Arbitrators and courts: two battlefields over the tribunal’s jurisdiction

In a recent decision rendered in Stockholm on 21 April 2016, the Swedish Supreme Court confirmed that national courts have the same authority to conduct a fully-fledged review of an arbitral tribunal’s jurisdiction as the arbitral tribunal itself.

The decision comes in relation to an ongoing UNCITRAL arbitration under the auspices of the Stockholm Chamber of Commerce, initiated by the Russian company Interneft LLC and the Russian regions of Saratov and Volgograd against French company ELF Neftegaz – an entity in the Total group.

The origin of the dispute

The dispute concerns a cooperation agreement to explore for and produce oil and gas in two regions in southern Russia.  In its initial submissions, ELF Neftegaz claimed that the agreement never entered into force since it was contingent on the government passing natural resources laws, which never took place. On the other hand, the two regions and Interneft LLC claimed that ELF Neftegaz had obtained all the necessary permits.

Contesting the arbitrators’ jurisdiction before the Swedish courts

In response to the commencement of arbitral proceedings, ELF Neftegaz applied to the district court to affirm that the arbitral tribunal lacked jurisdiction to resolve the dispute. The applicant invoked the invalidity of the arbitration agreement, the improper constitution of the tribunal and non-compliance with pre-arbitral procedural steps by the claimant. The district court accepted the grounds for the affirmation motion, and found that the arbitral tribunal indeed lacked jurisdiction.

However, the Court of Appeal reversed the decision and stated that the courts’ review of the arbitrators’ jurisdiction is confined only to the examination of the validity of the arbitration agreement.

The issue before the Supreme Court concerned the extent of review by the national courts of the arbitrators’ jurisdiction to hear the case under the Swedish Arbitration Act. Such authority stems from the provision of the Arbitration Act that allows both the arbitral tribunal to review its own jurisdiction (kompetenz-kompetenz) and, concurrently, the national court to review the same issue upon the request of a party.

Swedish Supreme Court interpretation of the Arbitration Act

In order to clarify the scope of jurisdictional review, the judges examined the preparatory works of the provision. The travaux were silent on the degree of review that can be undertaken by judges. They did offer, however, a non-exhaustive list of jurisdictional objections that can be heard by arbitrators, such as the objection that the arbitration agreement is invalid, that it is not applicable to the dispute or that the dispute is not eligible for arbitration.

Scope of jurisdictional review by national courts

The Supreme Court interpreted the Arbitration Act as granting authority to the state courts to review all issues relating to the jurisdiction of the arbitral tribunal. It also established that positive kompetenz-kompetenz of the arbitrators should be fully mirrored by the negative kompetenz-kompentenz vested in the national courts.

This would mean that the same set of considerations that are taken into account by arbitrators when determining its own jurisdiction can also be taken into account by judges when encountered with an arbitration clause.  From a practical point of view, it would mean that parties can raise the same arguments and objections concerning the jurisdiction of the arbitral tribunal before the arbitrators and the judges. The judges enumerated a number of jurisdictional review issues that the courts can undertake, such as arbitrability, existence of procedural impediments, constitution and qualification of the arbitral tribunal.

The rationale behind the Supreme Court’s findings

After reiterating that the Arbitration Act intended in fact to grant the national courts with identical authority and scope of jurisdictional review as those of the arbitrators, the Supreme Court proceeds by explaining the rationale behind such an interpretation. In the view of the Court, it is of utmost importance to solve jurisdictional issues as early as possible during the arbitral proceedings in order to avoid any uncertainty and possibility of future challenge of the award.

Moreover, by this line of reasoning, the Court intends to close the gap between jurisdiction issues reviewable on the “front end” of the arbitral proceedings and issues subject to review at the “back end”, during the challenge of the arbitral award. In other words, this would serve as a way of narrowing down any space for challenge of the final award, since the courts of the seat of arbitration have the authority to decide all jurisdictional issues ot the outset of arbitration.

Conclusion and caveat

Therefore, under Swedish arbitration law as a general rule the arbitral tribunal and state courts have the same scope of jurisdictional review. The purpose of such review is to finally determine whether the parties are bound to transfer the dispute to arbitration.

As for the practical implication of this case, we will see a development of Swedish case law dealing with judicial review of arbitration agreements. Such cases will now include decisions on a much broader set of arguments brought by the party opposing arbitration at the outset of arbitral proceedings, commensurate to those arguments raised before the arbitral tribunal.

However, the courts will scrutinise arguments raised by the party contesting the award on the post-award stage much more strictly, since the party will have had the full opportunity of raising them during the earlier stages of the proceedings, but chose not to.

Saba Sekulovic

LL.M candidate at Europa Institut (Saarland University), Intern at CIS Arbitration Forum