Arbitration is often seen as a quicker and more flexible alternative to litigation, but it is not without its challenges. One issue that can arise during arbitration proceedings is a jurisdictional challenge - where one party disputes arbitration tribunal’s authority to hear the dispute.
Under the English <span class="news-text_italic-underline">Arbitration Act 1996</span> (“<span class="news-text_medium">AA 1996</span>”), jurisdictional challenges can delay proceedings, incur significant costs and even lead to the annulment of awards. Understanding the common issues that give rise to jurisdictional disputes and the options available to parties is critical for navigating arbitration efficiently.
A jurisdictional challenge arises when a party challenges whether the arbitral tribunal has the competence to resolve a particular dispute. The tribunal’s jurisdiction derives from the existence of a valid arbitration agreement.
Jurisdictional challenges can arise in several forms:
The AA 1996 provides a framework for resolving these challenges, but the process can be complex and has significant legal and financial implications for parties.
If a tribunal lacks jurisdiction, any award it issues is not legally binding and can be contested in court. An award issued by a tribunal without jurisdiction may be declared a nullity, meaning all related proceedings and costs could be rendered void. Thus, jurisdictional challenges can result in significant delays and costs
When faced with a jurisdictional challenge, the first step is to carefully review the arbitration agreement in the contract, as well as the applicable arbitration rules. Many arbitration rules outline specific procedures for raising jurisdictional issues. Next, parties must decide whether the tribunal or the court should address the jurisdictional issue.
This decision depends on the circumstances, the arbitration rules and the urgency of resolving the dispute. Another important consideration is whether to participate in the arbitration solely for the purpose of challenging jurisdiction. Participating allows a party to directly engage with the tribunal, while choosing not to participate may preserve the right to challenge jurisdiction before the court.
If a tribunal asserts that it has jurisdiction but a party disagrees, the decision can be contested in court under Section 67 AA 1996. This allows the court to re-examine the issue, and in some instances, it can lead to the annulment of the tribunal’s decision. The AA 1996 also permits the court to address jurisdictional issues directly, particularly if there has been a failure to comply with procedural requirements. However, such a ruling may result in a stay of arbitration, potentially delaying the resolution of the substantive dispute.
When addressing jurisdictional issues, parties should carefully consider several factors. Timing is critical, as delaying a jurisdictional challenge could result in the forfeiture of the right to object. The choice of whether to challenge jurisdiction through the tribunal or the court will also have financial implications, with challenges before the tribunal often being quicker and less expensive than those brought to court.
The Law Commission’s review of the AA 1996, which began in 2022, suggests potential reforms to streamline the process for addressing jurisdictional challenges. These amendments aim to reduce the likelihood of full rehearings in court, encouraging more efficient decision-making by tribunals.
Jurisdictional challenges under the AA 1996 are complex but pivotal to the arbitration process. Understanding the grounds for these challenges, the available strategic options and the potential implications for costs and timelines can help parties navigate arbitration more effectively. As reforms to the AA 1996 continue to evolve, staying informed of changes in the legal landscape is essential for making informed decisions when confronted with jurisdictional issues.
