Doctrine of Competence-Competence of International Commercial Arbitration
Various changes and improvements were introduced over the past years in the resolution of international commercial disputes. The most notable of these changes is the introduction of laws that would help prevent standard court-based litigations and explore other methods in settling cases.
The United Nations Commission on International Trade Law (‘UNCITRAL’) played a vital role in the use of alternative dispute resolution. UNCITRAL was established in 1966. It was able to achieve two landmark rules, the implementation of the UNCITRAL Arbitration Rules (1976) (‘Arbitration Rules’) and the UNCITRAL Conciliation Rules (1980) (‘Conciliation Rules’).
The contribution of various international experts from different legal, economic and social backgrounds enabled the UNCITRAL to come up with more competent resolution of international commercial disputes. Both Rules features the need to settle disputes between parties privately instead of public and legal method. This is an important aspect which differentiates the Rules from another important dispute resolution passed by UNCITRAL: the UNCITRAL Model Law on International Commercial Arbitration (‘Model Law’).
II. ARBITRATION or CONCILIATION
Alternative dispute resolution comes in the form of : arbitration, assisted negotiation, counseling, conciliation, evaluation, expert appraisal, mediation and mini-trials. These methods are used to decide issues with national as well as international commercial relevance.
Despite its broad concepts and multitude of models for national and international commercial dispute resolution, the key alternatives can be summed up into two key areas: arbitration and conciliation. Arbitration occurs when the third person involved in the resolution of commercial dispute can impose a binding decision on parties while in conciliation the third party can only make recommendations that are not binding.
III. THE NEED FOR INTERNATIONAL ARBITRATION
Due to the recent trends of globalization and cross border investments, the business relationship has become more complex than ever. When disputes arise from businesses, resolving these requires the need for international commercial arbitration.
Over the last decades, the arbitration as resolution to disputes have been given due recognition by the international business communities. They realized the value of settling disputes before it reaches the court. It is not only less time-consuming, it is also more efficient and requires less costs.
The following are the features of international arbitration:
Enforceability – awards from arbitrations are easily enforceable than court judgments.
Neutral form – there is no need to be under another party’s national court. International arbitration allows neutral forum for settling of disputes.
Procedural flexibility – rules in arbitration are often less complex compared to standard court proceedings making it suitable to parties coming from different jurisdictions.
Arbitrators with experience – arbitrators are selected based on their familiarity with the applicable business practices and national laws.
Party autonomy – parties are allowed to choose governing laws, place of arbitration and other aspects pertaining to arbitration assuring them fair treatment of their case.
Cost – there is no way to tell if arbitration costs lower than standard court trial but it does not require court fees at all and parties can agree on a process that is suitable for the dispute.
Pre-emptive remedies – arbitral tribunal can provide preliminary relief such freezing of assets although imposing criminal sanctions is not allowed in arbitration.
Joinder of parties and related disputes – it is necessary to acquire all parties’ consent before being joined to an existing similar arbitration.
IV. United Nations Commission on International Trade Law (UNCITRAL)
Model Law on International Commercial Arbitration (‘Model Law’)
The UNCITRAL Arbitration Rules (1976) (‘Arbitration Rules’) and the UNCITRAL Conciliation Rules (1980) (‘Conciliation Rules’) are considered contractual trade law dispute resolution. Since the possibilities open to the private parties in an arbitration or conciliation under the Rules is in danger of being thwarted by the domestic laws operating in the different countries involved in the dispute. The Model Law provides countries with a guide that they can apply in their national laws to be able to ‘provide a hospitable legal climate for international commercial arbitration’.
Passed by UNCITRAL on 21 June 1985, the Model Law is intended to aid countries in changing and improving their domestic laws pertaining to arbitral procedure in order to take into account the specific aspects and requirements of international commercial arbitration. It discusses and encompasses all phases of the arbitral process starting from the arbitration agreement, the constitution and jurisdiction of the arbitral tribunal and the degree of court involvement through to the acknowledgment and implementation of the arbitral award. It is an amalgamation of vital points of international arbitration practice as approved worldwide and is accepted by countries from all regions taking into account the varying legal or economic systems of the world.
V. THE DOCTRINE OF COMPETENCE – COMPETENCE
In some cases of international commercial arbitrations, one party which oftentimes refer to the respondent declines to get involved. If the applicant is not able to relay its statement within an agreed time, without enough reason, the Arbitration Rules declare that the arbitration is terminated.
In all other cases, the tribunal can continue with the arbitration and make its resolution without the aid of both parties.
A salient feature found in international commercial arbitration is its ability to object to jurisdiction. The jurisdiction of arbitral tribunals is restricted by the approval of the parties, and may be further restricted by national/domestic laws in the country that may state that certain issues must be examined or tried by their local courts.
Relevant examples that depict jurisdictional difficulties include: the legality of the arbitration clause or agreement; if the arbitral tribunal is properly represented; if the matters to be considered for arbitration are within the arbitration clause or agreement; and if those matters are considered ‘arbitrable’.
This is where the doctrine of Competence-Competence comes in. The ‘inherent’ power of arbitral tribunals to determine their jurisdiction or the doctrine of Competence/Competence is clearly mentioned in the Arbitration Rules.
The power of the doctrine of competence/competence however is limited by the jurisdiction of the concerned national court which is vested the supreme authority to determine jurisdictional questions.
If certain party/ies oppose the jurisdiction of the arbitral tribunal, it is necessary to declare its formal objection immediately. The Arbitration Rules specifically states that such objections ‘be raised not later than in the statement of defence or, with respect to a counter-claim, in the reply to the counter-claim.’ This rule may suggest that the right to object is no longer available after this particular phase in the trial procedures but its implications on whether right has been waived will rely on the relevant national law. In such cases when a party fully knows that the Arbitration Rules have not been observed strictly and still fails to oppose immediately to the non-compliance, is considered to have relinquish its right to oppose.
The Award: Section IV
International commercial arbitration often involves more than one system of law. Different laws may regulate which include the following:
(a) the trial procedures of the arbitral tribunal (the lex arbitri);
(b) the acknowledgment and implementation of the award; and
(c) the matters in dispute (the ‘applicable law’).
VI. COMPETENCE/COMPETENCE DEFINED
In German, it is referred to as the concept of “kompetenz–kompetenz-“. It is called “competence sur la competence” in French.
Kompetenz-kompetenz means an arbitral tribunal is allowed to make a decision on whether it has jurisdiction over an issue that needs to be settled and whether an arbitration agreement is valid. In line with the the principle of kompetenz-kompetenz, validity or expiry of an agreement that includes an arbitration clause does not necessarily mean that an arbitration agreement is invalid or has expired.
The doctrine of competence-competence, which holds that an arbitral tribunal may determine questions as to its own jurisdiction, is an important aspect of arbitration law. It is observe that if arbitrators could not determine questions as to their own jurisdiction, a recalcitrant respondent could easily frustrate the parties’ agreement to have their dispute decided by arbitration or at least create considerable delay by merely contesting the existence or validity of the arbitration agreement in court. Further observation also shows that such a situation would seriously undermine arbitration as an effective means of private dispute resolution and deprive it of its attraction.
The doctrine of competence-competence, is largely based on Article 16 of the UNCITRAL Model Law. Article 16(3) of the Model Law provides:
“If the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party may request, within thirty days after having received notice of that ruling, the court specified in article 6 to decide the matter, which decision shall be subject to no appeal; while such a request is pending, the arbitral tribunal may continue the arbitral proceedings and make an award”.
Competence-competence concept in its layman terms simply means “nothing more than that arbitrators could, subject to later review, `look into their own jurisdiction without waiting for a court to do so,’ and need not `stop arbitral proceedings to refer a jurisdictional issue to judges[.]”‘ Rau, supra n. 36, at n.175 (quoting William W. Park, “The Arbitrability Dicta in First Options v. Kaplan: What Sort of Kompetenz– Kompetenz- Has Crossed the Atlantic?,” Arbitration Intl, vol. 12 (1996), pp. 137, 149.
The competence-competence approach is done to avoid additional costs and burdens often involved in standard court proceedings and its parties involved. See id. at n.226 “the marginal cost of having an arbitrator determine the scope of the arbitration clause is low, while allocating the determination to a court, another decision maker, requires an additional transaction and an extra cost”, quoting Steven Walt, “Decision by Division: The Contractarian Structure of Commercial Arbitration,” Rutgers Law Rev., vol. 51 (1999), pp. 369, 410; see also id. at n. 39 “In how many cases might the issue simply disappear during the course of arbitration? In some cases argument before the panel might well lead to a new perspective on the case for the parties, promoting early settlement. More often, perhaps, an interim arbitral ruling on jurisdiction-or for that matter a final award on the merits themselves– will simply obviate the need for further proceedings.”.
Christian Herrera Petrus, “Spanish Perspectives on the Doctrines of Kompetenz-Kompetenz- and Separability: A Comparative Analysis of Spain’s 1988 Arbitration Act, American Rev. of Int’l Arbitration, vol. 11 (2000), pp. 397, 402 noted “that there is distinction in European arbitration law between minimalist approach to competence-competence, where arbitrators may rule on their own jurisdiction, but party may also apply to court for ruling, and more restrictive forms of competence-competence, where arbitrators must rule first on their jurisdiction, and court review of jurisdiction issues may only be obtained thereafter”.
” The UNCITRAL Model Law, for example, contemplates that, if an arbitral tribunal makes an initial determination on a plea that the tribunal does not have jurisdiction, any party may (within 30 days of receiving notice of the tribunal’s ruling) request that an appropriate court review the matter. See UNCITRAL Model Law on International Commercial Arbitration, art. 16(3). While a request for judicial review is pending, however, “the arbitral tribunal may continue the arbitral proceedings and make an award.”
The likelihood of corrupt or biased arbitrators that asserts jurisdiction to resolve disputes involving parties over whom they clearly have no authority is enough to prove the point. Many other “undesirable things” are possible. At least some possibility of court review to prevent such things to occur is important. Park, supra n. 32, at n.9 “An agreement giving arbitrators sole competence to rule on their own jurisdiction would make sense principally (perhaps only) when contained in a subsequent contract that provided for arbitration of a dispute about jurisdiction that had arisen under a pre-existing arbitration agreement.”
Thomas E. Carbonneau, “Beyond Trilogies: A New Bill of Rights and Law Practice Through the Contract of Arbitration,” American Rev. of Int’l Arbitration, vol. 6 (1995), p. I First Options “amounts to an adoption of the kompetenz–kompetenz- doctrine on an ad hoc, contractual basis”.
Park, supra n. 88, at 199 “Judges get involved in determining the contours of arbitrator jurisdiction for the simple reason that the arbitral process exists in the shadow of public coercion. Directly and indirectly the state lends its power to enforce the agreement to arbitrate. Court proceedings are stayed; arbitral awards are given res judicata effect; and the loser’s assets may be seized. The integrity of the judicial system that enforces the arbitral process will, of necessity, require courts to examine arbitrator jurisdiction independently of the arbitrator’s own ruling on their jurisdiction.”
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