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Principle Of Kompetenz: Kompetenz Affecting The Authority Of Arbitral Tribunal In International Commercial Arbitration

Origin of the term
One of the most well-known principles in International Commercial Arbitration is the doctrine of kompetenz-kompetenz, known as competence de la competence in French and competence-competence in English. This doctrine grants arbitrators the power to first rule on their own jurisdiction, which is the positive effect, while also preventing national courts from intervening to examine the arbitrators' jurisdiction, known as the negative effect. The rationale for this doctrine is to avoid obstruction and delay of the arbitral proceedings. In simple terms, it means that arbitrators have the authority to review their own jurisdiction without waiting for a court to do so, and they are not required to halt the arbitral proceedings to refer a jurisdictional issue to judges.[1]

The principle traces its existence in India in Section 16 of the Indian Arbitration and Conciliation Act, 1996. Within the UNCITRAL Model Law, there are two articles relevant to the negative competence-competence doctrine, articles 8 and 16. There is debate on whether a court under Article 8(1) is limited to a prima-facie finding or must fully determine the existence and validity of an arbitration agreement. The phrase "unless it finds that the agreement is null and void, inoperative or incapable of being performed" is similar to Article II (3) of the New York Convention, suggesting interpretation based on the drafters' intention. Given the Convention's pro-enforcement basis, it is reasonable to conclude that Article 8(1) requires only prima facie scrutiny unless the agreement is clearly invalid.

Supporting this view, Swiss courts interpret Article II (3) of the New York Convention as necessitating only prima facie verification of arbitration agreements. Article 16(1) of the Model Law enshrines the positive competence-competence doctrine, while Articles 16(3) and 8(2) provide a limited negative competence-competence doctrine, reflecting a historical compromise. While a court might apply prima facie scrutiny to an arbitration agreement, it retains the discretion for full judicial review. Courts in jurisdictions adopting the Model Law have integrated the negative competence-competence principle into Article 16.

Core Components of the Kompetenz-Kompetenz

Kompetenz - Kompetenz comprises two main components: the positive and negative effects.

The positive effect: The Kompetenz-Kompetenz rule ensures that the arbitral tribunal can rule on its own jurisdiction, which has a clear and unambiguous positive effect. The Hon'ble Supreme court of India in its landmark 5-judge bench decision N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd. stated that the arbitral tribunal is competent enough to rule on its jurisdiction.[2] Majority of the countries admit to the positive affect of the kompetenz - kompetenz principles.

The negative effect: It implies that courts cannot decide on challenges to the jurisdiction of arbitrators before the arbitrators themselves. This means that the arbitrators have the priority to decide on their own jurisdiction, not the court. This has led to controversy regarding the negative effect of this arrangement. The Supreme court of India in SBP & Co. v. Patel Engg. Ltd.[3] takes a view in favour of the finality of determination by the court despite the language of section 16 in part I of the ACA, India, 1996.

Emmanuel Gaillard and Yas Banifatemi argue that courts should only review arbitration agreements to determine if they are not 'null and void, inoperative, or incapable of being performed' at a prima facie level.[4] A prima facie determination means that the court finds that an arbitration agreement exists and is valid. They also argue that arbitrators should be the first to decide on their own jurisdiction, and court intervention should only occur when enforcing or setting aside an arbitral award based on the arbitration agreement.[5]

Importance in International Commercial Arbitration

According to John Barceló, this doctrine deals with the question of who decides arbitrability: courts or arbitrators?[6] To answer this question, Barceló believes that it all depends on timing and divides the court-arbitration process into three stages. Stage 1 involves litigation and whether the court should hear the dispute or send the parties to arbitration.[7] Stage 2 incorporates the arbitrators' ability to hear the dispute or decline jurisdiction, while Stage 3 involves judicial review of the award, either to set it aside or to have the award recognized and enforced.[8]

This doctrine is important because it helps keep the arbitration process efficient and swift by protecting it from unnecessary court intervention. In arbitration, both parties need to agree, and the tribunal must make sure it has the authority to proceed. Allowing parties to challenge the tribunal's authority in court at every step could slow down the process. The "Kompetenz-Kompetenz" doctrine gives the tribunal the power to decide on its own authority, which helps keep the arbitration process running smoothly.[9]

The Supreme Court's interpretation, allowing the court appointing an arbitrator to decide on initial jurisdictional issues, has undermined the kompetenz-kompetenz principle outlined in Section 16 of the Act.[10] Consequently, the Law Commission, in its 246th report, recommended limiting judicial intervention under Section 11 strictly to verifying the existence of an arbitration agreement.[11] This recommendation was implemented with the introduction of Section 11(6A) in the 2015 Amendment. The kompetenz-kompetenz doctrine grants an arbitral tribunal the authority to determine its own jurisdiction, including resolving issues related to the existence or validity of the arbitration agreement. This doctrine aims to reduce judicial interference, ensuring that the arbitration process is not obstructed at the outset by preliminary objections from one of the parties.

The doctrine of Kompetenz-Kompetenz is a fundamental principle in arbitration law, empowering an arbitral tribunal to determine its own jurisdiction, including deciding on challenges to its jurisdiction.[12]

The principle of Kompetenz-Kompetenz can be abused, such as when it is used to unnecessarily prolong arbitration proceedings. In the Devas v. Antrix[13] case, the negative impact of Kompetenz-Kompetenz allowed for a complete review only by an arbitral tribunal. This led to the possible annulment of the arbitral award based on a jurisdictional challenge that could have been resolved at the very beginning by the national courts. This case highlighted the drawbacks of the doctrine and proposed an alternative approach of positive Kompetenz-Kompetenz based on concurrent jurisdiction between the arbitral tribunal and national courts.[14]

In conclusion, the principle of Kompetenz-Kompetenz is crucial for the efficient functioning of arbitration proceedings. However, it is important to have checks and balances in place to prevent potential abuses. This could include clear arbitration agreements, oversight by national courts, and adherence to established arbitration rules and laws.

End Notes:
  1. WW Park, "The Arbitrability Dicta in first Options v Kaplan: What Sort of Kompetenz-Kompetenz Has Crossed the Atlantic?", Arbitration International, Vol 12 (1996), pp 137, 149.
  2. N.N. Global Mercantile (P) Ltd. v Indo Unique Flame Ltd., (2023) 7 SCC 1.
  3. SBP & Co. v Patel Engg. Ltd., (2005) 8 SCC 618.
  4. E Gaillard & Y Banifatemi, "Chapter 8 - Negative Effect of Competence-Competence: The Rule of Priority in Favour of the Arbitrators", in Enforcement of Arbitration Agreements and International Arbitral Awards - The New York Convention in Practice, E Gaillard and D Di Pietro, 2008 eds, Cameron May Ltd, p 259.
  5. ibid, p 260.
  6. JJ Barceló, "Who Decides the Arbitrators' Jurisdiction? Separability and Competence-Competence in Transnational Perspective", Vanderbilt Journal of Transnational Law, (2003), Vol 36, p 1116.
  7. ibid, p 1118.
  8. ibid, p 1124.
  9. Sheikh T, 'The Doctrine of "Kompetenz-Kompetenz" in International Arbitration: Its Impact and Practical Insights' (LinkedIn, 12 July 2023) accessed 27 May 2024
  10. Arbitration and Conciliation Act 1996, s 16
  11. Report No.246, Amendments to the Arbitration and Conciliation Act 1996, Law Commission of India, Government of India, August 2014, at Para 33, Chapter-II, Pg.20.
  12. Banerji O, 'All You Need to Know about the Doctrine of Kompetenz-Kompetenz' (iPleaders, 30 October 2021) accessed 27 May 2024
  13. Devas v Antrix (ICC Case No. 18051/ CYK of 2011).
  14. Anukaran S and others, 'The Negative Affect of Negative Effect of Kompetenz-Kompetenz on International Arbitration: Notes from the Devas v. Antrix Saga' (Kluwer Arbitration Blog, 9 June 2020) accessed 27 May 2024

Written By: Abhinav Patel - Dr.Ram Manohar Lohia National Law University
Email: [email protected]

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