Bitter Tiers: BG Group and the Future of Multi-Tiered International Arbitration in the United States – Vol. 25 No. 3-4

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Author: Stuart M. Boyarsky*

Published: April 2015



“International arbitration may be defined as the substitution of
many burning questions for a smoldering one.”

An estimated ninety percent of international contracts include an arbitration clause. This widespread use is due to the recognition that the establishment of a process of dispute resolution creates a “neutral playing field,” while enhancing “the parties’ comfort level and promoting future involvement in international commercial transactions.” However, with this increased utilization comes the equally increased threat of litigation over the existence, validity and scope of an arbitration agreement between parties from different nations. The doctrine of competence-competence mitigates this potential risk by allowing the arbitral tribunal itself to determine whether such an agreement is enforceable. As the United Nations Commission on International Trade Law (“UNCITRAL”) explained, competence-competence allows “[t]he arbitral tribunal … to rule on its own jurisdiction, including any obligation with respect to the existence or validity of the arbitration agreement.”

This doctrine has been adopted by numerous countries that view the empowerment of an arbitral tribunal to decide its own jurisdiction as a means to maintain the integrity and efficiency of arbitration as well as a way to deter potentially obstructive behavior by a dissatisfied party. For example under French law a court must decline to hear a dispute over the validity of an arbitration agreement unless “the arbitration agreement is manifestly void or manifestly not applicable.” Similarly, India’s Supreme Court has held that a court may do nothing more than conduct a prima facie review of an arbitration agreement’s validity before compelling arbitration. Hong Kong courts follow a similar broad approach, holding that agreements to arbitrate will be enforced as long as there is “a plainly arguable case” that a valid arbitration agreement exists. Under the English Arbitration Act 1996, a court is barred from determining whether the parties have agreed to arbitrate a dispute absent mutual consent from the parties or the arbitrators.11 Lastly, under German law, a contract containing a “kompetenz-kompetenz” clause insulates the arbitration panel from any form of judicial review.

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*Stuart Boyarsky is an attorney in the New York office of Kasowitz, Benson, Torres & Friedman LLP. He is a member of the ICC Young Arbitrators Forum and the LCIA Young International Arbitration Group. The views expressed herein are solely those of the author.