Is the principle of competence-competence recognised? What is the approach of local courts towards a party commencing litigation in apparent breach of an arbitration agreement?
International Arbitration (2nd Edition)
The two aspects of competence-competence – positive competence-competence and the negative effect of competence-competence – are recognised in Malaysia.
Positive competence-competence is statutorily recognised in section 18(1), AA. Thus, an arbitral tribunal in Malaysia has competence to preliminarily decide virtually all jurisdictional disputes subject to a subsequent right of appeal to the Malaysian High Court.
Malaysia has embraced the negative effect of competence-competence through its case law. The negative effect of competence-competence, is a rule of chronological priority prohibiting national courts from considering jurisdictional objections on an interlocutory basis prior to the arbitrator’s initial determination on the same jurisdictional question. In line with this concept, Malaysian courts are deferential to arbitrators on matters of jurisdiction and are generally willing to grant stays of court proceedings to allow jurisdictional questions to be first determined by arbitrators.
International Commercial Arbitration Law No 19.971 (ICAL) does recognize the principle of competence-competence, as its Article 16(1) states that the arbitral tribunal may decide on its own competence, even about the exceptions that may arose in regard of the existence or validity of the arbitration agreement. This principle is also found in Article 16 of the Rules of International Commercial Arbitration of the Santiago Arbitration and Mediation Center, in the same terms as in the ICAL.
Consequently, in case a party commences an arbitral proceeding in apparent breach of an arbitration agreement, the matter shall be submitted to the decision of the arbitral tribunal, since such tribunal is the authority entitled by law to rule on its own competence.
Yes, it is. Art. 18 (1) LAV determines that the arbitral tribunal may decide upon its own jurisdiction even if for such is necessary to determine the existence, validity, efficacy or applicability of the arbitration agreement or of the agreement in which is inserted.
The LAV also embraces the “negative effect of the arbitration agreement”. Art. 5 (1) determines that the State court in which is submitted a lawsuit relating to an issue covered by the arbitration agreement should, at request of the Respondent (lodged until the moment that it should submit its first memorial regarding the substance of the cause), dismiss the case, except if the arbitration agreement is clearly null, if it is or became inoperative, or is incapable of being enforced.
The principle of competence-competence is recognised in Luxembourg, although no specific rule directly addresses the allocation of competence between courts and arbitrators. The arbitral tribunal may rule on its own jurisdiction and may, for this purpose, examine the validity of the arbitration agreement.
If court proceedings are initiated despite an existing arbitration agreement, an objection to jurisdiction must be raised in limine litis. Should the opposing party fail to object to court proceedings, the court would not raise the matter independently, and the opposing party would be deemed to have waived the right to settle the dispute by arbitration proceedings. If the opposing party objects in limine litis, the court declares that it is not competent to hear the case.
The principle of competence-competence applies to arbitral tribunals based on art. 178 para 1 PILA.
Swiss court practice has established principles favouring arbitration over state court litigation, at least where the parties have agreed on arbitration seated in Switzerland. When a state court's jurisdiction is contested based on the existence of an arbitration agreement, Swiss court practice directs any state court seized to refer the matter for review to the arbitral tribunal stipulated in the arbitration agreement in question, if the arbitration agreement on its face appears to be valid and capable of being performed by the parties. This is referred to as the negative effect of competence-competence, which applies in Switzerland with regard to arbitral tribunals seated in Switzerland. Thus, if an arbitration agreement provides for arbitration seated in Switzerland, a state court (wrongly) seized by a party must even in case of doubt refrain from reviewing the arbitration agreement (i.e. its validity and scope) and refer the matter to arbitration.
The Arbitration Act expressly provides that the arbitral tribunal is authorized to decide on its jurisdiction, including any objections regarding the validity or existence of the arbitration agreement.
If a party commences court proceedings in breach of arbitration clause, the court shall, upon respondent’s objection, declare lack of jurisdiction of the court, annul all actions in court proceedings and dismiss the statement of claim (unless it finds that the arbitration agreement is null and void, inoperative or incapable of being performed). The respondent may object to the jurisdiction of the court at the latest at the preliminary hearing, and if no such hearing is held, at the main hearing during discussion on the merits, until the response is given to the statement of claim.
Yes, the principal of competence-competence (so-called Kompetenz-Kompetenz) is recognized pursuant to section 1040 (1) ZPO. Accordingly, the tribunal can decide on its own jurisdiction and therefore on the existence and validity of an arbitration agreement. The tribunal’s decision is subject to review in potential subsequent setting-aside proceedings. In addition, German arbitration law provides for the option to obtain a court decision on the validity of the arbitration agreement prior to the constitution of the tribunal (section 1032 (2) ZPO).
If arbitration is commenced in violation of the actual arbitration agreement (e.g., the proceedings are initiated at the wrong arbitration institution), the respondent must object to the tribunal’s jurisdiction no later than with its reply to the request for arbitration. Such party’s participation in the constitution of the tribunal does not prevent such objection (section 1040(2) ZPO). The tribunal must then render a decision on jurisdiction, which may be challenged within one month before the competent state court (section 1040(3) ZPO).
The Arbitration Act recognises the principle of competence-competence.
Under the Arbitration Act 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 no later than when submitting its first 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. Ukrainian courts generally tend to comply with this provision, however, they also tend to scrutinize in detail the issue of validity of arbitration agreement on this stage.
The principle of competence-competence is recognised in Panama. Indeed, since 2004, it is also included in the Panamanian Constitution.
The approach of local courts towards a party commencing arbitration in apparent breach of an arbitration agreement is to refer the matter to arbitration.
Although the DIAC Rules (Article 6), expressly confer power on an Arbitral Tribunal to determine its own jurisdiction, this principle is not expressly stated in the UAE CPC.
The UAE Courts have the power to nullify an award for lack of jurisdiction regardless of the determination of the Arbitral Tribunal as to its own jurisdiction.
Claimant may however attempt to bypass the contractually required arbitration process and file their claim directly with the courts. The party that wishes to restore the arbitration process must raise objection ‘at the first hearing’ in accordance with Article 203 of the UAE CPC or be deemed to have waived its right to arbitrate.
UAE Off-Shore Jurisdictions
The DIFC Arbitration Law (Article 23) empowers an Arbitral Tribunal to rule on its own jurisdiction. This is further supported by the DIFC-LCIA Arbitration Rules (Article 23).
Under the Arbitration Act, the tribunal has the power to rule on its own jurisdiction.
If the tribunal finds that it lacks jurisdiction, it shall dismiss the dispute in an arbitral award. Such award becomes final unless challenged by a party.
In contrast, if the tribunal finds that it has jurisdiction, the ruling shall be in the form of a decision. Such decision may not be appealed.
However, in parallel proceedings, the district courts may also rule on the tribunal’s jurisdiction, which will overrule any decision of the tribunal.
The sanctions available for local courts to “punish” a party for commencing arbitration in apparent breach of an arbitration agreement are first to declare that the tribunal lacks jurisdiction and secondly to order that party to pay the other party’s costs for the jurisdictional proceedings before the court.
The principle of kompetenz-kompetenz is expressly admitted in Spain. Section 22 of the SAA clearly states that arbitrators can adjudicate on their own jurisdiction.
Furthermore, the decision of the arbitrators on their jurisdiction may only be challenged by means of an application to set aside the final −or a separate− award on jurisdiction.
A Spanish Court can only address the question of the jurisdiction and competence of the arbitral tribunal when one of the parties commences a proceeding in apparent breach of an arbitration agreement, or when the award rendered by the arbitral tribunal is being challenged or the enforcement order is appealed on the basis that the arbitral tribunal's decision on jurisdiction was wrong.
Yes, the principle of competence-competence is explicitly recognized under Law on Arbitration. As for the position of courts, if a party initiates arbitration in apparent breach of an arbitration agreement and the other side invokes the existence of the arbitration agreement, the law provides that the court will refer parties to arbitration unless the arbitration agreement is manifestly null and void or incapable of being performed. Thus, Serbian law mimics position of the French law on this matter.
As for jurisdictional objections before the tribunal, they may be decided on either as a preliminary issue, or in the final award. If the tribunal decides on jurisdiction as a preliminary issue, each party may address the local court within 30 days from receipt of the decision on jurisdiction and request that the court decides on jurisdiction. Alternatively, if the tribunal decides on its jurisdiction in the final award, the party which disputes the jurisdiction may request that the award is set aside on grounds of lack of jurisdiction.
The principle of competence-competence is recognized in the Philippines.
The arbitral tribunal shall be accorded the first opportunity or competence to rule on the issue of whether or not it has the competence or jurisdiction to decide a dispute submitted to it for decision, including any objection with respect to the existence or validity of the arbitration agreement. When a court is asked to rule upon issue/s affecting the competence or jurisdiction of an arbitral tribunal in a dispute brought before it, either before or after the arbitral tribunal is constituted, the court must exercise judicial restraint and defer to the competence or jurisdiction of the arbitral tribunal by allowing the arbitral tribunal the first opportunity to rule upon such issues.
Where the court is asked to make a determination of whether the arbitration agreement is null and void, inoperative or incapable of being performed, under this policy of judicial restraint, the court must make no more than a prima facie determination of that issue. Unless the court, pursuant to such prima facie determination, concludes that the arbitration agreement is null and void, inoperative or incapable of being performed, the court must suspend the action before it and refer the parties to arbitration pursuant to the arbitration agreement.
Where parties have agreed to submit their dispute to arbitration, the local courts must refer the parties to arbitration, bearing in mind that the arbitration agreement is the law between the parties and they are expected to abide by it in good faith.
The principle of Kompetenz Kompetenz is well recognized in India under the Section 16 of Arbitration & Conciliation Act, 1996 which explains the competence of arbitral tribunal to rule on its jurisdiction.
The party wants to challenge the jurisdiction of the Tribunal, has to file the application under section 16 of the Arbitration and Conciliation Act, 1996 prior to filing of his defence to the substance of the matter. Merely a party participated in the process of appointment of arbitrator, does not debar him from challenging the jurisdiction of the Tribunal. In appropriate cases, the Tribunal can also condone the delay in filing such application.
If the Tribunal rejects the plea regarding challenge to its own jurisdiction, then the Tribunal has to proceed with passing the Award and such Award can be challenge under section 34 of the Arbitration and Conciliation Act, 1996.
If the Tribunal allows the plea regarding challenge to its own jurisdiction, then the aggrieved party can file an appeal before the Hon’ble Court under section 37 of the Arbitration and Conciliation Act, 1996.
At present after coming force of the amendment to the Arbitration and Conciliation Act 1996 in 2015, there is an increase in number of challenge.
Yes, the principle of competence-competence is recognized in Ecuador. Under the provisions of the LAM, the arbitration tribunal must decide whether it has competence in the first hearing (Audiencia de Sustanciación) of the arbitral proceeding.
The LAM provides that the parties can waive in writing the arbitration agreement in which case any of them may file a claim with the competent local judicial court. It is understood, however, that such a waiver exists when any of the parties files a claim with a judicial court and the respondent does not file pleas or defenses about the existence of the arbitration agreement when answering the claim. In the event pleas or defenses are filed, the judicial court must notify the other party accordingly and require that the parties provide evidence of what they claim within the next three days. If the judicial court accepts the pleas or defenses concerning the existence of the arbitration agreement, it will have to dismiss the claim. Otherwise, the judicial court will resolve the claim under the general rules of litigation contained in the Organic General Code of Procedures.
The arbitration tribunal in the first instance rules on all these jurisdictional issues (competence-competence). The arbitration clause is deemed separate from the underlying agreement for this purpose. At the end of the arbitration, a party can bring an action in court for nullity of the arbitration award on the basis of lack of jurisdiction. In all cases, jurisdictional challenges must be recorded in the arbitration process before submissions on the merits. Otherwise, the party bringing these challenges can be deemed to have waived its right to challenge.
The principle of competence-competence is recognized in Norway. The arbitral tribunal rules on its own jurisdiction, including objections with respect to the existence or validity of the arbitration agreement.
If the arbitral tribunal rules that it has jurisdiction, each party may, within one month of having received that ruling, bring the issue before the courts. The arbitral tribunal may continue the arbitral proceedings and determine the dispute even though the issue of the arbitral tribunal’s jurisdiction is pending before the courts.
If a party commences litigation in apparent breach of an arbitration agreement, the courts shall as a principal rule dismiss the case. The court shall, however, hear the case if it finds that the arbitration agreement is invalid or for other reasons cannot be implemented.
Yes, pursuant to section 16 of the ICA Law, the Tribunal is competent to determine its own jurisdiction and to rule on matters regarding the validity or existence of the arbitration agreement. In cases where a party commences court proceedings, in breach if an international commercial arbitration agreement, the Court is obliged to refer such proceedings to arbitration upon a relevant application by either party as long as this is made prior to the submission of its pleadings. The Court will not refer a matter to arbitration if the arbitration agreement is found to be null, void or incapable of being enforced.
In France, the principle of competence-competence is widely recognised and applied (Article 1448, CCP). Application of the principle means that:
- In the first instance, the arbitral tribunal has jurisdiction to rule on its own jurisdiction.
- A French court must decline jurisdiction in the presence of an arbitration agreement and let the arbitral tribunal decide.
However, this principle does not mean that national courts can never have a say on the jurisdiction of an arbitral tribunal. Before the constitution of the tribunal, a court can accept jurisdiction if the arbitration agreement is manifestly void or manifestly not applicable. The threshold for this test is very high, and French judges decide the issue on a prima facie basis (see Court of Cassation, First Civil Chamber, 7 June 2006, No. 03-12.034). Any ambiguity is resolved in favour of the tribunal’s power to decide the issue.
French courts can also review the issue of the tribunal’s jurisdiction at the setting-aside stage. In such a case, the court will review the issue de novo and its review will not be bound by the factual and legal findings of the tribunal.
Pursuant to Article 817 CCP, it is for the arbitral tribunal to rule upon its own jurisdiction and decide on the validity, scope and content of the arbitration clause. Any objection to the validity of the arbitration agreement must be raised in the first brief after the appointment of the arbitral tribunal.
In accordance with Article 819-ter CCP, when arbitration proceedings are pending, national courts must refrain from deciding on the validity of the arbitration agreement.
By the provisions of section 12(1) of the ACA, an arbitral tribunal is competent to rule on questions pertaining to its own jurisdiction and on any objections with respect to the existence or validity of an arbitration agreement. An objection that the arbitral tribunal lacks jurisdiction must be raised no later than the time of submission of the points of defence, and a party is not precluded from raising such plea by reason that he or she has appointed, or participated in the appointment of, an arbitrator.
Furthermore, an objection that the arbitral tribunal is exceeding the scope of its authority can be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the proceedings. However, an arbitral tribunal shall rule on any such objections either as a preliminary question or in an award on the merits, and such ruling is final and binding. The ACA makes no provision for circumstances in which parties can be precluded from raising jurisdictional objections.
Even though the ACA does not specifically state that a court can determine the issue of an arbitral tribunal’s jurisdiction, it is not precluded from doing so if any of the parties approaches it. This is particularly so where an arbitrator proceeds with arbitration even where circumstances exist that could give rise to justifiable doubts as to his or her impartiality or independence (section 8(3)(a) ACA).
Further, the court can be asked to determine the issue of jurisdiction and competence of an arbitral tribunal after the award has been made and proceedings have been commenced in such instances seeking to set aside or refuse the recognition and enforcement of arbitral awards. Arbitrators exceeding their mandate have been held to constitute misconduct on the part of the tribunal for which an award may be set aside under section 30 of the ACA. See Taylor Woodrow Ltd v GMBH (1991) 2 NWLR (Pt. 175) 604.
Nigerian courts consider arbitration agreements to be binding on the parties and have been consistent in holding parties to their arbitration agreements. See M.V Lupex v NOC & S Ltd. (2003) 15 NWLR (Pt. 844) 469. Where a party to an arbitration agreement commences an action in court with respect to any matter that is the subject of an arbitration agreement, any party to the arbitration agreement may, at any time after appearance or before delivering any pleadings or taking any other steps on the proceedings, apply to the court for an order of stay of proceedings. If the court is satisfied that there is no reason why the matter should not be referred to arbitration in accordance with the arbitration agreement and that the applicant is still willing and ready to submit to arbitration, the court may order a stay of proceedings. See sections 4 and 5, ACA. Recently, the Chief Justice of Nigeria in collaboration with the National Judicial Institute issued a policy statement and directives mandating Nigerian courts to insist on enforcing arbitration agreements.
Austrian law recognises the concept of Kompetenz-Kompetenz; in other words, an arbitral tribunal has the competence to rule on its own competence/jurisdiction.
If an action is brought before a domestic court in apparent breach of an arbitration agreement, the charged court is to reject it. Further, such court proceedings do not prevent any parallel arbitral proceedings being commenced or continued. However, in practice, arbitral tribunals usually suspend their proceedings until the domestic court in question has rendered a final decision on the matter (for an award would be exposed to challenge if the court decided that it was competent).
Besides, the breach of an arbitration agreement by bringing an action before a domestic court can trigger liability under general Austrian civil law. Where the arbitration agreement is sufficiently broad, the arbitral tribunal can be competent to decide on respective damages.
The principle of competence-competence (i.e., the principle that the arbitral tribunal has authority to rule on its own jurisdiction, including to decide objections with respect to the existence or validity of the arbitration agreement) is recognized in the United States, but its scope and application are not codified or settled.
When presented with a challenge to its jurisdiction to decide particular claims, an arbitral tribunal seated in the United States may decide such challenge without need of referring it to a court for resolution. Whether a court would defer to such determination, however, would depend on the nature of the challenge at issue and, frequently, on the language of the parties’ arbitration agreement.
When a question of arbitral jurisdiction is presented to a court for decision (such as where one party institutes an action to stay an arbitration commenced by the other party), the court will decide the issue itself (without deference to the arbitrator(s)) unless there is ‘clear and unmistakable evidence’ that the parties intended to submit that particular question to the arbitrator(s). See First Options of Chicago v. Kaplan, 514 U.S. 938 (1995). In practice, courts often find that where the parties have incorporated arbitration rules that empower the arbitral tribunal to determine its own jurisdiction, or broad language submitting ‘any and all disputes’ to arbitration, this constitutes ‘clear and unmistakable evidence’ that the parties intended the arbitrator(s) to determine their jurisdiction. On the other hand, courts also have held that certain jurisdictional challenges, such as challenges to the formation of the main contract containing the arbitration clause (e.g., an allegation that the contract was a forgery and thus never came into existence), cannot logically have been delegated to the arbitrator and therefore must be decided by the court irrespective of the language of the alleged arbitration agreement. See, e.g., Sphere Drake Ins. v. All American Ins., 256 F.3d 587 (7th Cir. 2001).
The principle of competence – competence is unanimously accepted in legal literature and case law. It is also the law as regards both domestic as well as international commercial arbitral proceedings. With regard to the former, article 887 para. 2 GrCCP pro-vides that, unless the parties agree otherwise, the arbitrators have jurisdiction to decide on their own jurisdiction. With regard to the latter, article 16 para. 1 L. 2735/1999 pro-vides the same without the reservation of a contrary agreement by the parties.
According to the Israeli case law, an arbitrator is not competent to decide as to the scope of his own jurisdiction (unless he was explicitly authorized accordingly in the arbitration agreement or by law or in case his decision in this matter was made incidentally). Hence, the decision on this matter will be given by the court.
In general, the courts in Israel enforce arbitration clauses in view of the principle that the will of the parties should be respected. Therefore, as a rule, arbitration agreements are respected. Given that, in the event that a legal proceeding was filed in court although the agreement was to refer the dispute to arbitration, the party that is a party to the arbitration agreement may apply for a stay of proceedings (Section 5 of the Arbitration Law), and the court will stay the proceedings, provided that this party has been and still is prepared to do everything required for the institution and continuation of the arbitration. Notwithstanding, the court has the power not to stay the proceeding where it sees a special reason for the dispute not to be held under arbitration.
With regard to a legal proceeding that was commenced despite of a foreign arbitration clause which is subject to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 ('the New York Convention'), the court would be obligated to stay the proceeding (Section 6 of the Arbitration Law), unless the exclusions provided for under the New York Convention are met.
The 1996 Act recognises the principle of competence-competence (s.30(1)).
If a party commences court proceedings in the jurisdiction in breach of the arbitration agreement, the court has the power to grant a stay on an application made by the other party against whom legal proceedings are brought (s.9(1)). If proceedings are commenced outside the jurisdiction, the court does not have the power to issue an anti-suit injunction against the breaching party.
The principle of competence-competence is fully recognised under Romanian arbitration law. Once a dispute has been referred to arbitration, the arbitral tribunal is competent to decide on its own jurisdiction – and will do so even if identical disputes are pending before the courts or other arbitral tribunals, except if the arbitral tribunal finds it appropriate to suspend the proceedings. Further, the arbitral tribunal’s ruling that it has jurisdiction may not be challenged before the courts during the arbitral proceedings. Such decision may be subject to judicial review by state courts only during an action to set aside the final arbitral award. Therefore, the arbitration law provides no procedural grounds allowing a party to ask the local courts, during the arbitral proceedings, to determine whether an arbitral tribunal has jurisdiction.
Nevertheless, a state court court vested with a dispute in respect of which an arbitral agreement has been concluded will check its own competence and decline its jurisdiction if at least one of the parties invokes the existence of the arbitration clause. The court will retain its jurisdiction in settling the dispute only in three exceptional situations, namely, if the respondent has submitted its defence without invoking the existence of the arbitration agreement, if the arbitration clause is null or inoperable, and if the arbitral tribunal cannot be constituted from causes clearly attributable to the defendant in the arbitration.
The principle of competence-competence is recognised in Turkish law. The arbitrator or the arbitral tribunal may decide on its/their own authority, including the resolution of objections regarding the existence or validity of the arbitration agreement. During this decision, the arbitration clause is assessed separately from other provisions of the agreement. The arbitration agreement does not become invalid automatically in case the sole arbitrator or the arbitral tribunal decides on the invalidity of the main agreement.