Resolving Jurisdiction Conflicts between Courts and Arbitral Tribunals: A Chinese Law Perspective

• Author: Ph.D. Professor of law at East China University of Political Science & Law, Shanghai
• Position: Xiaohong Liu
• Pages: 243-273

Page 243

The question of conflict of jurisdictions between courts and arbitral tribunals not merely constitutes a purely theoretical issue, but it also has significance in the legal practice. When many countries show allowance to arbitration and support its development to the greatest extent, few courts in China fail to tackle the relationships between arbitration and courts. By means of an analysis of possible conflict of the jur isdictions between courts and arbitral tribunals, this article pleas for a supportive attitude of courts with respect to arbitration, so as to reduce the impact of courts' judicial supervision on the due arbitration proceeding. In-depth theoretical discussions will develop on the principle of "competence-competence" and its application in China, justifying the conclusion that the essence of this principle is to have disputes between parties in arbitration agreements solved within the arbitration system and thereby to respect the parties' decision to submit to arbitration.

I Introduction

The question of conflict of jurisdictions¹ between courts and arbitral tribunals not merely constitutes a purely theoretical issue, but it also has significance in the legal practice of these institutions.

A heavily debated topic in the literature on international arbitration is that referring to the distribution of power between courts and arbitrators in order to determine the Page 244 validity, and the personal and subject matter scope of an arbitration clause.² The traditional attitude of judges towards arbitration has been one of considerable hostility. The reason for this lies not only in the fact that an arbitration agreement may "oust" court jurisdiction over parties' commercial disputes, but also in that there is concern over the withdrawal from the court system of cases in which public values are involved, or fear that arbitral institutions might ignore or undermine the enforcement of laws. Moreover, courts' revenues may be at stake if the number of arbitrations increases.³Hence, even in some developed countries in which arbitration has developed and flourished for a considerable time, judicial skepticism towards arbitration often prevails. So, the relationship between arbitration and litigation is not merely a legal problem. Rather, it is a social problem arising from more varied considerations. Gradually, along with the steady development of international commercial arbitration, the attitude of most legal authorities towards arbitration seems to have evolved from hostility, to tolerance and gradually even to support. The principle of "competence-competence" in favor of arbitral institutions is becoming increasingly accepted.⁴

However, although law institutions in many countries nowadays promote arbitration and support its development, a few courts in China still fail to accept a mutually beneficial relationship between themselves and arbitral institutions within their jurisdiction. The main reason is that the increase in the number of arbitrations results in a partial loss of jurisdiction for courts and tends to entail a negative impact on courts' generation of income. Some courts maintain an outdated negative perception of arbitration, and even tend to disapprove of its existence. Some courts also unduly overemphasize the importance of their supervisory function with respect to arbitration, and sometimes even abuse their supervisory competence. In addition, some courts tend to deal with arbitral awards merely at the level of their preliminary judgements and therewith interfere unduly with the arbitration process, as if they were called upon to pass judgement in an appeals trial. This way, judicial authority may constitute an obstacle for a smooth arbitration process, which runs counter to the interests of parties which have themselves opted for arbitration. The Revpower Case,⁵ for instance, is one illustrative example of a case in which a court put up judicial obstacles aimed at frustrating arbitration. In such cases, because conflicts of jurisdiction between Chinese Page 245 courts and commercial arbitration institutions are not yet dealt with in a proper way, the positive image of Chinese courts and even China's reputation as a loyal commercial partner in the international economic and legal community are at stake. 6

This paper embodies five parts. By reference to relevant theory and practice in some developed countries, in-depth theoretical discussions will develop on the principle of "competence-competence," justifying the conclusion that the essence of this principle, is to have disputes between parties in arbitration agreements solved within the arbitration system and thereby to respect the parties' decision to submit to arbitration. Furthermore, through the analysis on possible conflict of jurisdiction between courts and the arbitral tribunals, the present author pleas for a supportive attitude on the side of courts with respect to arbitration, so as to restrain the impact of courts' judicial supervision on the due arbitration procedures. Finally, this article investigates the position and role of the "competence-competence" principle in legislation and practice of the Chinese arbitration system, and submits some recommendations pertaining thereto.

II The Types of Jurisdictional Conflicts Between Courrs and Arbitral Tribunals

A Conflicts between Arbitral Tribunals and Courts at the Place of Arbitration

1. Determining Arbitral Jurisdiction by Arbitration Institutions: Application of the "Competence-Competence" Principle

Jurisdiction with respect to international commercial arbitration refers to the legal competence possessed by an arbitration tribunal or other arbitral institution to engage in the trial of an international commercial dispute and to the institution's ability to carry through arbitral proceedings.⁷ Nowadays, it is universally accepted that jurisdiction with respect to arbitration is a principal, albeit preliminary, issue in international commercial arbitration. Obtaining arbitral jurisdiction with respect to commercial Page 246 disputes constitutes the legal basis for the start of arbitral proceedings, and fulfills one of the preconditions for a lawful arbitral award and its enforcement. The competence of arbitral institutions in most cases arises from an arbitration clause incorporated into a commercial agreement concluded between disputing parties. According to several theories and legislations relating to international commercial arbitration, it is generally agreed that the conclusion of an arbitration agreement normally is the primary precondition for the commencement and proceeding of an arbitral process. Thus, the entire jurisdiction of an arbitral tribunal is limited to the disputes submitted to it by parties by reference to a mutual agreement.⁸ This is commonly referred to as jurisdiction arising from an arbitration agreement.⁹ Parties confer upon the arbitral tribunal, and the authority to hear disputes and thereafter to perform its duties within the limits of such authorization.

The meaning of jurisdiction with respect to international commercial arbitration is comprised of two elements: one refers to the general legal authority enjoyed by arbitral institutions to seize and hear cases in dispute; the other relates to the determination of a jurisdiction with respect to a specific point of dispute. Though arbitration is a private and voluntary dispute resolution process that invests in private individuals the authority to hear a dispute, while simultaneously divesting courts of such authority,¹⁰ it might happen that an arbitral tribunal, when beginning to exercise its jurisdiction on the basis of an arbitration agreement entered into by parties of a dispute, encounters a partial challenge or total challenge raised by parties against its arbitral jurisdiction. Partial jurisdictional challenge mainly involves the assertion that the arbitral tribunal exceeds its jurisdiction¹¹ , and does not respect its jurisdictional limits imposed by the arbitration agreement. However, in most circumstances involving total challenge, the validity of the arbitration agreement is at stake. In the practice of international commercial arbitration, an arbitration agreement may include various flaws or defects, or even be invalid or unenforceable for various reasons. Moreover, even in the case of a valid arbitration agreement, parties may take contradictory positions and opinions due to their different interpretation of relevant agreement provisions, laws and arbitration practices. Parties even...