COMPETENCE-COMPETENCE: THE EXTENT OF AN ARBITRAL TRIBUNAL’S POWER

CHIDERA OKORO

1.0. INTRODUCTION

Recently, I participated in a moot competition and one of the issues which stood out for me was the question of “whether or not the arbitral tribunal should suspend proceedings before the determination of the validity of the arbitration clause by the Federal Court of the state.” It was in preparation for my answer to this question that I first learnt of the principle of competence-competence or in its original form, the principle of kompetenz-kompetenz.

2.0. THE PRINCIPLE OF COMPETENCE-COMPETENCE

The principle of Competence-competence is a principle that determines how competent or rather how powerful an arbitral tribunal is. It states that a tribunal has the power to hear and determine its own jurisdiction including any question as to the existence or validity of an arbitration clause.

Jurisdiction is the power of a legal body to hear and determine a matter. An arbitration clause is a  statement or agreement in a contract in which the parties mutually accept that in case of a dispute concerning the contract, they would resort to arbitration. This is the clause that gives an arbitral tribunal jurisdiction to hear a dispute. However, arbitral tribunals are considered competent enough to determine whether or not they have jurisdiction even if the arbitration clause that gives them said jurisdiction is of doubtful import.

This principle is provided for in several legal documents such as Article 23 of the The United Nations Commission on International Trade Law (UNCITRAL) Rules which provides that a tribunal has the power to hear and determine its jurisdiction including any objections as to the existence or validity of the arbitration clause, Article 41 of the ICSID Convention which provides that the tribunal shall be the judge of its  competence inter alia. The principle of competence-competence has both positive effects relating to the arbitral tribunal’s powers and negative effects relating to the arbitral tribunal’s powers with respect to the powers of national courts.

2.1. Positive Effect

Positively, the principle of competence-competence means a tribunal has the power to determine its own jurisdiction. However, it can in certain circumstances, be subject to review from other bodies such as national courts or ad-hoc committees. Arbitral tribunals can consider whether or not they have jurisdiction to deal with the subject matter of the dispute (jurisdiction ratione materiae). For example, an investment tribunal can deal with investment matters as well as matters that arise directly from such disputes such as a third-party contract but cannot deal with matters completely unrelated to investments. Arbitration tribunals can consider whether or not they have the power to determine whether the claimants are valid parties to have brought such a claim (jurisdiction ratione personae). For example, whether the parties have a direct connection to the loss or are entitled to bring a claim for an indirect connection to the loss. Arbitral tribunals also have the power to determine whether the parties to the dispute agreed to submit to arbitration (jurisdiction ratione voluntatis).

2.2. Negative Effect

Negatively, arbitral tribunals have the power to hear disputes concerning their jurisdiction, to the exclusion of any other legal body. This means that arbitral tribunals are to hear matters concerning their jurisdiction solely, excluding other judicial institutions such as the national courts. The general exception to this is when the arbitration clause is void prima facie. In that instance, other judicial institutions may hear matters pertaining to the arbitral tribunal’s jurisdiction. However, most states provide in their domestic laws that parties to an arbitration agreement can raise jurisdictional objections such as the validity of the arbitration clause before their state courts in certain situations. This is a major problem as it can lead to parallel proceedings if the arbitral tribunal decides to continue proceedings despite the pending court determination. Parallel proceedings are costly and time-wasting. They could also increase the loss of both parties. For example, if the proceedings were to be held simultaneously and the court was to find the arbitration clause invalid, if the tribunal had given an award at that point, the award would be invalid and all steps taken in connection to said award would be null and void. However, if the arbitral proceeding was to be suspended and the court was to eventually find the arbitration clause valid, the parties would then have to restart the arbitral proceedings which would certainly take more time; during the said time, the parties’ losses could worsen.

The pros and cons of both sides of the parallel proceeding have led to a lot of contention between states and conflicting legislation and decisions. Some states allow for anti-arbitration injunctions but most arbitral tribunals have successfully argued that such injunctions are against the principle of competence-competence and technically amount to a denial of justice. Some states by legislation allow for anti-suit injunctions , thereby preventing national courts from hearing disputes concerning an arbitral tribunal’s jurisdiction; this further enforces the principle of competence-competence by allowing a tribunal to be the sole body in charge of their jurisdiction. Other states follow a first-come-first-serve approach as is provided for in Recommendation No. 2, 3 and 4 of the ILA Recommendations which states that, in order to prevent the risk of costly parallel proceedings, the second tribunal should suspend proceedings.     

3.0. CONCLUSION

An arbitral tribunal is one of the most powerful legal bodies with the power to check and balance its own weaknesses with little or no intervention from external forces. This is the reason why more people should include arbitration clauses in their legal agreements and why they should resort to arbitration more than litigation.

Do you think this principle of competence-competence makes arbitral tribunals too powerful? Rather would you say this principle provides the sufficient strength required for arbitral tribunals to hold their ground against government owned and funded courts? The future is now! A decision needs to be made and a stance declared in preparation of giving a clearer answer to younger generations  asking this question.