JURISDICTION OF AN ARBITRAL TRIBUNAL AND AMICABLE SETTLEMENTS AS PRE-ARBITRAL OBLIGATIONS: AN ANSWER

Introduction

Determination of jurisdiction of an arbitral tribunal on the basis of fulfilment of existing pre-arbitral obligations agreed upon by parties to the arbitration has been a precedent followed in arbitrations. This allows for contesting the jurisdiction of the arbitral tribunal when such obligations have not been fulfilled. However, when clauses determining such obligations are vaguely worded or not capable of being construed, their fulfilment becomes non-mandatory.[1]

Arbitration cases have overseen the possibility of directing parties to interpret such clauses that are deemed to be vague, and agree on a common ground and means for fulfilment of the obligation (which would be in line with the principle of party autonomy), where the language of the clause is unclear as to the specific means to be undertaken, but the pith and substance behind it can be construed.

This article attempts to address the Conundrum of fulfilment of Amicable Settlements as pre-Arbitral Requirements in cases of vague but reasonably determinable pre-Arbitral Obligation Clauses for creation of jurisdiction of constituted Arbitral Tribunal. This is done by considering surrounding factors such as existence of consent to such pre-arbitral obligations when part of the contractual agreement, intent of parties and an arbitral tribunal’s capacity to rule over its own jurisdiction.

Voluntary consent to arbitrate: A factor to consider

The parties to an arbitration initiated as agreed under a contract, by way of entering into a contract consented to the agreement to arbitrate as international arbitration agreements are creatures of contract.[2] As held in a well-reasoned award of the ICC, “an arbitral tribunal should construe the validity and scope of an arbitration clause in accordance with the general principles of the interpretation of contracts, i.e., seeking the real and common intent of parties, based on the wording of the clause, and the principle of confidence or good faith.”[3]

Further, applying the UNCITRAL Model Law, a well-reasoned Singapore Appellate decision concluded, “An arbitration agreement should be construed like any other commercial agreement. The fundamental principle of documentary interpretation is to give effect to the intention of the parties as expressed in the document. A commercially logical and sensible construction was to be preferred over another that was commercially illogical.”[4]

National courts and arbitral tribunals have also frequently applied the rules that the specific prevails over the general.[5] As one authority concluded, “an age-old precept of contract interpretation requires that agreements be interpreted as a whole to give meaning to all terms, but when provisions conflict so that all cannot be given full weight, the more specific clauses are deemed to reflect the parties’ intentions – a specific provision controls a general one,”[6] while a frequently-cited arbitral award held that, “under the rule of interpretation lex specialis derogate legi generali the more specific provision takes precedence over the more general one.”[7]

In a substantial majority of all jurisdictions, national law provides that international arbitration agreements should be interpreted in light of a “pro-arbitration” presumption.[8] Derived from the policies of leading international arbitration conventions and national arbitration legislation, and from the parties‟ likely objectives, this type of presumption provides that a valid arbitration clause should generally be interpreted expansively and, in cases of doubt, extended to encompass disputed claims. That is particularly true where an arbitration clause encompasses some of the parties’ disputes and the question is whether it also applies to related disputes, so that all such controversies can be resolved in a single proceeding (rather than in multiple proceedings in different forums).

In the words of one award applying the UNCITRAL Rules, there is a “tendency…not only to a non-restrictive but even to an expansive view of international arbitration [clauses].”[9] Or, as another tribunal held, interpretation of an arbitration agreement “goes beyond the requirements of a strict literal interpretation. To the contrary, when the parties insert an arbitration agreement in their contract, one should presume that their intent was to establish an effective machinery for the settlement of disputes.”[10]

Amicable settlement as pre-arbitral steps not mandatory: Beyond mere ambiguity of clauses allowing questioning the tribunal’s jurisdiction

In Walford v. Miles, in which Lord Ackner held that a bare agreement to negotiate was unenforceable as a mere ‘agreement to agree’.[11] The issue presented to the Court of Appeal was whether mediation was a binding condition precedent to the commencement of arbitration. The Court held that it was not, as it did not contain clear language to that effect and did not define the obligation to mediate with sufficient certainty. In particular, the Court held that the multi-tier clause “did not set out any defined mediation process, nor does it refer to the procedure of a specific mediation provider.” Rather, it “contained merely an undertaking to seek to have the dispute resolved amicably by mediation” and “no provision was made for the process by which that was to be undertaken.”[12] Accordingly, the court ruled that mediation was not a jurisdictional condition precedent to arbitration.[13]

Similarly, in Tang Chung Wah & Anor v. Grant Thornton International Ltd.[14], the contract at issue contained a multi-tier dispute resolution clause that provided that prior to commencing arbitration, the parties were required to refer disputes to conciliation for one month, after which the parties were required to refer disputes to a panel of three individuals identified in the clause. The clause made clear that until those steps were undertaken “no party may commence any arbitration procedures in accordance with this Agreement.”[15] The claimant in that case commenced an arbitration against the respondent without fulfilling the pre-arbitral steps, and the respondent asked the tribunal to dismiss the claim for lack of jurisdiction. The tribunal found that it had jurisdiction, so the respondent sought to have this determination set aside by the High Court (Chancery Division). Ultimately, the High Court upheld the tribunal’s ruling, and held that the pre-arbitral steps in the multi-tier clause did not constitute binding conditions precedent to the commencement of arbitration, because they did not contain clear language to that effect and did not adequately specify the form in which the prearbitral steps should proceed.

In the 2014 decision of BG Group Plc v. Republic of Argentina[16], the United States Supreme Court took the position that a failure to comply with pre-arbitral steps set out in multi-tier clauses do not deprive an arbitral tribunal of jurisdiction to adjudicate a dispute, without clear language to the contrary.

Likewise, in an ICC case from 2001[17], the contract at issue required that the parties undertake efforts to negotiate disputes prior to submitting them to arbitration. In that case, the claimant commenced arbitration against the respondent without making any effort to negotiate, and the respondent consequently challenged the jurisdiction of the tribunal. In its defence, the claimant contended that negotiations would have been futile and urged the tribunal to accept jurisdiction. The tribunal rejected the Respondent’s application and asserted jurisdiction over the dispute. It relied in large measure on its finding that there would have been little prospect of settlement had they carried out negotiations prior to arbitration. In particular, the tribunal stated: “The arbitrators are of the opinion that a clause calling for attempts to settle a dispute amicably are primarily expression of intention, and must be viewed in the light of the circumstances. They should not be applied to oblige the parties to engage in fruitless negotiations or to delay an orderly resolution of the dispute. Accordingly, the arbitrators have determined that there was no obligation on the claimant to carry out further efforts to find an amicable solution, and that the commencement of these arbitration proceedings was neither premature nor improper.”[18]

Kompetenz-Kompetenz: The overriding factor 

Jurisdictional questions themselves are considered capable of settlement by arbitration, pursuant to agreement by the parties.[19] Under these circumstances, an arbitrator’s determination on his or her own authority will be final. The parties’ agreement transforms the jurisdictional difference into a disputed question of fact or law, whose substantive merits the litigants submit to final determination by an arbitrator.[20]

The UNCITRAL Model gives the arbitral tribunal an explicit right to determine its own jurisdiction in the form of a “preliminary” award, subject to challenge on a request from a party within thirty days.[21]

The principle of Kompetenz-Kompetenz is distinct from, but intersects functionally with, the notion that an arbitration agreement can be operationally detached from the main contract in which it is found. Often conceptualized as a matter of separability, the principle that an arbitration clause possesses contractual autonomy permits the arbitrators to do their job, notwithstanding what their award might say about the validity of the contract in dispute. The separability doctrine gives the arbitration clause the status of a contract autonomous from the principal agreement in which it is encapsulated.[22]

~Authored by Vaishnavi Salimath

Co-authored by Tejas Sateesha Hinder

References
[1] S. Kumar Construction Co. & Anr v. Municipal Corporation of Greater Bombay, Appeal No.914 of 2003
[2] Gary B. Born, International Commercial Arbitration (2d Ed, Kluwer Law International 2014) pp. 1317 - 1403. 
[3] Interim Award in ICC Case No. 7929, XXV Y.B. Comm. Arb. 312, 317 (2000). 
[4] Insigma Tech. Co. Ltd v. Alstom Tech. Ltd, [2009] 3 SLR(R) 936, ¶¶30, 33 (Singapore Ct. App.). 
[5] Dr. Horst Reineccius v. Bank for Int’l Settlements, Partial Award in PCA Case of 22 November 2002, XXVIII Y.B. Comm. Arb. 100, 130 (2003). 
[6] Karnette v. Wolpoff & Abramson, LLP, 444 F.Supp.2d 640, 646 (E.D. Va. 2006). 
[7] Final Award in ICC Case No. 5946, XVI Y.B. Comm. Arb. 97, 102 (1992). 
[8] William W. Park, 'The Arbitrator's Jurisdiction To Determine Jurisdiction, I. Introduction: The Limits Of Language', In Albert Jan Van Den Berg (Ed), International Arbitration 2006: Back To Basics?, ICCA Congress. 
[9] Wintershall AG v. Government of Qatar, Partial Ad Hoc Award of 5 February 1988, 28 Int’l Legal Mat. 795, 811 (1989). 
[10] Award in ICC Case No. 9759, discussed in GrigeraNaón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 89-90 (2001). 
[11] Walford v. Miles, [1992] 1 All ER, at 460. 
[12] Sulamerica CIA Nacional de Seguros v. EnesaEngenharia, [2012] EWCA Civ 638, ¶ 36. 
[13] Id.  
[14] Tang Chung Wah & Anor v. Grant Thornton International Ltd., [2012] EWHC 3198 (Ch).  
[15] Id., ¶ 27. 
[16] BG Group PLC v. Republic of Argentina, 572 (2014) (slip op.).
[17] ICC Case No. 8445, Final Award, XXVI Y.B. Comm. Arb. 167 (2001). 
[18] Id., p. 169. 
[19] Veijo Heiskanen, Dealing with Pandora: The Concept of ‘Merits’ in International Commercial Arbitration, 22 Arb. Int’l (2006, no. 4) pp. 597-611.  
[20] Supra Note 7. 
[21] Model Arbitration Law of the United Nations Commission on International Trade Law, art. 16 (1985).  
[22] Gary B. Born, International Commercial Arbitration (2d Ed, Kluwer Law International 2014) pp. 1317 – 1403.