Between Scylla and Charybdis: Should Negative Jurisdictional Decisions by the Arbitral Tribunal Be Reviewable By Domestic Courts?

Author: Rajarshi Singh*

I. INTRODUCTION

The principle of compétence-compétence, often termed as the foundational principle of international arbitration, ideates that the arbitral tribunal is vested with the power to rule on the question of its own jurisdiction.[1] In practice, this result follows and courts are prohibited from deciding questions relating to the tribunal’s jurisdiction before the tribunal has had a chance to rule on the same.[2] However, what happens if the tribunal rules negatively on the question of jurisdiction, that is, it finds that it does not have jurisdiction over the referred dispute? Can the parties request the domestic court, which is exercising supervisory jurisdiction, to review this decision of the tribunal? If a court overturns the decision of the tribunal, will it not amount to finding the jurisdiction for the arbitral tribunal in violation of the compétence-compétence principle?

When looked at this from an analytical perspective it is evident that there are several competing considerations at play. There is a conflict between party autonomy, the compétence-compétence principle, judicial intervention and the court’s duty to preserve legitimate claims. Striking a balance between these often-conflicting principles, in essence, can accurately be captured by the Greek idiom ‘Between Scylla and Charybdis’, which means being between a rock and a hard place. It is against this background that this post intends to analyze the jurisprudence pertaining to judicial review of negative jurisdictional findings by an arbitral tribunal and answer whether courts can intervene at this stage to overturn the decision of a tribunal that it lacks jurisdiction to hear the dispute.

II. POSITION OF REVIEWABILITY OF NEGATIVE JURISDICTIONAL FINDINGS UNDER UNCITRAL MODEL LAW

The UNCITRAL Model Law (‘Model Law’) provides for reviewability of a tribunal’s decision regarding its jurisdiction under Article 16(3) by a court.[3] This provision stipulates that if the arbitral tribunal rules that it has jurisdiction, any party may request, within thirty days after having received notice of that ruling, the specified court to decide the matter. It is important here to note that this provision expressly limits judicial review in cases where the tribunal ‘has the jurisdiction.’[4]

Careful analysis of the deliberations leading to the formation of the Model Law also seem to side with the argument that it does not provide for reviewability of negative jurisdictional findings by the arbitral tribunal. During the drafting stage of the Model Law, it was suggested that courts be vested with the power to review even a negative jurisdictional decision by a tribunal. One such proposed addition to Article 16(3) was that ‘a ruling by the arbitral tribunal that it has no jurisdiction may be contested by any party within 30 days before the Court.’[5] This language however did not find a place in the final draft of the instrument. This reinforces the argument that drafters of the Model Law did not intend to give domestic courts the power to review a negative finding of jurisdiction by the tribunal.

This contention draws strength from the travaux préparatoires of the model law which states: “…the second sentence of article 16 (3) did not cover the case where the arbitral tribunal ruled that it had no jurisdiction.”[6] One reason given during the UNCITRAL Working Group debates on this issue was that it would be ‘inappropriate’ for a court to compel an arbitral tribunal to continue with an arbitration after it had found that it lacked jurisdiction.[7]

Hence, the Model Law does not provide sufficient guidance regarding the scope of reviewability of a negative jurisdictional finding. Rather this instrument posits a counter position and holds that negative jurisdictional findings should not be reviewed by courts. The text and the travaux of the Model Law, in tandem, limit the reviewability of jurisdictional decisions of an arbitral tribunal to the ones where it finds that it has the jurisdiction, keeping negative findings beyond the scope of judicial review.

III. PRINCIPLE OF COMPÉTENCE-COMPÉTENCE AND ITS IMPLICATION ON REVIEWABILITY

The authority of the arbitral tribunal to rule on its own jurisdiction, exempt from judicial interference, stems from the principle of compétence-compétence, which is enshrined in Article 16(1) of the Model Law.[8] The principle of compétence-compétence vests arbitrators with the authority to determine their own jurisdiction in an effort to increase efficiency of the arbitral system by restraining judicial interference.[9] This principle, as noted by Prof. Emmanuel Gaillard, consists of two concurrent gauges, that is, the positive effect and negative effect of compétence-compétence. These standards are important to discuss before we proceed with our specific enquiry because they form the theoretical background against which the reviewability of a tribunal’s negative finding needs to be addressed.

The ‘positive effect’ of compétence-compétence merely restates that the authority to decide whether the referred dispute can be arbitrated, in accordance with the arbitration agreement, lies with the arbitral tribunal constituted therein.[10] It empowers the tribunal to decide its own jurisdiction if it is challenged by a party.[11] Its significance, as highlighted by Prof. Gaillard, is that it leaves no scope for “illogicality arising from the fact that it is not a permanent body and that the determination of its jurisdiction is founded on the parties’ agreement, which it may eventually find to be inexistent or vitiated, to arbitrate their dispute.”[12] In addition to the positive effect, this doctrine also has a ‘negative effect’ which is more pertinent to our discussion.

The negative effect of compétence-compétence is best described by Prof. Gaillard and John Savage as “allow[ing] the arbitrators to be not the sole judges, but the first judges of their jurisdiction.”[13] Under negative compétence-compétence, courts “restrict their review of jurisdiction at the initial stages of the arbitral process to a prima facie review” of the arbitration agreement.[14] This means that this principle accords primacy to the tribunal to arrive at a decision on their jurisdiction before the courts can intervene. Hence, negative compétence-compétence does not completely bar the courts from determining the question of tribunal’s jurisdiction. Instead, it stipulates that their role is limited to reviewing the decision once the tribunal has had a chance to decide it. In effect, this means that there is scope for judicial thought with regards to the question of an arbitral tribunal’s jurisdiction.

Taking both of its facets into account, the compétence-compétence principle can be defined as the rule whereby arbitrators must have the first opportunity to hear challenges relating to their jurisdiction. Subsequently, however, the courts may intervene to review their decision regarding jurisdiction.[15] This principle makes no distinction between positive or negative jurisdictional finding for the purposes of judicial scrutiny of tribunal’s decision. Hence, there is nothing in this principle which precludes domestic courts from reviewing a tribunal’s negative decision regarding its jurisdiction.

IV. SHIFTING TENDENCY OF STATES TOWARDS ALLOWING REVIEWABILITY OF NEGATIVE JURISDICTIONAL FINDINGS

The understanding, and application of the compétence-compétence principle is not globally uniform, so to speak. In practice, different jurisdictions exhibit a certain degree of divergence in interpreting this principle.[16] That is, the ambit of the competénce-compétence principle has been moulded by several countries, either through explicit legislative instruments or judicial interpretations, to reflect their position on this contentious issue. For example, Chinese arbitration law does not recognise this principle at all.[17] In China, it is either the people’s court or the arbitration commission that can decide upon issues pertaining to arbitral tribunal’s jurisdiction.[18] However the decision of the court is given precedence.[19] Under the Sri Lankan Arbitration Act, in addition to the arbitral tribunal, the domestic courts also have the authority to decide upon arbitral tribunal’s jurisdiction.[20] The approach in United States is somewhat similar.[21] Though the doctrine of compétence-compétence is recognized in US arbitration law, decisions of the Supreme Court have nevertheless allowed federal courts to pre-empt the arbitrators’ exercise of that power unless the parties clearly and unmistakably provide otherwise.[22] This position is in consonance with the views of several scholars who argue that the ultimate authority for the principle of compétence-compétence must be found in the lex arbitri of the seat of arbitration.[23]

This argument is reinforced by the fact that during the drafting stage of the Model Law, the parties intended to allow states to define the ambit of the compétence-compétence principle applicable within their jurisdiction. The Report of the UNCITRAL on the work of its 18^th Session noted in this regard that

The principle  embedded in the paragraph [16(1)] was an important one for the functioning of international commercial arbitration; none the less, it was ultimately for each State, when adopting the model law, to decide whether it wished to accept the principle and, if so, possibly to express in the text that parties could exclude or limit that power.[24]

Sir Gary Born also confirms in his treatise on international commercial arbitration that it is for countries to decide how strong a negative-effect doctrine they wish to adopt, inadvertently defining the ambit of compétence-compétence in that jurisdiction.[25] Hence, the compétence-compétence doctrine must be perceived, not as a rigid concept, but rather as a progressively evolving notion which can accommodate jurisprudential developments to overcome the shortcomings in the arbitral process.

This flexibility makes room for state authorities to provide for judicial determination of a tribunal’s decision regarding its jurisdiction. It is often argued that a flexible interpretation of the compétence-compétence principle could potentially protect innocent parties in the arbitral process by allowing judicial interference.[26] It is submitted that it holds true under the present discussion as well. As noted above, Article 16(3) of the Model Law allows only for a review of positive jurisdictional findings. However, the accepted variations in some jurisdictions of the overarching idea of compétence-compétence, have allowed the authorities in those countries to expand the scope of this article to include judicial reviewability of negative jurisdictional findings. For example, in India, section 37 of the Indian Arbitration and Conciliation Act, dealing with ‘Appealable Orders’, includes as appealable an arbitral tribunal’s order that it does not have jurisdiction.[27] New Zealand, whose arbitration statute is also based on the Model Law, has removed the word ‘positive’ from Article 16(3) making negative decisions reviewable by domestic courts.[28] Singapore has modified the Model Law, as implemented in Singapore, to provide court review of both positive and negative rulings on jurisdiction.[29]

In some jurisdictions, it has been the courts who have expanded the ambit of review of an arbitral tribunal’s jurisdictional findings to review negative decisions. Courts in Canada, for example, have applied Article 16(3) to negative jurisdictional findings, reasoning that not allowing such a review would force the claimant to commence a court action without ever having had the benefit of a judicial ruling on the disputed jurisdictional issue, a situation that was deemed intolerable.[30]

Some courts however have adopted a significantly different approach to bring the negative decision on jurisdiction under the ambit of judicial review. The German Federal Court of Justice, for instance, found that article 34 allows negative jurisdictional decisions to be set aside in one of the specific circumstances explicitly mentioned under article 34, even if it does not expressly allow courts to review the merits of negative jurisdictional decisions.[31] English courts have exercised their power to review negative jurisdictional findings of an arbitral tribunal under Section 67 (Challenging the award) of the Arbitration Act 1996 to set aside a tribunal’s ruling that it lacked jurisdiction.[32] However, it must be highlighted that this practice is not uniform and in various jurisdictions throughout the globe negative jurisdictional findings are specifically exempt from judicial review.[33]

Hence, though countries are increasingly accepting that negative jurisdictional findings should be reviewable by domestic courts, there is no uniformity in the application of power of courts regarding the same. This is problematic since it leaves the rights of the parties under the agreement, in particular their right to have their dispute resolved by an arbitral tribunal, hanging in uncertainty and subject to the policy measures at the seat of the arbitration. That is to say, variance across jurisdictions creates irregularity in the development of international arbitration jurisprudence, resulting in according some parties a forum to exercise their rights, while denying others the same in other jurisdictions. Commenting on this situation, the Singapore Academy of Law in its Report on Right to Judicial Review of Negative Jurisdictional Rulings termed it as unfair and inconsistent.[34] The Suggestions of this Report later formed the basis of an amendment in Singaporean arbitration law which led to the inclusion of negative jurisdictional findings under the scope of judicial review.

V. CONCLUSION

Countries have approached the question of reviewability of negative jurisdictional findings in a variety of ways, adding to the skepticism surrounding this issue. Though the Model Law posits that it should not be allowed, state practice, through flexible interpretation of its provisions, demonstrates that countries do agree on the expediency of such a review in the arbitral process. This could possibly be because the probability of an erroneous negative jurisdictional finding is the same to that of a positive jurisdictional finding.

The question of reviewability of an arbitral tribunal’s decision denying jurisdiction, at present, remains ambiguous. Though the theoretical foundations are not yet authoritatively settled, a recourse may be had to the compétence-compétence doctrine. The negative effect of compétence-compétence makes it manifest that when a court overturns a decision of the tribunal which ruled positively on its jurisdiction, it does not violate the compétence-compétence doctrine. This is because the tribunal only has a primary, and not the sole, authority to rule on its jurisdiction. Hence, this principle encompasses that the court’s decision is ultimately the final word on jurisdiction in an arbitration proceeding. Similarly, judicial reversal of a negative finding, bestowing the tribunal with jurisdiction when it had ruled that it lacked jurisdiction, should in principle be covered by the compétence-compétence doctrine. Hence, negative jurisdictional decisions should be reviewable by a domestic court exercising supervisory jurisdiction.

Not permitting review leaves parties with no other option than to litigate the dispute in court, which they had mutually agreed not to, impinging upon principles of party autonomy. Moreover, since there is only a bleak chance that the supervisory court of arbitration would also have rationae materiae jurisdiction over the dispute, this will lead to forum shopping. The absence in most jurisdictions of a means of recourse from negative jurisdictional rulings is considered, and rightly so, by some commentators to be “unfortunate and frustrating.”[35]

[1] See Robert H. Smit, Separability and Competence-Competence in International Arbitration: Ex Nihilo Nihil Fit? Or Can Something Indeed Come from Nothing?, 13 AM. Rev. Int’l Arb. 19, 19 (2002).

[2] See, e.g. Emmanuel Gaillard & Yas Banifatemi, Negative Effect of Competence-Competence: The Rule of Priority in Favour of the Arbitrators, inEnforcement of Arbitration Agreements and International Arbitral Awards: The New York Convention in Practice 257, 257 (Emmanuel Gaillard & Domenico di Pietro eds., 2008).

[3] UNCITRAL Model Law on International Commercial Arbitration, Art. 16(3) (1985) [‘UNCITRAL Model Law’], https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/19-09955_e_ebook.pdf.

[4] Id.

[5] UN Doc A/CN.9/WG.II/WP.40, Article XIII(3). See also Howard M. Holtzmann & Joseph E. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 496 (1989).

[6] Report of UNCITRAL’s 18th Session (June 1985), UN Doc A/40/17, No. 163.

[7] Id. See also Lawrence Boo, Ruling on Arbitral Jurisdiction – Is that an Award?, 3 Asian International Arbitration Journal 125, 130 (2007).

[8] UNCITRAL Model Law, supra note 3, Article 16(1).

[9] See Michael Polkinghorne et al., Competence of Arbitral Tribunal to Rule on Its Own Jurisdiction, in UNCITRAL Model Law on International Commercial Arbitration: A Commentary 292, 306 (2020).

[10] See Ashley Cook, Kompetenz-Kompetenz: Varying Approaches and a Proposal for a Limited Form of Negative Kompetenz-Kompetenz, 2014 Pepp. L. Rev. 17, 21 (2014).

[11] The UNCITRAL Model Law, supra note 3, Art. 16(1); William Park, The Arbitrator’s Jurisdiction to Determine Jurisdiction 26 (B.U. Sch. of L., Public Law & Legal Theory Paper No. 17-33, 2007).

[12] Gaillard & Banifatemi, supra note 2, at 259.

[13] Fouchard, Gaillard, Goldman on International Commercial Arbitration 401 (1999).

[14] Ashley Cook, supra note 10, at 21.

[15] Id.; See also Ontario Court of Justice, Mar. 1, 1991, Rio Algom Limited v. Sammi Steel Co., [1991] O.J. No. 268 at 4; Hong Kong Supreme Court, July 30, 1992, Pacific International Lines (Pte) Ltd. v. Tsinlien Metals and Minerals Co. Ltd., XVIII YB. COM. ARB. 180 (1993), ¶ 34.

[16] See John J. Barceló III, Who Decides the Arbitrators’ Jurisdiction? Separability and Competence-Competence in Transnational Perspective, Vanderbilt Journal of Transnational Law, Vol. 36 No.4, 1115, 1123 (2003).

[17] Zhōnghuá Rénmín Gònghéguó Zhòngcái fǎ 中華人民共和国仲裁法) [Arbitration Law] (promulgated by the Standing Comm. Nat’l People’s Cong., Aug. 31, 1994, effective Sept. 1, 1995), art 20, CLI.1.9590(EN) (Lawinfochina).

[18] Id.

[19] Jingzhou Tao, Arbitration Law and Practice in China 96 (3rd ed. 2008).

[20] Arbitration Act (No. 11 of 1995), § 11(2).

[21] See e.g., Sandvik AB v Advent Int’l Corp., 220 F 3d 99 (3d Cir. 2000).

[22] First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995); Howsam v. Dean Witter Reynolds, 537 U.S. 79, 83 (2002).

[23] Simon Greenberg et al., International Commercial Arbitration: An Asia-Pacific Perspective 217 (2010).

[24] Report of UNCITRAL’s 18th Session (June 1985), UN Doc A/40/17, No. 151.

[25] See Gary B. Born, International Commercial Arbitration 1052-1257 (2d ed. 2014).

[26] See Subramanian Ramamurthy Subramanian, Anti-arbitration Injunctions and Their Compatibility with the New York Convention and the Indian Law of Arbitration: Future Directions for Indian Law and Policy, 34 Arbitration International 185, 186 (2018).

[27] Arbitration and Conciliation Act, 1996, Section 37(2)(a) (India); The Supreme Court of India has confirmed that this allows recourse from negative jurisdictional decisions: ‘an acceptance of the objection to jurisdiction or authority, could be challenged then and there, under Section 37 of the Act.’ See SPB v Patel Engineering (2005) (8) SCC 618, ¶ 6.

[28] Arbitration Act 1996, Schedule 1, Section 16(3) (New Zealand).

[29] International Arbitration Act (Chapter 143A), 2002, Section 10 (Singapore).

[30] Télébec ltée c. Société Hydro-Québec, [1997] JQ No. 1431, ¶¶ 37-38; Guilde des musiciens du Québec c. Piché [1998] JQ No. 4896, ¶¶ 4-8; Micheline Lefebvre c. Les Habitations d’Angoulème inc., [2000] JQ No. 2733; Re/Max Platine inc. c. Groupe Sutton-Actuel inc. [2008] QCCA 1405, ¶¶ 18-19.

[31] Bundesgerichtshof [BGH] [Federal Court of Justice] June 6, 2002, Neue Juristische Wochenschrift [NJW] 3031 (2002).

[32] GPF GP Sàrl v The Republic of Poland [2018] EWHC 409 at [70] (Comm).

[33] E.g. The Polish Supreme Court has expressly stated that ‘a negative determination by the arbitration court as to its own jurisdiction in a matter is a final ruling and is not subject to review by the common court.’ Sądu NajwyŜszego [Supreme Court] Jan. 28, 2011, Case No. I CSK 231/10, ¶ 4, translated at http://arbitration-poland.com/case-law/433,polish_supreme_court_judgment_dated_28_january_201_10_.html.

[34] Law Reform Committee, Report of the Law Reform Committee on Right to Judicial Review of Negative Jurisdictional Rulings 6, Singapore Academy Of Law (2011), https://www.sal.org.sg/sites/default/files/PDF%20Files/Law%20Reform/2011-01%20-%20Judicial%20Review%20of%20Negative%20Jurisdictional%20Rulings.pdf. See also Johan Paulo Fohlin, A Case for a Right of Appeal from Negative Jurisdictional Rulings in International Arbitrations governed by the UNCITRAL Model Law, Asian Disp. Rev. 113, 114 (2008).

[35] Greenberg et. al, supra note 19, at 240.

*Rajarshi is a final year candidate at National University of Study and Research in Law, India. His core areas of interests are international arbitration, public international law, and investment law and policy. He constantly engages in academic writings on topics pertaining to investment and commercial arbitration law and practice and serves as an editor at The Competition and Commercial Law Review. He can be reached at: rajarshisingh.nusrl@gmail.com.