absolute priority over French courts to rule on jurisdiction. Kompetenzkompetenz is a rule of chronological, rather than hierarchical, priority, according to
which the arbitral tribunal must rule first on questions relating to its jurisdiction,
subject to the courts’ subsequent scrutiny.
18
(cont.)
Switzerland: the arbitral tribunal decides on its own jurisdiction, and can do so by
way of an interim award or at the time it decides the merit of the dispute, in
accordance with article 186 of the PILA.
Germany: the kompetenz-kompetenz principle is recognised in section 1040 of
the German Civil Procedure Code. One difference with the UNCITRAL Model Law
is that the German law indicates a preference for arbitrators to decide their
jurisdiction in an interim award (which is then subject to immediate court
proceedings to set it aside).
US law does not recognise the kompetenz-kompetenz principle of international
arbitration law as such. Instead, if the parties want to grant this power to the
arbitral tribunal, there must be “
clear and unmistakable evidence” of the parties’
intent (
Rent-A-Ctr., W., Inc. v. Jackson, 130 S. Ct. 2772, 2779 (2010)). The
arbitrators will have jurisdiction to determine whether a particular dispute is
arbitrable where the arbitration agreement is “
inclusive, categorical, unconditional
and unlimited
” (Benihana, Inc. v. Benihana of Tokyo, LLC, 784 F.3d 887, 898 (2d
Cir. 2015)).
19
Separability
The principle of separability ensures that an arbitration clause survives the
termination of the underlying contract by being treated as an agreement separate
from the other terms of the contract. In that way, the tribunal can deal with a
matter under the arbitration clause even though the contract containing that
clause has ended.
The principle is confirmed in article 16(1) of the UNCITRAL Model Law (i.e.
Ontario Supreme Court (Canada), July 29 1999,
NetSys Technology Group AB v
Open Text Corp
(CLOUT Case 367)).
The following disputes would fall within the scope of arbitration agreements:
Disputes under a contract that is void, such as for illegality, want of consideration,
uncertainty, duress or mistake (provided that the vitiating factor does not extend to the
arbitration agreement).
Disputes under a contract that is voidable, such as for misrepresentation or nondisclosure.
Disputes under a contract that was terminated by breach or frustration.
20
(cont.)
In the US, the Supreme Court (Buckeye Check Cashing, Inc. v. Cardegna, 546
U.S. 440, 445-46 (2006)) has stipulated that:
As a matter of substantive federal arbitration law, an arbitration provision is
severable from the remainder of the contract.
Unless the challenge is to the arbitration clause itself, the arbitrator considers
the issue of the contract’s validity in the first instance
Where an arbitral agreement contains a “delegation provision”, a clause
delegating the power to determine the enforceability of the arbitral agreement to
the arbitrator, a court may step in to decide arbitrability only if a party makes a
specific challenge to the delegation provision:
Prima Paint Corp. v. Flood &
Conklin Mfg. Co.
, 388 U.S. 395, 403 (1967). In Prima Paint, a party claimed the
agreement as a whole, not the arbitration clause itself, was procured by fraud.
The claim of fraud in the inducement was, under those circumstances, to be
decided by the arbitrator, not the court (388 U.S. at 403).
21
(cont.)
In England, the principle of separability is also recognised by section 7 of the
Arbitration Act 1996, which states: “
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, nonexistent 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
.”
The leading English authority on the application of the doctrine of separability is
the House of Lords decision in
Premium Nafta Products Ltd (20th Defendant) and
others v Fili Shipping Company Ltd and others
[2007] UKHL 40. The House of
Lords held that the effect of Section 7 is that the “
arbitration agreement must be
treated as a ‘distinct agreement’ and can be void or voidable only on grounds
which relate directly to the arbitration agreement and not merely as a
consequence of the invalidity of the main agreement
“. Accordingly, the allegation
that the main contract containing the arbitration clause was induced by bribery did
not invalidate the arbitration clause.
22
The approach of the courts
Despite the policies in favour of the tribunal ruling on jurisdictional issues, the
arbitration regimes in most countries allow national courts to be approached in the
first instance in a range of circumstances:
It is claimed that a matter is not arbitrable.
A stay of court proceedings is sought on the ground that the matters are governed by an
arbitration agreement. Article 8(1) of the UNCITRAL Model Law deals directly with a
juridical decision in the first instance respecting the existence of a valid arbitration
agreement: “
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
first statement of 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
.”
A party claims that the tribunal lacks substantive jurisdiction because: (a) there is no valid
arbitration agreement; (b) the tribunal has not been properly constituted; (c) the reference
is not wide enough to resolve a particular aspect of the dispute; or (d) the matter has not
been submitted to arbitration in accordance with the arbitration agreement.
A review is instigated by a person who has not taken part in the arbitration proceedings.
In respect of proceedings brought overseas in breach of an alleged agreement providing
for arbitration, the national court may have the power to grant an anti-suit injunction to
restrain the claimant from prosecuting the foreign proceedings in breach of the arbitration
agreement.
23
(cont.)
In England:
Section 9 of the Arbitration Act 1996, which gives effect to article II(3) of the New York
Convention, provides courts with the power to stay proceedings where there is an
apparently effective arbitration agreement.
A review by the court in the first instance of the tribunal’s substantive jurisdiction is
provided sections 31 and 32 of the Arbitration Act 1996.
A review by the court in the first instance brought by a person who has taken no part in
the proceedings is provided for by section 72(1) of the Arbitration Act 1996. That right is
lost by appointing or participating in the appointment of the tribunal, or by appearing
before or corresponding with the tribunal with a view to it exercising any power, even if
any such step is expressly stated to be subject to a jurisdictional objection.
In respect of proceedings brought overseas in breach of an alleged agreement
providing for arbitration in England and Wales, the High Court may grant an anti-suit
injunction to restrain the claimant from prosecuting the foreign proceedings in breach of
the arbitration agreement. The court’s power is derived from section 37(1) of the
Supreme Court Act.
24
(cont.)
In some jurisdictions, national courts may review a tribunal’s ruling on jurisdictional
issues after a preliminary ruling by the tribunal on jurisdiction or after the tribunal’s
final award on the merits. Arguments before the national court are likely to be that
either the tribunal had no jurisdiction or that, when making its ruling on jurisdiction,
it was guilty of a serious irregularity, such as exceeding its procedural powers.
In England, for example, the first type of review is provided for by section 67 of the
Arbitration Act 1996. The right to object can be lost as outlined in section 73 of
that Act. The second type of review is provided for by section 68 of the Arbitration
Act 1996. The right to object can be lost as outlined in section 73. Some cases
proceed on both grounds: that the tribunal had no jurisdiction (section 67) or that it
had engaged in a serious irregularity (section 68).
25
(cont.)
In some countries, a party may apply to the court to review a decision made by
the tribunal that it does not have jurisdiction. For example:
In Singapore, if the tribunal rules that it has no jurisdiction, a party may apply
to the High Court to determine the issue (section 10(3)(b), International
Arbitration Act (Chap. 143A), as amended by the International Arbitration
(Amendment) Act 2012).
In Sweden, if the tribunal has declined jurisdiction and dismissed the case
without ruling on the substantive issues submitted to it, the parties have the
right to appeal against the decision to the court (section 36, Swedish
Arbitration Act).
In the Netherlands, unless the parties have agreed otherwise, the court has
jurisdiction to try the case if the arbitral tribunal declares that it lacks
jurisdiction (article 1052(5), Netherlands Arbitration Act).
26
Procedural issues: timing
An application for a stay of court proceedings due to an apparently valid arbitration
agreement must usually be made before taking any step in the court proceedings to
answer the substantive claim, because such a step would indicate an election to
abandon the right to a stay in favour of allowing the court action to proceed.
Article 8(1) of the UNCITRAL Model Law refers to a request “not later than when
submitting his first statement on the substance of the dispute
” (High Commercial Court
(Croatia) Pz -7481/03, April 27 2004, CLOUT Case 657).
The German equivalent of article 8(1) of the UNCITRAL Model Law requires the court
to decide on the jurisdiction issue “
before the arbitral tribunal is constituted” (section
1032(2), German Arbitration Act and requires the objection to jurisdiction of the court to
be raised before “
the oral hearing on the merits” (section 1032(1)).
Under the English Arbitration Act 1996, section 9 provides that a party may not make
an application for a stay of court proceedings after he has taken any step in the
proceedings to answer the substantive claim.
27
(cont.)
In most arbitration regimes, an objection that the tribunal lacks jurisdiction
must be raised no later than the time that the objecting party takes its first step in
the arbitration to contest the merits of any matter.
In many countries, courts have interpreted the requirement to mean service of a
defence:
In England, in Athletic Union of Constantinople v National Basketball Association
[2002] 1 Lloyd’s Rep 305, the court, when interpreting section 31(1) of the
Arbitration Act 1996 confirmed that the first step in the arbitration was service of a
defence on the merits. In that case, communications between the parties and the
tribunal concerning administrative and early preparatory matters were not a step in
the arbitration to contest the merits of any matter.
Article 16(2) of the UNCITRAL Model Law expressly provides that the objection
should be raised “not later than the submission of the statement of defence” and,
in addition, that a party is not precluded from raising the objection “by the fact that
he has appointed or participated in the appointment of an arbitrator”.
28
(cont.)
In most arbitration regimes an objection raised during proceedings that the
tribunal has exceeded its jurisdiction
must be made as soon as possible after
the relevant matter that it is alleged causes the tribunal to act outside the scope of
its authority is raised.
In England, for example, and with reference to Article 31(2) of the Arbitration Act
1996, the court in
Hussman (Europe) Ltd v Al Ameen Development & Trade Co
[2001] 2 Lloyd’s Rep 83 considered that the timing was determined based on
when the objecting party knew, or with reasonable diligence could have
discovered, the grounds for objection. In this case, the claimant had disclosed
information providing the basis for the objection on the first day of the hearing and
the court considered that under those circumstances the respondent was not
prevented from raising the objection at that time.
29
(cont.)
Most arbitration regimes provide a time limit for challenging before a court a
tribunal’s ruling on jurisdiction
. The time limit may differ according to whether
the tribunal’s ruling has been by way of preliminary ruling or by way of a final
award on the merits:
Challenge of a tribunal’s preliminary ruling should be made within 30 days
after notice of that ruling has been received (article 16(3), UNCITRAL Model
Law):
Supreme Court of New South Wales (Australia) teleMates (previously
Better Telecom) Pty Ltd v. Standard Sofitel Solutions Pvt Ltd
[2011] NSWS
1365.
An application to set aside a tribunal’s award on jurisdictional grounds should
be made within three months from the date of receipt of the award (article
34(3), UNCITRAL Model Law).
30
(cont.)
The right to object in court can be lost if the party continued to take part in the
arbitration proceedings without objecting to the jurisdictional issue, unless he did
not know the grounds for objection.
In the Swedish case PJSV Ukrnafta v Capartsky (Svea Court of Appeal,
November 30, 2012)
, the court dismissed a claim for a declaration that the arbitral
tribunal lacked jurisdiction. The applicant forfeited its right to raise objections
because it did not do so in time, and further, the court found that it had been too
slow in investigating the facts that ultimately underpinned its objection to
jurisdiction.
In England Section 73(1) of the Arbitration Act 1996 provides that a party cannot
raise an objection before the court if
he continued to take part in the arbitral
proceedings without objecting
forthwith or within such time as is allowed by
the arbitration agreement unless he shows that, at the time he took part in the
proceedings, he did not know and could not with reasonable diligence have
discovered the grounds for the objection”
.
31
(cont.)
In England, section 72(1) of the Arbitration Act 1996 provides that a person
alleged to be a party to arbitration, but who takes no part in the arbitration, may at
any time apply to the court for a declaration, injunction or other relief relating to
the arbitration agreement, the constitution of the tribunal and any matter submitted
to arbitration. The right to recourse to courts under section 72(1) is lost by any
participation in the appointment of the tribunal or any appearance before or
correspondence with the tribunal with a view to it exercising any power.
It might be argued that if a party has made a fresh or ad hoc submission to
arbitration, or if there are other circumstances creating an estoppel, challenge to
jurisdiction is precluded.
32
How to raise a jurisdictional challenge
The tribunal and the other parties should be alerted to a jurisdictional issue and
objection should be made to the tribunal continuing to act. Even if an objection is
not required to be made in any particular prescribed form, to be safe, the objection
should be made in writing, state as fully and broadly as possible the ground for
the objections and be sent to the tribunal and all parties to the arbitration.
Generally, an application to stay court proceedings, allegedly brought in breach of
an arbitration agreement, is usually made by notice to the court dealing with the
proceedings.
In some regimes, application to a court on a jurisdictional point in the first instance
requires proof of either the agreement of the parties or consent of the tribunal.
The court may ask the tribunal to give reasons for the award to enable it to
consider any application to it regarding the tribunal’s jurisdiction.
33
Resisting enforcement – jurisdictional challenge
The courts of law of the enforcing country in which enforcement is sought will
determine whether enforcement can be resisted on jurisdictional grounds.
Because most countries are signatories to the New York Convention, the issue
depends on how the local law interprets and gives force to the Convention, in
particular articles IV and V.
A final and conclusive judgment on the merits by a foreign court may give rise to
an issue estoppel binding on the parties in other proceedings between them
provided that it would do so under the law of the country where the judgment was
given (
CTA International Pty Ltd v Sichuan Changhong Electric Co Ltd, 6
September 2002, XXVIII YB Comm Arb 739 (Supreme Court Melbourne
Australia)).
As a matter of English law, the fact that a party has chosen not to challenge the
jurisdiction of the tribunal before the courts where the arbitration is seated, does
not preclude it from resisting enforcement on jurisdictional grounds before the
courts of country in which enforcement of the award is being sought (
Dallah Real
Estate
).
34
(cont.)
Difficulties with recognition and enforcement under the New York Convention may
arise where a court varies an award of the tribunal because the award is then a
composite product of the tribunal and court determinations (so that the court
decision is part of what is to be enforced, not just the tribunal ruling) and the
varied award is not the original or certified copy of the original award (as required
by article IV(1)(a)).
When a court confirms a tribunal’s award it raises the question of whether it is the
court’s decision or the award that is being recognised and enforced, especially if
the court confirms jurisdiction but for different reasons from the tribunal.
If the tribunal decides it had no jurisdiction (but a party seeks, for example, to
enforce under the New York Convention any costs order made by the tribunal),
the issue arises whether there is a written, binding agreement to arbitrate that can
be provided to the enforcing court (as required by articles II and IV(1)(b)).
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Jurisdiction and Admissibility
A challenge pertains to jurisdiction if the outcome would be that the claim could
not be brought to the particular forum seized. The issue is ordinarily subject to
further recourse.
A challenge pertains to admissibility if the outcome would be that the claim shall
not be heard at all (or at least not yet). The tribunal’s decision is typically final.
I.e. The French Court of Cassation has overturned a Paris Court of Appeal’s
decision which had restrictively interpreted the claimant’s representative’s power
of attorney to find that it was not sufficient to commence new proceedings. The
Court of Cassation rejected the Court of Appeal’s finding that the arbitral tribunal’s
award concerned the tribunal’s jurisdiction over the arbitral proceedings. Instead,
the court declared that, by assessing the party’s representative’s right to initiate
arbitration proceedings on behalf of that party, the arbitral tribunal had in fact ruled
on the admissibility of the claimant’s request for arbitration, which could not give
rise to a ground for annulment under Article 1520-1° of the French Code of Civil
Procedure. (
Jnah Development SAL v Marriott International Hotels Inc., Case No.
14-13.336).
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Jurisdiction and Powers of Arbitrators
Need to find a balance between virtually unlimited powers and tight control by the
courts
Powers of Arbitrators conferred by the parties
Powers of Arbitrators within the limits of applicable law
The powers of Arbitrators descend from:
The terms of appointment or another special agreement.
“Indirect” conferment of powers when the arbitration is conducted in accordance with
arbitral rules (ad hoc or institutional).
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(cont.)
No inherent coercive power
National law may be:
giving powers directly to arbitral tribunals;
authorising national courts to excursive powers on behalf of arbitral tribunals
or the parties themselves;
a combination of these methods.
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(cont.)
In accordance with the arbitration’s procedure.
UNCITRAL Rules: a general power to “conduct the arbitration in such manner as
it considers appropriate, provided that the parties are treated with equality and
that at any stage of the proceedings each party is given a full opportunity of
presenting his case
” (Article 15.1)
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Issues determined by arbitrators
If parties omitted to chose the seat. This affects the lex arbiter and consequently
establishes a State jurisdiction to supervise an arbitration.
Determine the language of arbitration: could be more than one language (bilingual
arbitration).
Document production: no inherent power to force production, but may “draw
adverse references from such failure”.
Require presence of witnesses/subpoenas: has the power but cannot force, but
special orders (aka preemptory orders in England).
Administration of oaths.
Examination of the subject matter of the dispute.
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Expert Appointment
The IBA Rules on the Taking of Evidence in International Commercial
Arbitration (2020)
Parties often appoint their own independent experts
Arbitral tribunals evaluates and decides with whom to agree
Instruction of experts: formulation of specific lists and issues
Draft report -> parties comment -> final report
The tribunal cannot and must not delegate its obligation to reach its own
decisions on all issues, including those dealt by the experts
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Duties of Arbitrators
Imposed by the parties: I.e. award should be produced within a limited time.
Other obligations in the contract, e.g. inspect the construction site.
The duty to be independent and judge fairly.
Duty to act with due care:
Arbitrator as a contracted person (predominantly civil law jurisdictions).
Arbitrator as a status (predominantly common law jurisdictions).
Contractual relationship: possible law suit for gross negligence.
Status relationship: bad faith needs to be proved.
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(cont.)
Duty to act promptly:
Justice delayed is justice denied.
UNTITRAL Model Law: the mandate of an arbitrator terminates if he or she “fails to act
without undue delay”.
Possible liability under the contractual duty of care rule.
Duty to Act Judicially: each party must be accorded equality of treatment and
given a fair opportunity to present its case.
1987 Rules of Ethics for International Arbitration: “international arbitrators should
in principle be granted immunity from suits under national laws, except in extreme
cases of willful or reckless disregard of their legal obligations
“.
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Q&A
Any Questions?
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