By Albert Monichino Q.C.1
A. Introduction
B. Background
Let me first outline some key concepts that are found in Article 16 of the UNCITRAL Model Law on International Commercial Arbitration (Model Law).
Kompetenz-Kompetenz
Article 16(1) enshrines the concept of Kompetenz-Kompetenz. That is, arbitrators have power to determine whether they do, or do not, have jurisdiction to determine all (or part of) the matters referred to arbitration. In other words, arbitrators are competent to determine their own competence.
The corollary, sometimes referred to as “the negative effect of Kompetenz-Kompetenz”, is that courts (at the seat or otherwise) should not pre-empt arbitral rulings on jurisdiction. That is, the scheme of the Model Law assumes that the arbitral tribunal shall have the “first bite” of the jurisdiction cherry.2
Separability
Article 16(1) of the Model Law also enshrines the concept of separability. That is, the arbitration agreement is separate from the contract in which it is contained (assuming that the arbitration agreement is comprised of an arbitration clause in a contract).3
Chief Justice Allsop of the Federal Court of Australia recently observed in Hancock Prospecting Pty Ltd v Rinehart [2017] FCAFC 170, at [344] that: “The separability principle is a rule, reached and laid down pragmatically, rather than logically …”
According to this principle, an arbitrator has jurisdiction to determine that the contract (in which the arbitration agreement is contained) is invalid.
Former High Court of Australia Chief Justice, Robert French, has likened the logical challenges involved in this idea to the plot of the first Terminator film, where Arnold Schwarzenegger is sent back in time by robots warring with humanity to eliminate the mother of the leader of the human resistance movement before she can give birth to the future leader.4
Article 16(2) of the Model Law provides that jurisdictional objections should be raised not later than the submission of the statement of defence. Therefore, a respondent must make any jurisdictional objection on a timely basis.5 Otherwise, it will be deemed to have waived its right to object.
Article 16(3) of the Model Law provides the arbitral tribunal with discretion as to the timing of resolution of any objection to jurisdiction. The tribunal may deal with the issue as a preliminary question. Alternatively, it may defer the issue and deal with it in the final award on the merits.
C. To bifurcate or not
I shall now turn to elaborate on my first topic – how arbitral tribunals deal with jurisdictional objections in practice.
The principal question is whether to bifurcate or not.6
In sum, Gotanda contends that if the expected costs of both phases of the bifurcated proceedings9 exceed the expected costs of unitary proceedings, the arbitral tribunal should decide against bifurcation.
In reality, arbitrators are hamstrung in meaningfully assessing the integers in Gotanda’s equation. Nevertheless, the equation does have the salutary effect of concentrating the mind on efficiency and cost savings.
It should be borne in mind that the decision is not necessarily whether to bifurcate or not. There is also a possible hybrid solution, whereby the jurisdictional challenge may be set down for preliminary determination together with one or more overlapping merits issues.10
If, of course, the parties agree on the manner of resolution – whether a preliminary or deferred determination, the tribunal is bound to follow that course.12
D. Court review of jurisdictional rulings
Let me move to the Court’s power to review an arbitrator’s ruling on jurisdiction.
Court control over jurisdictional challenges
As well, an enforcement court (whether the court of the seat or otherwise) may consider jurisdictional issues on an application to enforce the award under Article 36 of the Model Law or Article V of the New York Convention.
Article 16(3) review
Any application for a court review of a preliminary ruling on jurisdiction must be made within 30 days of the ruling: Article 16(3).
It is noteworthy that under Article 16(3), only positive rulings on jurisdiction may be challenged in court. Singapore has modified the Model Law (as implemented in Singapore) to provide court review of both positive and negative rulings on jurisdiction.13
The absence in most jurisdictions of a means of recourse from negative jurisdictional rulings is considered by some commentators to be “unfortunate and frustrating"14. A negative ruling on jurisdiction by an arbitral tribunal will leave the parties free to litigate the dispute in court.15 But in which court? Forum shopping will then become an issue.
While the court review is pending the tribunal may continue with the arbitration proceedings: Article 16(3).
The nature of the court’s review of jurisdiction (whether pre or post award) is now reasonably settled. It involves a “de novo” review, not an appellate-type review involving finding fault in the arbitrator’s approach in his or her ruling on jurisdiction. The courts have held that the tribunal’s view of its jurisdiction has little or no evidentiary or legal value on a court challenge to the tribunal’s determination on jurisdiction. This is so, however eminent the tribunal.17 Nevertheless, the court will read the tribunal’s reasons with interest,18 and they “will carry as much persuasive weight as their cogency gives them”.19
On a court challenge to jurisdiction, it is even possible to adduce fresh evidence that was not adduced before the arbitrator.20
Article 16(3) of the Model Law provides that while an application for court review is pending, the arbitral tribunal may continue the arbitral proceedings and make an award (on the merits). In other words, an application for court review cannot be used as an instrument of delay.
One point that is often overlooked is that Article 16(3) allows any party to the arbitration to apply to the court for a review of a tribunal’s preliminary ruling on jurisdiction. It is not only the unsuccessful respondent that may apply. That said, in practice it would be unusual for a successful claimant to apply to the court at the seat to confirm the tribunal’s ruling on jurisdiction.
It is also to be noted that, unlike Article 34, no appeal lies from a court’s decision on a review of jurisdiction under Article 16. It is thus more advantageous for the respondent to review jurisdictional rulings post award (if it is possible).
“Active” and “passive” remedies
In PT First Media TBK v Astro [2013] SCGA 47, the Singapore Court of Appeal underlined the existence of “active” and “passive” remedies available to an award debtor under the scheme of the Model Law.
The Singapore Court of Appeal held that the fact that the award debtor had not applied under Article 16(3) to review a preliminary ruling on jurisdiction did not prevent it from resisting enforcement of the award under Article 3622. In other words, the fact that the award debtor had not availed itself of an active remedy did not deny it of a passive remedy.
The Singapore Court of Appeal opined (without deciding) that a failure by an award debtor to avail itself of the remedy in Article 16 (assuming a preliminary ruling on jurisdiction) would preclude it from raising a jurisdictional objection at the setting-aside stage under Article 34 (post award)23 . Subsequently, the Singapore High Court has decided that an award debtor cannot reserve its jurisdictional objection to the setting-aside stage, if it has not objected to an arbitrators’ preliminary ruling on jurisdiction. According to Quentin Loh J, to allow a respondent to reserve its objection to the setting-aside stage (post award) may allow it to “indulge in tactics which result in immense delays and cost”.24
Professor Doug Jones has criticised the active – passive remedy dichotomy on the grounds that it promotes inefficiency in the arbitral process.25 This is particularly so if the respondent continues to participate in the arbitration following a ruling on jurisdiction against it, thus drawing out the process and escalating costs.
Proposed reform
There is a Bill currently before the New Zealand Parliament which seeks to modify Article 16 of the Model Law as implemented in New Zealand. The Arbitration Amendment Bill (introduced 9 March 2017) inserts a new Article 16(4), which provides that the consequence of failing to apply for court review under Article 16(3) is that the right to later challenge jurisdiction (post award) is deemed to be waived.
In particular, the new proposed Article 16(4) provides as follows:
For the avoidance of doubt, it is declared that the failure to submit a timely request to the High Court under paragraph (3) to decide the jurisdictional matter must operate as a waiver26 of any right later to challenge or call into question the ruling of an arbitral tribunal as to its jurisdiction.27
Clearly the New Zealand amendment is aimed primarily at the first strategy. But it is not entirely clear why a respondent who withdraws from the arbitration following an adverse preliminary ruling on jurisdiction should (as a matter of policy) be shut out from resisting enforcement of the award under Article 36 (ie relying on a passive remedy).
Indeed, the New Zealand amendment would also appear to apply to the situation (admittedly rare) where the respondent does not participate in the arbitration at all, the tribunal investigates jurisdiction of its own accord and makes a preliminary positive ruling on jurisdiction. In those circumstances, the respondent is arguably shut out from challenging any award against it under Article 34 or resisting enforcement of the award under Article 36.
Whether the Australian International Arbitration Act and/or the Singaporean International Arbitration Act should be amended along the lines proposed in New Zealand, in order to promote the efficiency of the arbitration process, is a question worthy of serious debate.
[1] LLM (Cambridge). Chartered Arbitrator, Barrister and Mediator, FSIArb. This paper was originally presented at a Jurisdictional Challenges seminar forming part of the Federal Court of Australia’s International Arbitration seminar series, held in conjunction with the Chartered Institute of Arbitrators, Australian Branch, on 27 February 2018.
[2] William W. Park, “The Arbitrator’s Jurisdiction to Determine Jurisdiction” (2006) 13 ICCA Congress Series 55, at pp. 23-24.
[3] William W. Park, “The Arbitrator’s Jurisdiction to Determine Jurisdiction” (2006) 13 ICCA Congress Series 55, at p. 30.
[4] Robert French, ‘Old but not Obsolete’, (Speech delivered at The Chartered Institute of Arbitrators (Australia) Ltd Centenary Gala Dinner, Sydney, 24 November 2015, pp 5-6).
[5] Indeed, an arbitral tribunal may investigate its own jurisdiction even in the absence of an objection by a respondent: see Article 4 of the CIArb Guidelines on jurisdictional challenges. Available HERE
[6] See Article 4 of the CIArb Guidelines on jurisdictional challenges.
[7] Lucy Greenwood, ‘Does Bifurcation Really Promote Efficiency?’ (2011) 28(2) Journal of International Arbitration.
[8] John Yukio Gotanda, ‘An Efficient Method for Determining Jurisdiction in International Arbitrations’ (2001) 40(11) Columbia Journal of International Law.
[9] More precisely, the costs of [Phase 1] plus [the costs of Phase 2 multiplied by the probability (expressed as a decimal) of the jurisdictional challenge being unsuccessful and hence Phase 2 becoming necessary].
[10] BCY v BCZ [2016] SGHC 249 at [4].
[11] For example, if a hearing on jurisdiction is going to take six months while a hearing on all issues is going to take nine months, that will embolden a tribunal to lean towards a unitary proceeding.
[12] BCY v BCZ [2016] SGHC 249 at [6].
[13] See Singapore International Arbitration Act (Chapter 143A), section 10.
[14] Simon Greenberg, Christopher Kee and J. Romesh Weeramantry, “International Commercial Arbitration – An Asia-Pacific Perspective” (Cambridge University Press, 2011), p.240.
[15] See Greenberg p.239.
[16] Insigma Technology Co Ltd v Alstom Technology Ltd [2008] SGHC 134 [21–22], upheld on appeal in Insigma Technology Co Ltd v Alstom Technology [2009] SGCA 24; AQZ v ARA [2015] SGHC 49.
[17] Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs of the Government of Pakistan [2010] UKSC 46, [2011] AC 763, [20, 30, 160]; IMC Aviation Solutions Pty Ltd v Altain Khuder LLC (2011) 253 FLR 9, [266-270]; PT First Media TBK formerly known as PT Broadbank Multimedia TBK) v Astro Nusantara International BV and others and another appeal [2013] SGCA 57, [63, 162-164].
[18] Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs of the Government of Pakistan [2010] UKSC 46, [2011] AC 763 at [160] per Lord Saville.
[19] Dallah Real Estate and Tourism Holding Company v Ministry of Religious Affairs of the Government of Pakistan [2010] 1 All ER (Comm) 917, 927 [21] per Lord Justice Moore-Bick.
[20] X v Y and Z [2015] EWHC 395 (Comm); cf AQZ v ARA [2015] SGHC 49 at [37-60] per Justice Prakash
[21] The challenge under Articles 34 and 36 is invariably on the ground that there is no valid arbitration agreement between the award debtor and the award creditor (equivalent to Article V(1) (a) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) (the “New York Convention”).
[22] At [132].
[23] At [130].
[24] Rakna Arakshaka Lanka Ltd v Avante Garde Maritime Services (Pte) Ltd [2018] SGHC 78, at [71] (Quentin Loh J).
[25] Doug Jones, ‘What Now for Article 16(3)?’ (2014) 2(2) European International Arbitration Review.
[26] Article 4 of the Model Law recognizes the concept of waiver.
[27] Paul Foster-Bell, Arbitration Amendment Bill 2017, Members Bill 245-1 [Part 6], Available HERE