A Brief Introduction to the "Kompetenz-Kompetenz" Principle
in International Commercial Arbitration

----- X. L. Jason Ju

I. Meaning of "Kompetenz-Kompetenz" Principle

The "Kompetenz-Kompetenz" (or "Competence-Competence") principle is used by an arbitration tribunal to establish its standing (or competence) to hear a matter. Where a party files objections concerning the arbitration tribunal's jurisdiction, the tribunal shall have the power to rule on such objections, although the matter is ultimately decided by the Court.

The exact role of the "Kompetenz-Kompetenz" principle is to restrict the time and conditions for the court to intervene with the arbitration proceedings and to raise the efficiency of the arbitration tribunal's hearing. The power of the tribunal to determine the objections concerning its jurisdiction is typically assigned by the parties.

The principle itself is set forth as a basis for legal decision-making in Article V, Section 1(c) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York on 10 June 1958). The Convention states that where

"the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, the competent authority where the recognition and enforcement of the award is sought may, at the request of the party against whom it is invoked, refuse recognition and enforcement of the award.”

II. International Legislation and Practices

The "Kompetenz-Kompetenz" principle originated from a ruling rendered by a High Court in the former West Germany in 1955. This determined that arbitrators shall have the power to rule on the scope of arbitration agreements on which the authority of arbitrators is based. The United Nations Commission on International Trade Law Arbitration Rules (1976) (UNCITRAL Arbitration Rules) official adopted the "Kompetenz-Kompetenz" principle and provides in Article 21, Section 1 that

"[T]he arbitral tribunal shall have the power to rule on objections that it has no jurisdiction, including any objections with respect to the existence or validity of the arbitration clause or of the separate arbitration agreement."

The Model Law on International Commercial Arbitration (Model Law) adopted by United Nations Commission on International Trade Law in 1985 also contains similar provisions in Article 16. Although both UNCITRAL Arbitration Rules and the Model Law provide recommendations for use (rather than mandatory regulations), they are generally selected by parties in international commercial transactions. In fact, prior to the adoption of UNCITRAL Arbitration Rules, both the European Convention on International Commercial Arbitration (1961) and the European Convention Providing A Uniform Law on Arbitration (1966) had fully adopted the "Kompetenz-Kompetenz" principle. Thereafter, the principle became recognized by more and more countries, including England (1996 Arbitration Act), France (Code of Civil Procedure), as well as arbitration bodies such as the London Court of Arbitration, the American Arbitration Association, the Hong Kong International Arbitration Centre, and the Singapore International Arbitration Centre. All contain provisions for the adoption and use of the "Kompetenz-Kompetenz" principle.

When an arbitration tribunal applies the "Kompetenz-Kompetenz" principle to deal with a real case concerning jurisdiction objections, they may elect to make a preliminary ruling during the arbitration proceedings or make a decision in the final arbitral award. For instance, Article 21, Section 4 of the UNCITRAL Arbitration Rules states that,

"[I]n general, the arbitral tribunal should rule on a plea concerning its jurisdiction as a preliminary question. However, the arbitral tribunal may proceed with the arbitration and rule on such a plea in their final award."

In such instances, the court must conduct a post judicial review on the award. For preliminary rulings however, the methods of review by the courts differs in many countries. Some countries (and some states in the U.S.) permit the parties to submit their objections concerning the tribunal's jurisdiction and the receiving court has the power to order a stay of the arbitration. This is not a practical application of the “Kompetenz-Kompetenz" principle. In other countries, such as Switzerland, the court can intervene with the arbitration proceedings only when the parties are dissatisfied with the arbitral tribunal's preliminary ruling on the jurisdiction objections. The court may elect to review the arbitral tribunal's decision in the final award concerning jurisdiction after completion of the arbitration proceedings. Elsewhere, such as in England, the arbitral tribunal may rule on the question as to its jurisdiction, while at the same time allowing the parties to agree that the arbitral tribunal shall not have such power.

Over the past several years, Duan & Duan has handled numerous international commercial arbitration cases, including those involving such jurisdictional issues. In one case, the opposing party commenced arbitration against our client before the Hong Kong International Arbitration Centre. Upon commencement of arbitration proceedings, the other party also brought a patent lawsuit against our client in U.S. federal district court. Leading counsel Duan & Duan immediately developed a strategy in which a counterclaim was filed that encompassed all the disputed matters relating to the patent lawsuit, and which also requested that the Arbitral Tribunal declare non-infringement in favor of our client. Next, the legal team pointed out to the Arbitral Tribunal that all the disputed matters relating to the patent lawsuit are relevant to the underlying contract which had already been put before them.

This argument, involving both the “Kompetenz-Kompetenz” principle, as well as arbitrability of disputed issues, was used to recommend that the matters should be heard by the Arbitral Tribunal, and that the opposing party should dismiss the patent lawsuit in the U.S. It was based in part on the Arbitration Ordinance of Hong Kong, which stipulates that the Model Law should be applied to international commercial arbitration matters conducted in Hong Kong, which meant that the arbitral tribunal has the authority to decide the jurisdictional issues of disputed matters. The opposing party was put into the position of having to recognize this authority of the arbitral tribunal, otherwise they would potentially face unfavorable results. The opposing party then agreed to dismiss the patent lawsuit and to have the patent matters heard in arbitration.

III. "Kompetenz-Kompetenz" Principle in China

Both the Civil Procedure Law and the Arbitration Law of the PRC contain no express provisions asserting that an arbitration tribunal has the power to rule on objections concerning its jurisdiction. Article 20 of the Arbitration Law does provide that the parties may request the arbitration commission to make a decision on the validity of an arbitration agreement, but it also states that if the other party applies to the court for a ruling on the same question at the same time, the court will make such ruling. This provision gives rise to two problems: first, the parties to the arbitration proceedings may request the arbitration commission (rather than the arbitral tribunal itself) to make a decision on the validity of the arbitration agreement, which would be inconsistent with the parties' intentions upon entering into the arbitration agreement so that all disputes between them. Second, the question as to arbitration jurisdiction consists of not only the validity of the arbitration agreement but the arbitrability of the disputes at issue, the scope of the arbitration agreement, etc. It is obvious that presently, the Arbitration Law of the PRC does not adopt the "Kompetenz-Kompetenz" principle.

It is noteworthy however, that the latest version of the Arbitration Rules (2000) formulated by the China International Economic and Trade Arbitration Commission moves forward a little on the basis of the Arbitration Law. Article 4 states that

"[T]he Arbitration Commission has the power to decide on the existence and validity of an arbitration agreement and on jurisdiction over an arbitration case."

In other words, this provision expands the scope of the question as to arbitration jurisdiction provided in the Arbitration Law, although it does still have the inconsistency of having the matter decided by the commission rather than the tribunal. The Rules also restate the provisions of Article 20 of the Arbitration Law such that if one party requests the arbitration commission to make a decision and the other party requests the court to make a ruling, the court will make such a ruling.

Both the Rules and the Arbitration law are not yet clear or expanded enough to adopt the "Kompetenz-Kompetenz" principle. While this is a recognized and well-utilized theory in international arbitration proceedings, China still needs to revise its Arbitration Law to adopt the "Kompetenz-Kompetenz" principle so that Chinese commercial arbitration proceedings may become more standardized with those of the rest of the world.

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