Juris.-of-arbitral-tribunal2.docx

JURISDICTION OF ARBITRAL TRIBUNAL

Angnen, Edralyn Joy W. Lopez, Raffy D. 2-A

Questions: Q1. Does the Arbitral Tribunal have the competence to make a decision on its own jurisdiction, including decisions ruling on any objections with respect to the existence or validity of an arbitration agreement?

Q2. Will the Arbitral Tribunal lose jurisdiction if the contract in which the arbitration agreement or clause is inserted, is declared void?

Jurisdiction: 

The source of the jurisdiction is the arbitration agreement. Thus, the challenge to the jurisdiction of an arbitral tribunal often concerns at the issue of existence, validity or enforceability of the arbitration agreement.

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The arbitral tribunal can only decide to an important issue of jurisdiction if there was any objection from either party as the arbitration agreement is presumed valid.

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traditionally this legal issue has been accepted as appropriate for judicial determination as stated in Model Law Article 8.

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But under article 16 of Model law declares that the arbitral tribunal has the competence to rule upon its jurisdiction including the issue of the existence or validity of the arbitration agreement.

Article 16 of the Model Law/ Article 4.16 of the IRR of the ADR Competence of arbitral tribunal to rule on its jurisdiction (1) The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. (2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence. A party is not precluded from raising such a plea by the fact that he has appointed, or participated in the appointment of, an arbitrator. A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. The arbitral tribunal may, in either case, admit a later plea if it considers the delay justified. (3) The arbitral tribunal may rule on a plea referred to in paragraph (2) of this article either as a preliminary question or in an award on the merits. 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.

Model Law Article 16(1) embodies two basic principles in international commercial arbitration: (a) The principle of competence–competence. (b) The principle of separability

The Principle of competence- competence Means that the tribunal is competent to rule upon its own jurisdiction, including any objection with respect to the existence or validity of the arbitration agreement. Reported decisions have showed that the courts recognize the right of the arbitral tribunal to determine: A. whether arbitration agreement exists between the parties B. whether the matter in dispute comes within the scope of the arbitration agreement C. what is the proper interpretation of the arbitration agreement D. whether the arbitration agreement is valid or was terminate

The Principle of Separability Doctrine of Separability is recognized in many countries’ statutes or case law, it enunciated that an arbitration agreement is independent of the main contract. The arbitration agreement is to be treated as a separate agreement and the arbitration agreement does not automatically terminate when the contract of which it is a part comes to an end. The Seperability of the arbitration agreement is especially significant to the determination of whether the invalidity of the main contract also nullifies the arbitration clause. The doctrine denotes that the invalidity of the main contract, also referred to as ‘container contract’, does not affect the validity of the arbitration agreement. Irrespective of the fact that the main contract is invalid, the arbitration clause/ agreement still remains valid and effective. For example, even if arbitrators find that the main contract is null and void ab initio, even owing to fraudulent behavior of a party or the parties, but that arbitral clause continues to be operative, providing arbitrators with authority to decide on the consequences of the nullity of the main contract. Purpose: It is the remedy by which the parties may resort to for disputes arising from the agreements.

Who rules on its own jurisdiction? Courts or arbitrators? (Dual Jurisdiction)  Situation 1: Leaving the issue of jurisdiction to be resolved by arbitrators Under MAL 16, the tribunal may rule on its own jurisdiction, including any objections regarding the existence or validity of the agreement. 

Situation 2.: Independent preliminary decision by the court on the issue of the existence, validity and/or practicability of the agreement When a party submits a claim to the court, and the other party opposes on the ground that an arbitration agreement was concluded. Under MAL 8, the court is bound to refer the case to arbitration, “unless the agreement is null and void, inoperative or incapable of being performed”. According to the article of Dr. Uzelac, in other cases the superior courts found that a court has no discretion, but is obliged to refer the matter to arbitration if an objection was raised (Case 70 and 179, Canada) and it would be wise both for the courts and for the arbitrators to have an eye on the process conducted before the other tribunal, perhaps suspending the proceedings until the decision in the other process is

being made—but only if this would not cause undue hardship to parties in the proceedings In the discussion of Parlade, The Special ADR rules seeks to obviate a potential conflict between a trial court and an arbitral tribunal arising from the submission of the same issue of jurisdiction to the court and to the arbitral by providing that: a) The court should defer to an arbitral tribunal to rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement, or any condition precedent to the filing of the petition (rule 2.4, Special ADR Rules). b) While a party may seek judicial intervention to determine the issue of the existence, validity or enforceability of the arbitration clause, this intervention which should be in the form of special proceeding may be filed at any time before commencement of arbitration. This precludes a party from commencing a proceeding in court to prevent an arbitral tribunal from being constituted or from proceeding with the arbitration (rule 3.3, Special ADR Rules). c) Where the court is asked to make a determination of whether the arbitration agreement is null and void, inoperative or incapable of being performed, under the policy of judicial restraint, the court must make no more than a prima facie determination of that issue and unless, following such prima facie determination, the court concludes that the arbitration agreement is null and void, inoperative or incapable of being performed, the court must suspend the proceeding before it and refer the parties to arbitration (rule 3.8, Special ADR Rules).

Challenge to Competency of Tribunal 

Formal Validity of Arbitration Agreement The challenge may involve the issue of formal validity of an arbitral agreement in which case the arbitral tribunal will be referred to the law of the place of arbitration.

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Lack of legal Capacity to enter into agreement Under Model Law Article 34, the court may set aside an arbitral award if a party to the arbitration agreement was under some incapacity to enter into that agreement.

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Unenforceability of the agreement Under Philippine law, a contract entered into by an agent without or in excess of the authority given to him by his principal unenforceable.

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Non-Arbitrability of Dispute If subject matter of the agreement is not capable of settlement by arbitration.

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Disputes involving a mix of Arbitrable and Non-arbitrable issues/ multiple parties Under the ADR act, the court shall refer to arbitration those parties who are bound by the arbitration agreement although the civil action may continue as those who are not bound by such arbitration agreement.

Timeliness Issue of Competence Second (2) Paragraph of Article 16 

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Issue of Jurisdiction should be raised not later than the filing of statement of defense or answer. The arbitral tribunal may admit later plea if it considers the delay justified.  Belated objections regularly cannot be taken into account, as the lack of objection has to be construed as the waiver of the right to object and conclusion of a valid arbitration agreement. In the course of arbitration, a party to the arbitration may question the exercise of authority by the arbitral tribunal and allege that it is acting in excess or beyond the scope of its authority. The Issue must be raised promptly after the arbitral tribunal has acted or has indicated an intention to decide on matter allegedly beyond the scope of its authority.  If not raised within this period, the party affected is precluded from raising it during a later stage of the proceedings.

Appeal to the RTC Under Model Law Article 16(3), when the arbitral tribunal defer, until after hearing and as part of its award, its ruling on the issue of existence, invalidity or enforceability of an arbitration agreement, a party may appeal that ruling to a Regional Trial Court with jurisdiction. While such an appeal is made, the arbitral tribunal may either suspend or continue the arbitration proceeding. In the latter case, it may make an award. Where the arbitrability of a dispute is raised as a challenge to the jurisdiction of an arbitral tribunal, the Arbitral tribunal may resolve the issue in one of three (3) ways: (Special ADR Rules) a) Deny the motion and uphold its jurisdiction. If arbitral tribunal rules upholding its jurisdiction on a preliminary question o a party has the right to petition, within 30 days after the ruling of the arbitral tribunal, the court for judicial relief.

o During the pendency of the petition, the court shall not enjoin the arbitration proceeding. o The ruling of the court affirming the arbitral tribunal’s jurisdiction shall not be subject to a petition for certiorari. o If the court in unable, to render a decision on the petition the tribunal’s preliminary ruling affirming its jurisdiction, the petition shall become ipso facto moot and academic and shall be dismissed by the court. b) Defer resolution of the issue until after hearing on the merits and its final award o No motion for reconsideration nor an appeal or a petition for certiorari is allowed, and the aggrieved party must await the final award before seeking appropriate judicial recourse. o Decision may be challenged within the setting aside procedure (MAL 34(2) (a) (i)) or within the procedure of recognition and enforcement (36(1) (a) (i)).

c) Grant the motion and declare itself without jurisdiction. o The model law contains no provision allowing judicial review of such determination. o However, under the Special ADR rules, party to arbitration may petition the appropriate court for judicial relief from the ruling of the arbitral tribunal on a preliminary its jurisdiction. o Should the ruling of the arbitral tribunal declining its jurisdiction be reversed by the court, the parties shall be free to replace the arbitrators or any one of them in accordance with the rules that were applicable for the appointment of arbitrator sought to be replaced. Purpose: The purpose of model Law in this Article 16(3) is to avoid delaying the arbitration by raising the issue of jurisdiction of the arbitral tribunal. Also many practicing lawyers also feel that court intervention should be allowed to prevent the arbitral tribunal from exceeding its authority or failing to comply with the requirement of due process. Summary: Article 16 (1) adopts the two important principles of “Kompetenz-Kompetenz” and of separability or autonomy of the arbitration clause. “Kompetenz-Kompetenz” means that the arbitral tribunal may independently rule on the question of whether it has jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement, without having to resort to a court. Separability means that an arbitration clause shall be treated as an agreement independent of the other terms of the contract. As a consequence, a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. Detailed

provisions in paragraph (2) require that any objections relating to the arbitrators’ jurisdiction be made at the earliest possible time. The competence of the arbitral tribunal to rule on its own jurisdiction (i.e. on the foundation, content and extent of its mandate and power) is, of course, subject to court control. Where the arbitral tribunal rules as a preliminary question that it has jurisdiction, article 16 (3) allows for immediate court control in order to avoid waste of time and money. However, three procedural safeguards are added to reduce the risk and effect of dilatory tactics: short time-period for resort to court (30 days), court decision not appealable, and discretion of the arbitral tribunal to continue the proceedings and make an award while the matter is pending before the court. In those cases where the arbitral tribunal decides to combine its decision on jurisdiction with an award on the merits, judicial review on the question of jurisdiction is available in setting aside proceedings under article 34 or in enforcement proceedings under article 36.

Jurisdiction of the Tribunal to Issue Interim Measures of Protection

The arbitral tribunal may, at the request of the party, order any party to take such interim measures of protection as the arbitral tribunal may consider it necessary in respect of the subject to matter of the dispute. Such interim measures may include, but limited to: 1. 2. 3. 4.

Preliminary Injunction Appointment of Receivers Preservation Inspection of Property subject of the dispute

An interim measure is any temporary measure, whether in the form of an award or in another form, by which, at any time prior to the issuance of the award by which the dispute is finally decided, the arbitral tribunal orders a party to:

(a) Maintain or restore the status quo pending determination of the dispute; (b) Take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral process itself;

(c) Provide a means of preserving assets out of which a subsequent award may be satisfied; or (d) Preserve evidence that may be relevant and material to the resolution of the dispute

Procedure and Content of the Provisional Relief. First a party requesting for such relief, must be done by a written application, transmitted by any reasonable means to the arbitral tribunal and to the party against whom relief is sought. Such application will describe the appropriate details of relief sought, the party against whom the relief is requested and such other evidences that may support the request.

When may a party request for interim measures? A request for interim measures may be had after the constitution of arbitral tribunal or during arbitral proceeding if modification is required. Both shall be made with the arbitral tribunal. Once granted; (1)Immediately after the arbitral tribunal has made a determination in respect of an application for a preliminary order, the arbitral tribunal shall give notice to all parties of the request for the interim measure, the application for the preliminary order, the preliminary order, if any, and all other communications, including by indicating the content of any oral communication, be-tween any party and the arbitral tribunal in relation thereto. (2) At the same time, the arbitral tribunal shall give an opportunity to any party against whom a preliminary order is directed to present its case at the earliest practicable time. (3) The arbitral tribunal shall decide promptly on any objection to the preliminary order. (4) A preliminary order shall expire after twenty days from the date on which it was issued by the arbitral tribunal. However, the arbitral tribunal may issue an interim measure adopting or modifying the preliminary order, after the party against whom the preliminary order is directed has been given notice and an opportunity to present its case. (5) A preliminary order shall be binding on the parties but shall not be subject to enforcement by a court. Such a preliminary order does not constitute an award.

The order granting or denying an application for the interim relief shall be binding upon the parties. Either parties may apply with the court for the assistance in implementing or enforcing an interim measures for protection ordered by an arbitral tribunal.

The following rules must be observed, once the relief is granted to: 1. 2. 3. 4.

Prevent irreparable loss or injury Provide security for the performance of an obligation Produce or preserve evidence Compel any other appropriate acts of omissions.

Provision applicable in the order of interim measure. Modification, suspension, termination The arbitral tribunal may modify, suspend or terminate an interim measures or a preliminary order it has granted, upon application of any party or, in exceptional circumstances and upon prior notice to the parties, on the arbitral tribunal’s own initiative. Of security The arbitral tribunal may require the party requesting an interim measures or preliminary order to provide security in connection with such measure or order, unless the tribunal consider it inappropriate or unnecessary to do so. Disclosure The arbitral tribunal may require any party promptly to disclose any material change in the circumstances on the basis of which the measure was requested or granted. The party applying for a preliminary order shall disclose to the arbitral tribunal all circumstances that are likely to be relevant to the arbitral tribunal’s determination whether to grant or maintain the order, and such obligation shall continue until the party against whom the order has been requested has had an opportunity to present its case.

Costs and damages The party requesting an interim measure or applying for a preliminary order shall be liable for any costs and damages caused by the measure or the order to any party if the arbitral tribunal later determines that, in the circumstances, the measure or the order should not have been granted. The arbitral tribunal may award such costs and damages at any point during the proceedings

Recognition and enforcement of interim measures: An interim measure issued by an arbitral tribunal shall be recognized as binding and, unless otherwise provided by the arbitral tribunal, enforced upon application to the competent court, irrespective of the country in which it was issued, subject to the provisions of article 17 I. The party who is seeking or has obtained recognition or enforcement of an interim measure shall promptly inform the court of any termination, suspension or modification of that interim measure.

Grounds for refusing recognition or enforcement: Recognition or enforcement of an interim measure may be refused only: (A) At the request of the party against whom it is invoked if the court is satisfied that: (i) Such refusal is warranted on the grounds set forth in article 36(1)(a)(i), (ii), (iii) or (iv); or

(B) If the court finds that: (i) The interim measure is incompatible with the powers conferred upon the court unless the court decides to reformulate the interim measure to the extent necessary to adapt it to its own powers and procedures for the purposes of enforcing that interim measure and without modifying its substance; or (ii) Any of the grounds set forth in article 36(1)(b)(i)or(ii), apply to the recognition and enforcement of the interim measure.

Effect Failure to comply with the order. A party who does not comply with the order of the arbitral tribunal, once the application has been granted, shall be liable for damages, resulting from noncompliance, including all expenses and reasonable attorney’s fees, paid in obtaining the order’s judicial enforcement.