Deciding Jurisdiction

© Daniel Atkinson 1999

Arbitration is the preferred method of dispute resolution in many construction contracts and particularly for international projects. The jurisdiction of the Arbitral Tribunal derives from the agreement of the parties and the legal status of its' decisions is defined in the local legislation which in England is the Arbitration Act 1996. If the parties dispute that there is an arbitration agreement, then how can the Tribunal be competent to decide this point when it strikes at the very core of its jurisdiction? This issue provides fertile ground for one party to cause delay to the arbitration process. On the other hand the existence of an arbitration agreement is central to the legal validity of the Tribunal's award. If the award is successfully challenged for want of jurisdiction then the arbitration process will have been a waste of effort.

The Arbitration Act 1996 has addressed this problem by following the solution adopted in other legal systems and internationally, known as the doctrine of Kompetenz-Kompetenz. Section 30 provides that the Tribunal can rule on its own substantive jurisdiction which includes whether there is a valid arbitration agreement. The Tribunal cannot of course finally decide its own jurisdiction but this at least has given the Tribunal the power to avoid any delays in the arbitration process. The parties can exclude this power by agreement. Section 32 sets out the circumstances in which the court may determine the question of jurisdiction as a preliminary issue and requires the written agreement of the parties or alternatively the permission of the Tribunal. The situations in which the Court can intervene on issues of jurisdiction once arbitration has commenced, appear therefore to be restricted.

The difficulties with the doctrine still remain. The essential question is how will the Courts react when one party disputes that there is an arbitration agreement and issues a writ, but the other party considers that there is an arbitration agreement and seeks to stay the Court proceedings? The decision in Birse Construction Limited v St Davis Limited (Feb 1999)TCC is instructive. It was common ground that the Court essentially had two options.

The first option was for the Court to decline to decide the issue immediately. The Court could then grant the stay to arbitration and allow the Arbitral Tribunal to decide under Section 30 of the Arbitration Act 1996. Alternatively it could order the issue to be tried by the Court under RSC Order 73 rule 6(2) (now Practice Direction Part 49G Part 6(2)).

His Honour Judge Lloyd QC held that the Arbitration Act did not require a party who maintains that there is no arbitration agreement to have that question decided by an Arbitral Tribunal. He held that it was highly desirable that an issue such as the existence of an arbitration agreement should be determined by the Court before the arbitration commenced. He held that it cannot be in the interests of the parties to have to return to the Court on a challenge to an award on jurisdiction, to get a definitive answer to a question which could and should be decided by the Court before the Arbitral Tribunal embarks upon the meat of the reference. Accordingly he held that if the facts had not been clear he would have acceded to an application that the issue be tried by the Court. It was held that only where the Court considered it was virtually certain that there was an arbitration agreement or if there is only a dispute as to the scope of the arbitration agreement, would it be appropriate to leave the matter to be decided by the Arbitral Tribunal.

The second option available to the Court was to determine immediately whether there was an arbitration agreement and then decide on that basis whether or not to grant a stay to arbitration. His Honour Judge Lloyd QC held that if it is clear on the evidence that the agreement did or did not exist that the Court should decide, since the dominant factor must be the interests of the parties and the avoidance of unnecessary delay or expense. In so deciding he distinguished the decision in Ahmad Al Naimi v Islamic Press Agency (1998). In that case an action was stayed to arbitration for two contracts in which only the first contract appeared to have an arbitration agreement. It was recognised by his Honour Judge Lloyd QC that the decision was based on the exercise of the judges discretion and that there was an undoubted arbitration agreement and a close relationship between the two contracts. He considered it was therefore sensible to have allowed the arbitrator to decide whether the disputes about the second contract fell within the arbitration agreement of the first contract.

His Honour Judge Lloyd QC then examined the facts of the case before him and found that there was an arbitration agreement and accordingly granted the stay to arbitration.

The decision at its widest application is that the Court rather than the arbitrator should always decide the question whether there is an arbitration agreement. If followed by Arbitral Tribunals then it will cause considerable delays to arbitrations. It is suggested that this wide application is contrary to the intention of the Arbitration Act 1996 and the purpose of the doctrine of Kompetenz-Kompetenz which is to reduce the possibility of delays in arbitrations. So, Section 30(1)(a) allows the Tribunal to make an interim award on whether there is a valid arbitration agreement and the parties may challenge this ruling by appeal or review. Only if the parties agree under Section 31(5) should the Tribunal stay proceedings whilst application is made to the Court to determine the preliminary point of jurisdiction.