Challenges to jurisdiction: the principle of competence-competence

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arbitral award that was rendered without the tribunal’s jurisdiction can be subsequently set-aside or refused enforcement, the tribunal, generally, has a strong disincentive to declare its jurisdiction over the cases, where, in fact, it does not have it. This is because a cancelled or non-enforced award amounts to a waste of time and money by the parties. Thus, for the sake of their own reputation and subsequent appointments, arbitrators have the motivation to choose to render effective and enforceable awards.

The doctrine of competence-competence, which gives the arbitral tribunal the right to rule on its jurisdiction, is commonly accepted in international commercial arbitration. However, it is also commonly accepted that the power of the tribunal is not unlimited and its decision is subjected to the review by the state court. Nonetheless, there are different views and arguments as to the point when the intervention of the court should take place. According to one approach, the tribunal should decide on its jurisdiction first, and the control by the court should be postponed to the post-award stage. At this point, control by the court can take place when a party seeks to set aside an award or when it resists its enforcement.²⁷⁴ The key argument behind this solution is preventing the use of jurisdictional objections as a tactical delay. An additional argument supporting this approach pertains to the centralization of examination of the existence and validity of an arbitration agreement in the hands of the court that also reviews the arbitral award.²⁷⁵

Another view is that the tribunal has the power to address jurisdictional objections, but also that an interlocutory review of jurisdiction by the court should be permitted at any stage of the arbitration proceeding. The reasoning behind this approach is that the court’s control at the early stage of arbitration can help to eliminate the risk of unnecessary time and money invested in arbitrating, when there is no valid arbitration agreement, but the arbitration proceeding continues to be refuted only after the award is rendered.²⁷⁶

274 See Emmanuel Gaillard and Yas Banifatemi, "Negative Effect of Competence-Competence: The Rule of Priority in Favor of the Arbitrators," in Enforcement of Arbitration Agreements and International Arbitral Awards: The New York Convention in Practice, ed. Emmanuel Gaillard and Domenico diPietro (Cameron May, 2008), 258-260. This solution is used, for example, in France. Article 1448 (read in conjunction with Art.

1506(1), 1520 and 1525) of the French Law on International Arbitration (Book IV of the Code of Civil Procedure): “When a dispute subject to an arbitration agreement is brought before a court, such court shall decline jurisdiction, except if an arbitral tribunal has not yet been seized of the dispute and if the arbitration agreement is manifestly void or manifestly not applicable. A court may not decline jurisdiction on its own motion.”

275 Ibid., 260-261.

276 See Holtzmann and Neuhaus, 485. This is the case, for example, in Sweden. See section 2(1) of the Swedish Arbitration Act (1999): “The arbitrators may rule on their own jurisdiction to decide the dispute. The aforesaid shall not prevent a court from determining such a question at the request of a party. The arbitrators may continue the arbitral proceedings pending the determination by the court.”

73 a. UNCITRAL Model Law

The UNCITRAL Model Law, recognizing the rationality of all the arguments cited above, positions itself somewhere in the middle between the two approaches. The UNCITRAL Model Law gives the priority to rule on the question of jurisdiction to the arbitral tribunal. However, the decision of the tribunal is neither exclusive nor final. An interlocutory consideration by the court is permitted, yet, as discussed below, in a limited way.

Article 16 of the UNCITRAL Model Law provides that the arbitral tribunal has the competence to decide on its jurisdiction. The tribunal can do it on its own motion or upon the objection raised by a party.²⁷⁷ As to the timing of the objection, a party should raise it not later than when submitting the statement of defense. Furthermore, a plea that the tribunal exceeds the scope of its authority should be made as soon as the matter that allegedly goes beyond the scope of the tribunal’s authority is raised during the arbitration proceeding. The UNCITRAL Model Law allows the tribunal to admit a late plea in case it finds the delay to be justified.

According to Art. 16(3) of the UNCITRAL Model Law, the tribunal can decide the objection as a preliminary question or in an award on the merits. Further, if the ruling was made at the preliminary stage and the tribunal decided that it has jurisdiction, a dissatisfied party has the right to appeal this decision to the court. This kind of an immediate control by the court helps to address the problem of wasting time and money on arbitrating where, in fact, there is no basis for it.²⁷⁸ However, some procedural safeguards are also provided in order to reduce the incentive to use the objection as a dilatory tactic. First, the time to appeal the tribunal’s decision on jurisdiction to the court is relatively short and so, the party seeking to appeal this decision has 30 days from when it received the tribunal’s ruling. Second, the subsequent court’s decision is not appealable. Third, during the time the court is making its decision, the tribunal may proceed with arbitration.

In addition, it needs to be stressed that in case a decision confirming the jurisdiction of the tribunal is given in an award on the merits, there is still a possibility of recourse to the court in a setting aside procedure or when opposing the enforcement of an award.²⁷⁹ However, if a party failed to object to

277 See ibid., 479.; United Nations Commission on International Trade Law, UNCITRAL 2012 Digest of Case Law on the Model Law on International Commercial Arbitration, 78. See more on Art. 16 in Binder, 213-220.

278 See United Nations Commission on International Trade Law, "Explanatory Note by the UNCITRAL Secretariat on the 1985 Model Law on International Commercial Arbitration as Amended in 2006," 30.

279 See Art. 34 and Art. 36 of the UNCITRAL Model Law.

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jurisdiction within the time limits prescribed in Art. 16, it, generally, should not be allowed to contest the jurisdiction later on in the arbitration proceeding, as well as after the award is rendered in a setting aside procedure or when resisting the award’s enforcement. This is subject to certain limits such as violation of public policy by the award, what includes non-arbitrability of particular disputes.²⁸⁰ Article 16 of the UNCITRAL Model Law allows the arbitral tribunal to choose to issue a preliminary ruling or an award on the merits (which will then result in different types of possible review by the court), and to assess which form is more suitable in a particular case. A preliminary ruling can help to save time and money, if the tribunal’s jurisdiction would be overturned by the court in the post-award stage. However, there might be instances, where it is more reasonable to include the decision on jurisdiction in a final award on the merits. This could happen if, for example, a particular jurisdictional question relates closely to the merits of the case and requires a deeper examination, when the tribunal considers the objection to be of a purely tactical nature, or a case is simple and little cost would be incurred.²⁸¹

b. Hong Kong and Singapore

The compromise position of the UNCITRAL Model Law as to the allocation of power to address jurisdictional objections is followed by Hong Kong²⁸² and Singapore.²⁸³ By way of illustration, the High Court of Hong Kong summarized Hong Kong’s position in 1991:

“[a]rbitrators should not pull down the shutters on the arbitral process as soon as one party objects to the jurisdiction of the tribunal. The arbitrator can rule on the question as to whether he has jurisdiction but he cannot make a binding and final

280 See Holtzmann and Neuhaus, 482-483.; United Nations Commission on International Trade Law, UNCITRAL 2012 Digest of Case Law on the Model Law on International Commercial Arbitration, 78-79. See also Astro Nusantara Int’l BV v. PT Ayunda Prima Mitra, Singapore High Court, 23–25 July; 28 August; 22 October 2012 [2012] SGHC 212 in support of this position (in this case a preliminary decision on jurisdiction was given by the tribunal and the party decided not to bring an appeal under Art. 16(3) of the UNCITRAL Model Law).

281 See Holtzmann and Neuhaus, 486. See also Geoffrey Ma and Denis Brock, Arbitration in Hong Kong: A Practical Guide (3rd Ed.) (Sweet&Maxwell, 2015), 415. suggesting that whenever possible, the decision should rather take a form of a preliminary ruling; see also Fung Sang Trading Limited v. Kai Sun Sea Products and Food Company Limited, High Court of Hong Kong, Court of First Instance, 29 October 1990, [1991] HKCFI.

282 Sections 20 and 34 of the HK Arbitration Ordinance. See more in Ma and Brock, 186-192., Neil Kaplan and Robert Morgan, "National Report for Hong Kong (2018)," in ICCA International Handbook on Commercial Arbitration, ed. Jan Paulsson and Lise Bosman (Kluwer Law International, 2018), 28-29.

283 Art. 16 of the UNCTRAL Model Law read together with Sections 3(1) and 10 of the SIAA. See also Joseph and Foxton, 179-91.; Chew, 45-46.

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decision on that issue as the matter can always be taken to court either by direct challenge or at the setting aside or enforcement stage.”²⁸⁴

In Singapore, the High Court in Malini Ventura v Knight Capital Pte Ltd and others confirmed in 2012 that if the parties agreed to submit disputes to arbitration, the court “must give way” to the tribunal’s jurisdiction as required by Section 6 of the SIAA and Art. 16 of the UNCITRAL Model Law (and also the SIAC Rules in the given case). That means that the arbitral tribunal is empowered to decide on the question of jurisdiction. However, the High Court also confirmed that a party that is dissatisfied with the tribunal’s finding can still turn to the court and ask it to review a preliminary decision on jurisdiction, or it can challenge an award on the merits. Therefore, the state court has the final say on jurisdictional matters.²⁸⁵

There are, however, some points on which the UNCITRAL Model Law jurisdictions differ when applying Art. 16. One particular point is whether a negative ruling on jurisdiction stating that the tribunal does not have jurisdiction is reviewable under Art. 16(3), or whether such review is only available for a decision of the tribunal confirming its jurisdiction. The language of Art. 16(3) does not expressly refer to the review of a negative jurisdictional ruling made by the tribunal. It rather suggests that only a positive decision confirming the jurisdiction should be a subject to appeal. The travaux préparatoires of the UNCITRAL Model Law support this latter stance. Nonetheless, the position of Model Law jurisdictions has differed in this regard.²⁸⁶

As to Hong Kong, the language of Section 34(4) of the HK Arbitration Ordinance, being in line with Article 16(3) of the UNCITRAL Model Law, plainly stresses that only a decision confirming the jurisdiction of the tribunal is appealable under Art. 16(3). This has been confirmed by the Hong Kong judiciary.²⁸⁷ Generally, the main reason for this position is the inappropriateness of compelling the arbitrators who have made a negative ruling to continue as arbitrators.²⁸⁸

284 Fung Sang Trading Limited v. Kai Sun Sea Products and Food Company Limited, High Court of Hong Kong – Court of First Instance, 29 October 1991, [1991] HKCFI 190.

285 See Malini Ventura v Knight Capital Pte Ltd and others, 27 August 2015, [2015] SGHC 225.

286 See United Nations Commission on International Trade Law, UNCITRAL 2012 Digest of Case Law on the Model Law on International Commercial Arbitration, 81-82.

287 See Kenon Engineering Ltd. v. Nippon Kokan Koji Kabushiki Kaisha, High Court of Hong Kong, Court of First Instance, 2 July 2003, [2003] HKCFI 568.

288 See Holtzmann and Neuhaus, 487.

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The SIAA in Singapore, on the other hand, since 2012, allows also an appeal of a decision of the tribunal that it does not have the jurisdiction.²⁸⁹ The language of Section 10 of the SIAA titled “Appeal on ruling of jurisdiction” refers to both positive and negative jurisdictional decisions. It provides explicitly that

“10.(1) This section shall have effect notwithstanding Article 16(3) of the Model Law. […](3) If the arbitral tribunal rules […](b) on a plea at any stage of the arbitral proceedings that it has no jurisdiction, any party may, within 30 days after having received notice of that ruling, apply to the High Court to decide the matter.” The change in the SIAA was reasoned on a few bases, including the fact that, in view of the legislator, denying the review of negative jurisdictional decisions undermines the purpose of an arbitration agreement. This should be understood that without such review, the parties who originally selected arbitration in a neutral territory as a method to resolve disputes are forced instead to do it via the court. This typically would be the home state court of one of the parties, which is a scenario often sought to be avoided. Also, in the course of discussion on the amendment of the SIAA, it was pointed that the parties should be given the equal right to appeal both types of jurisdictional decisions for the reason that inequity can arise both from erroneous negative jurisdictional decisions and from erroneous positive jurisdictional decisions.²⁹⁰

Furthermore, in contrast to the language of the UNCITRAL Model Law text and the position of Hong Kong, Singapore’s regulation differs from Art. 16(3) of the UNCITRAL Model Law in the sense that Section 10(4)(5) of the SIAA allows a party to appeal the court’s decisions in the area of jurisdiction.

Yet, in that instance, Section 10(5)(6) of the SIAA provides that the High Court’s decision can be appealed to the Court of Appeal only with the leave granted by the High Court, and that there is no appeal against the decision refusing to grant the leave.

Concerning the continuation of the arbitration proceeding while the court is dealing with the tribunal’s jurisdictional decision under Art. 16(3), the language of the Hong Kong Arbitration Ordinance mirrors the language of the UNCITRAL Model Law. It provides that the tribunal “may” continue with arbitration while the jurisdictional decision is appealed by a party to the court.

Also in Singapore, the appealing procedure will not automatically lead to the stay of the arbitration proceeding and hence, arbitration can continue during the court’s decision-making.²⁹¹ However, the

289 Before 2012 and the amendment of the SIAA, the position in Singapore was consistent with the UNCITRAL Model Law. See, for example, PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA, 1 December 2006, [2006]

SGCA 41.

290 See Law Reform Committee of the Singapore Academy of Law, "Report of the Law Reform Commitee on the Right to Judicial Review of Negative Jurisdictional Rulings," (January 2011), 5-6.

291 Art. 16(3) of the UNCTRAL Model Law read together with Sections 3(1) and 10(9) of the SIAA. See Antony Crockett and Daniel Mills, "A Tale of Two Cities: An Analysis of Divergent Approaches to Negative Jurisdictional Rulings," Kluwer Arbitration Blog (8 November 2016),

http://kluwerarbitrationblog.com/2016/11/08/a-tale-of-77

language used by the SIAA is stronger than the “may” wording of the UNCITRAL Model Law. Section 10(9) of the SIAA provides explicitly: “[w]here an application is made pursuant to Article 16(3) of the Model Law or this section — such application shall not operate as a stay of the arbitral proceedings or of execution of any award or order made in the arbitral proceedings unless the High Court orders otherwise […]” (emphasis added). Accordingly, once the tribunal confirms its jurisdiction, it should proceed and render the award without waiting for the court’s decision on jurisdiction. Yet, if the award is rendered, but there is a subsequent finding by the court that there was no jurisdiction of the tribunal, the award can be set aside under Art. 34 of the UNCITRAL Model Law.²⁹² Similarly, under the SIAA, an appeal from the court’s decision rendered under Art. 16(3) will not suspend the arbitration proceeding, or the execution of an award, or order made in the arbitration proceeding, unless the High Court or the Court of Appeal orders otherwise.

As to the applicable standards of review under Art. 16(3) of the UNCITRAL Model Law, the issue has not been answered consistently by the courts in Model Law jurisdictions.²⁹³ Notably, however, in this regard, the High Court of Singapore stated that the court intervening based on Art. 16(3) of the UNCITRAL Model Law should be free to “make […] an independent determination of the issue of jurisdiction and is not constrained in any way by the findings or the reasoning of the tribunal.”²⁹⁴ 4.2.2. Chinese standards

A. Enforcement of an arbitration agreement

In China, Art. 5 of the CAL seems to express the principle that a valid arbitration agreement excludes the jurisdiction of the state court. It stipulates: “[w]hereas the parties concerned have reached an agreement for arbitration, the people's court shall not accept the suit brought to the court by any one single party involved, except in a case where the agreement for arbitration is invalid.”

Further, Art. 26 of the CAL deals with the timing for raising the objection before the court in order to exclude the court’s jurisdiction. It stipulates that if the court that was unaware of the existence of an arbitration agreement has already accepted the case, a party asserting that a dispute should be

two-cities-an-analysis-of-divergent-approaches-to-negative-jurisdictional-rulings/. (last accessed: 20 November 2018). See also, generally, Joseph and Foxton, 184-191.

292 Joseph and Foxton, 188.

293 See United Nations Commission on International Trade Law, UNCITRAL 2012 Digest of Case Law on the Model Law on International Commercial Arbitration, 80-81.

294 PT Tugu Pratama Indonesia v Magma Nusantara Ltd, 10 September 2003, [2003] SGHC 204. See also Born, 1107-1110. pointing out that the language of Art. 16(3) arguably implies de novo judicial review.

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resolved through arbitration needs to bring its objection and submit the arbitration agreement before the first hearing in a court proceeding. Otherwise, it should be deemed have waived its right to arbitrate, and the court may continue to hear the case. Article 14 of the SPC 2006 Interpretation further clarifies that the "first hearing" in this context should be understood as the first court hearing of a case conducted by the court after the expiration of the time limit for defense, excluding activities carried out in a pre-trial process.