Competence-Competence

The court-arbitration process can be divided into three stages. The first stage involves litigation. This is at the start of the dispute, and the question is whether the court should hear the dispute or the arbitral tribunal.

advanced divider

Introduction

The court-arbitration process can be divided into three stages. The first stage involves litigation. This is at the start of the dispute, and the question is whether the court should hear the dispute or the arbitral tribunal. Stage 2 involves a decision by the arbitrators whether to take on the matter or to decline jurisdiction. In the third stage, the court reviews the award by either enforcing, setting aside, or recognizing whether the arbitrators had the proper jurisdiction. Stage 1 may be bypassed, and parties go directly to stage 2, or they may proceed concurrently with one party seeking for the court’s jurisdiction while the other the arbitral tribunal.
At stage 1, the question, “Who decides?” is asked. Is it the court of the arbitrator? Will the dispute find its way to court or the arbitral tribunal? In cases where stage 1 is bypassed, and one of the parties challenges the arbitral tribunal’s jurisdiction, the tribunal’s jurisdiction’s decision will be decided by the arbitrators. This is what is referred to as competence-competence. The arbitrators are allowed to determine their jurisdiction.
“Who decides?” can sometimes be determined at Stage 3. The arbitrators have determined they have jurisdiction at the preliminary or at the final award. During the review of the award by the court, either to set aside, recognize or enforce, the court has to determine the weight of the arbitrator’s decision while upholding the arbitral jurisdiction. However, stage 1 of the process is crucial as it decides if the dispute should go ahead efficiently or face courts intervention.

Competence-Competence Approach

The principle has two main effects. The positive effect, which is recognized in most jurisdictions, enables the arbitral tribunal to rule its jurisdiction. And the negative effect, whose application varies across jurisdictions, allows “arbitrators to be not the sole judges, but the first judges of their jurisdiction.” The negative effect is also supported in many jurisdictions and international conventions.

In vigorous competence-competence doctrine, the arbitration agreement’s existence and validity may be handled by the arbitrators. It addresses the “Who decides” question on a broader scale and is key to resolving the tension in policy between cushioning arbitration from obstruction and protecting legitimate disputes over arbitrator jurisdiction for a prompt court hearing.

Competence-competence may be a question of timing that even if arbitrators have the liberty to decide their jurisdiction, the courts are not done away with entirely. The courts still have the final say on the award review stage. This view might be right, but at the same time, it still underestimates the value of competence-competence. Most discussions revolving around competence-competence revolve around its positive aspect, which is direct and to the point.
But with the positive, there is the negative effect which its origin can be traced to the French Law, known for its pro-arbitration character. The negative effect holds that for arbitrators to determine their jurisdiction at stage 2, court jurisdiction at stage 1 should be constrained. The main challenge, though, is to find the right context and amount for the restraint. A good legal order needs the right balance between cushioning the arbitration from obstruction at stage 1 and protecting the parties from being forced to arbitrate without their consent. Several different ways have surfaced in other countries that will be discussed.

The negative effect of competence-competence

The negative effect principle of competence-competence provides that the courts cannot rule on the existence of a valid arbitration agreement before the issue of an award by the tribunal determining its jurisdiction. This means that the tribunal is given priority to decide on the arbitration agreement’s validity and its jurisdiction concerning the disputed issue. However, this does not provide the tribunal with the final authority to determine its jurisdiction because it does not necessarily stop the courts from reviewing its decision on jurisdiction question.
The negative effect of competence-competence raises two controversial questions: the circumstances in which the tribunal possess power to determine its jurisdiction and the circumstances in which the courts determine jurisdiction. At what stage during the arbitral process are courts allowed to review the jurisdiction question? It is a question that shows the degree of adoption of the negative effect by various jurisdictions. The adoption and application of this question varies across jurisdictions.
The decision to review the tribunal’s jurisdiction only after the award has been given may reduce judicial intervention but may lead to a loss of resources and time by the parties should the courts find fault with the tribunal’s jurisdiction. The decision to review the jurisdiction before the start of arbitral proceedings may save on time and resources but may lessen arbitration’s effectiveness as a dispute resolution tool. Below is how some of the jurisdictions apply the question of negative competence-competence.

France

French law, 1981 enactment, Article 1458 of the French New Code of Civil Procedure:
Whenever a dispute submitted to an arbitral tribunal under an arbitration agreement is brought before the state’s court, such court shall decline jurisdiction. If the arbitral tribunal has not yet been seized of the matter, the court should also decline jurisdiction unless the arbitration agreement is manifestly null.

This article concerns domestic arbitration in France but has been adopted in international arbitration. It has two considerations; first, if the matter has been taken off the arbitral tribunal, the court will deny jurisdiction and leave questions respecting the arbitration agreements existence, validity and scope to the arbitrators. Second, if the matter has not been seized, the court will adopt a limited scrutiny of those questions and will retain jurisdiction only if the arbitration agreement becomes null. The primary justification for the policy is to prevent a party from obstructing or delaying the arbitration. The courts also allow greater scrutiny if a party goes to court before arbitration, assuming that the party is acting in good faith with legitimate concerns about the arbitration jurisdiction.

England

The English position on the negative effect is premised on the Model law. The Arbitration Act 1996 UK Section 30 permits a challenge to jurisdiction during the preliminary proceedings or following the award. The English Act Part 1 lays procedures of jurisdictional objection before the tribunal or court. It aims to restrict or limit a party’s entitlement to recourse the court to determine the tribunal jurisdiction.

The English law strikes a balance in dealing with competence-competence. The arbitrators can determine their jurisdiction without waiting on the courts to do so, but they should not risk their time and everybody’s else. The English Act also provides the right to challenge arbitral jurisdiction by declaration or injunction only to a person who takes no part in the proceedings, or the challenger must wait until an award. With the preliminary award instrument, the Act aims to provide flexibility. Under section 30(1 &2), arbitrators can decide jurisdiction either preliminarily or in the final award. Section 31(5) allows parties by agreement to force the arbitrators to decide jurisdiction preliminarily. Under Section 32(1 &2), the court can intervene if only the arbitrators have agreed, but not the other party, and the court itself is also satisfied that there are good reasons.

The Model Law

Its language places a firm prohibition on judicial intervention though it does not strictly apply competence as the French law. It strikes a balance between allowing judicial intervention on jurisdiction application in the early stages of arbitration and deferring it until after the award. Article 8(1) and 16 deal with negative competence-competence but 8(1) deals more with judicial decision at stage 1 by addressing the role of the court concerning a valid arbitration agreement by providing that:
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.

The language on its face value denotes that unless it finds the agreement to be null and void, not operational or cannot be carried out, it could be read to authorize a full judicial determination of the arbitration agreements existence and validity. However, no guidelines are given regarding the standard, which may be utilized for a determination. The founders preferred the settlement of the issue by the courts before reference to arbitration. Also, they declined to incorporate the word ‘manifestly’ before ‘null and void’, which would have restricted the courts to a prima facie determination that the arbitration agreement was valid. The reasoning behind the language used by Article8(1) was that the courts ought to resolve the arbitration agreement question before reference to arbitration fully. Article 16 deals more upfront with competence-competence, however Articles 16(3) and 8(2) go further to adopt a partial negative competence-competence. Article 16 states:
The arbitral tribunal may rule on a plea . . . [that it does not have jurisdiction] 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 specified 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.
Article 8(2) reads: “Where an action . . . [in a matter that is subject to an arbitration agreement] 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.

Though 8(2) does not codify the French version, it certainly accommodates it. The article allows the continual of arbitral hearings despite the court’s consideration of arbitral jurisdiction. The courts might then decide to refer the matter to an arbitral tribunal entirely or accept it as correct until proven otherwise at stage 1. Article 16(3) encourages this process even further by enabling the arbitrators to rule on their jurisdiction as a preliminary question which, of course, provides for an unappealable judicial review of the decision.

Kenya

The Arbitration Act provides the arbitral tribunal with the authority to rule on its own jurisdiction or any objections on the validity of the arbitration agreement. However, an arbitration clause is treated as a separate agreement independent of any other contractual terms. This therefore means that although a tribunal may declare a contract as null and void, the arbitration clause shall not be invalidated. The Act also provides that any challenge to the arbitral tribunal jurisdiction shall be raised before the submission of the statement of defense. The law does not exclude a party from raising a jurisdictional challenge on the grounds of their participation in appointing an arbitrator. This therefore provides all parties with their constitutional right of a free and fair hearing. Also the law protects the arbitral proceedings from unwanted objections to obstruct the proceedings by ensuring the jurisdiction question is handled before reference to a tribunal.

The law, to prevent the objection of an award by a party aggrieved by the ruling, on the grounds of jurisdictional question, strictly provides that any matter relating to the scope of authority of the tribunal should be raised as soon as the matter is raised during the proceedings. In such cases of jurisdictional question, the tribunal may admit the plea based on its justification and rule either as a preliminary question or in an arbitration award. In its ruling as a preliminary question, an aggrieved party has the right to apply to the High court for determination 30days after receiving the ruling on the matter. The Kenyan law, by allowing the arbitral tribunal to rule on its jurisdiction, does not deny the courts room for intervention where legitimate concerns are raised by parties. As much as the law recognizes the independence of the process, it also, as the custodian of the law, ensure that the arbitration process is within its scope of authority and guarantees a fair and just ruling. The idea is not for all the parties to go home happy but for both parties to first be guaranteed of a fair and just process and to be satisfied with the fairness and justice of the ruling.

The high court in determination of the preliminary question, shall not be subject to appeal but its ruling on the matter is final. The arbitral proceedings are allowed to commence, continue and conclude pending the case on jurisdiction before the High Court. However, the award will only take effect if the challenge is unsuccessful but will be rendered null and void if it succeeds. It would however be better if all questions of jurisdiction are handled before reference to arbitration or if raised during proceedings, the proceedings should be stopped until the determination of the matter. This would save on time and money. High courts ruling after an award, if successful, will mean a start over of the process.

Conclusion

At the onset, the negative effect might seem quite excessive or forceful in its pro-arbitration inclination, but the reasons that drive the negative aspect are the efficient considerations. The commercial imperative for an efficient dispute settlement mechanism is highly relevant to shaping arbitration law. The rules and procedures should make it easy and lessen the time spent on the jurisdiction question. Obstruction prevention was the main focus of the proponents of negative competence. Parties will move to court to challenge the arbitrator’s jurisdiction once a dispute arises and they feel for some reason the arbitration agreement that binds it is inconvenient. If they are successful in their application, it may further delay the arbitration for months. Opportunities for parties to exploit judicial proceedings to obstruct arbitration should be closed off, increasing the arbitration’s overall effectiveness and minimizes the abuse of legal rights.

Other reasons favouring negative effect reflect the specialized nature of arbitration law, which is often overlooked. It is incumbent for arbitrators to have knowledge and expertise in arbitration laws essential in the interpretation of arbitration agreements. Courts rule on jurisdiction often trigger a review of domestic contractual law analysis, although the principles that govern reference to arbitration are different to those of contract formation. Domestic contractual laws are usually a hindrance to the harmonizing objective being advanced by international initiatives like the model law. Legal

assessments being conducted from a judicial perspective is one of the risks of arbitration provisions. This assessment conducted with norms and imperatives not relevant to arbitration jurisdiction cause confusion of the domestic judicial technique and arbitration, which is detrimental to arbitration support.
If and when a court reviews an award, it may do so with the benefit of the tribunal’s reasoning, perhaps conserving judicial resources. Not every objection to jurisdiction comes in good faith in the litigation world but looks to sabotage the process. Such challenges to jurisdiction that are purely obstructive should be dealt with through costs sanctions.

advanced divider