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The Jurisdiction Of The Arbitral Tribunal To Bifurcate Arbitral Proceedings

Rahul Ranjan
27 Nov 2019 2:42 PM GMT
The Jurisdiction Of The Arbitral Tribunal To Bifurcate Arbitral Proceedings
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Bifurcation in arbitral proceedings most often refers to the separation or division of jurisdictional issues from the merits, hence creating a separate phase to consider the jurisdictional and admissibility objections raised in the course of arbitral proceedings. A viable reason for bifurcation of arbitral proceedings has been furnished to as- splitting the merits of a case into liability and quantum phase.
[1]In essence, bifurcation in arbitral proceedings is most desirable in investment treaties where jurisdictional issues have arisen, amongst other issues as follows: the nationality, the nature of the "investment" in dispute, assignment of contract, issues as to absence of prior "friendly negotiations", non-exhaustion of local remedies. And this is applicable both in matters of local and international disputes.

2.0 BIFURCATION IN ARBITRAL PROCEEDINGS: ORIGIN AND TYPES

Particularly, the power of the arbitral tribunal to bifurcate jurisdictional issues derives from Article 41(2) of the International Convention for Settlement of Investment Disputes

(ICSID Convention). Pursuant to this Convention, in deciding whether to bifurcate jurisdictional issues, the arbitral tribunal first has to balance the rights of the parties to the arbitral proceedings.
[3]

On the other hand, by virtue of Article 44 of the ICSID Convention, bifurcation of arbitral proceedings may be of 'jurisdictional issues'. It may also be of 'merits.'

3.0 BIFURCATION ON GROUND OF JURISDICTION

For the tribunal to grant a request for bifurcation on jurisdictional ground, it must be satisfied that:

  • First, the objection raised therefor is a proper jurisdictional objection.
    [4]
  • Second, the objection is not be intertwined with the merits, otherwise the tribunal would risk prejudging the merits or deciding in the absence of sufficient information.
    [5]
  • Third, the objection is dispositive of the case, that is, it must be capable of resulting either in the dismissal of the entire case or reducing significantly its scope and complexity.
    [6]

Hence, arbitral tribunals have been very hesitant in their use of bifurcation and this hesitation often finds expression in, for example, reservations for re-joinder to the merits contained in the orders or exhortations. Nevertheless, where the objection turns out to be frivolous, the tribunal would apply 'the loser pays' principle in allocating costs.
[7]

4.0 BIFURCATION OF ARBITRAL PROCEEDINGS: CASE ANALYSIS OF OTHER JURISDICTIONS

As it is, there appear to be a dearth of precedents on bifurcation of arbitral proceedings. This is more so in the Indian scenario. Hence, we shall deal with cases from other Jurisdictions which may well clear the path for the foreign cases, as and when they materialize.

The first of such cases is the case of CME Czech Republic B.V. (CME) vs. The Czech Republic,
[8] where the arbitral tribunal reached quite a commendable decision. This case involved a company registered in the Netherlands with the Netherland Czech BIT. Here, the arbitral tribunal bifurcated the proceedings between liability and quantum phase. After the partial award on liability, the tribunal proceeded with the dispute and finally arrived at the conclusion that there were breaches of treatment standards.

In the case Saluka Investments B.V. v. The Czech Republic,
[9] a similar issue arose. Here, the arbitral tribunal bifurcated the proceedings to resolve whether it had jurisdiction to hear and determine the counterclaim presented by the Respondent. On 7 May 2004, the tribunal handed down its Decision on Jurisdiction over the Czech Republic's Counterclaim. Here, it decided that it had no jurisdiction to hear and determine the counterclaim put forward by the Respondent in its Counter-Memorial, and hence, issued a partial award on 17 March, 2006 to that effect. Here, the matter was indeed bifurcated and successfully at that. The claims were heard in parts and interim awards issued on them. This facilitated the proceedings in no little measure, while also serving the end of justice and thoroughness in entertaining the various claims thereto.

However, in the case of Ronald S. Lauder v. the Czech Republic, the arbitral tribunal held otherwise.
[10] Here, an issue arose as to 'whether the proceedings should be bifurcated for facilitation of the arbitral process.' In this light, the arbitral tribunal decided that the issue of jurisdiction would be joined to the merits and that no separate decision on jurisdiction would be taken - unless the arbitral tribunal would hold that a separate determination would shorten the proceedings and aid in quick dispensation of justice.

From the cases above, it is apparent in terms as crystal as white and black that bifurcation of arbitral proceedings does more good than harm. Hence, in such Jurisdictions where bifurcation is an accepted practice,
[11] the role of the arbitral tribunal in the effective determination of claims is enhanced.

5.0 BIFURCATION OF ARBITRAL PROCEEDINGS: THE Indian POSITION

The position in India as to bifurcation of arbitral proceedings appears to be quite different from what is obtainable in other Jurisdictions. As it is, there appears to be no explicit statutory authority on bifurcation of arbitral proceedings, apart from the provision of section 12(1) of the Arbitration and Conciliation Act
[12] which implicitly provides for it. This section states inter alia:

'An arbitral tribunal shall be competent to rule on questions pertaining to its own jurisdiction and on any objections with respect to the existence or validity of an arbitration agreement.'

Section 12(4)
 further buttresses this by providing that:

'The arbitral tribunal may rule on any plea referred to it under subsection (3) of this section either as a preliminary question or in an award on the merits; and such ruling shall be final and binding.'

From the above provisions, it is arguable that the arbitral tribunal has been impliedly vested with the jurisdiction to bifurcate arbitral proceedings in India.
[14] This is because in the course of ruling on questions pertaining to its jurisdiction or any objections with respect to the existence or validity of an arbitration agreement, it necessarily separates the proceedings from the substantive matter.[15] This is also the case when it rules on any plea as a preliminary question or in an award on the merits.[16]

6.0 CONCLUSION

As it is popularly asserted, anything that has advantages may well have disadvantages. With regard to bifurcation of arbitral proceedings, statistics has proven that it does not always ensure time-saving. This is because splitting a matter into different categories for separate hearings may not be as quick as hearing the matter all at once. Nevertheless, one thing is certain- bifurcation of arbitral proceedings better facilitates the ends of justice, thoroughness and efficiency. This concept is in need of further clarification so that this procedural device may work properly and ensure a more effective case management. The International Convention for Settlement of Investment Disputes (ICSID) is yet to furnish this clarification as information on ICSID tribunals' decisions on bifurcation is largely lacking and not often publicly available.

In any case, the goal and aim of the arbitral tribunal is to issue a final decision at the earliest moment. However, if the arbitral tribunal is not able to issue a final award on the merits, it has to deal with issues of at least a procedural nature. In doing this, it should deal with preliminary issues before going on to the merits. Thus, it is a working submission that the arbitral tribunal has the statutorily backing to bifurcate arbitral proceedings in India, by virtue of section 12(4) of the Arbitration Act.

(The author is a second year law student at Llyod Law College. Views are personal)

[1] See Saipem SPA v. The People's Republic of Bangladesh, ICSID Case No. ARC/05/07, 30 June 2009, para. 90.

[2] Lalive, 'Some Objections to Jurisdiction in Investor-State Arbitration', in International Commercial Arbitration Important Contemporary Questions (2002 ICCA Congress, London)

[3] William W. Park, Arbitrator's Jurisdiction to Determine Jurisdiction, ICCA Congress, Montréal 2006, 13 ICCA 8

Congress Series 55, "Selected Scenarios of Jurisdiction in Practice", p. 148 ff.

[4] Tulip Real Estate v. Turkey (Tulip Real Estate v. Turkey, para. 37).

[5] SGS Société Générale de Surveillance S.A. v. Pakistan, (ICSID ARB/01/13), Decision on jurisdiction, 6 August 2003, para. 184).

[6] Phoenix Action v. The Czech Republic, ICSID Case No. ARB/06/5, Award 7 April 2009

[7] See section 49, Arbitration and Conciliation Act, Cap A18 LFN 2004. See also Gilbert v. Wright (1904) 20 TLR 104, Re Becker, Shillan & Co. (1921) 1 K.B 391.

[8] In CME Czech Republic B. V. v Czech Republic (UNCITRAL), the Partial Award, was delivered on 13 September 2001. Final Award on 14 March 2003.

[9] In Saluka Investments B.V. v. The Czech Republic (UNCITRAL) a partial award was delivered on 17 March 2006, para 20. Here, an ad hoc UNCITRAL arbitration was initiated by a Notice of Arbitration from 18 July 2001.

[10] Where the final award was rendered on 3 September 2001. The Notice of arbitration was brought on 19 August 12, 1999.

[11] As reported by UNCTAD in a 2010 report on "Latest Developments in Investor-State Dispute Settlement"; Of the total 357 known disputes, 225 were filed with the International Centre for Settlement of Investment Disputes (ICSID) or under the ICSID Additional Facility, 91 under the United Nations Commission on International Trade Law (UNCITRAL) Rules, 19 with the Stockholm Chamber of Commerce, eight were administered by the Permanent Court of Arbitration in The Hague, five with the International Chamber of Commerce (ICC) and four are ad hoc cases. One further case was filed with the Cairo Regional Centre for International Commercial Arbitration (RCICA). And any of the said investment arbitration is not barred of bifurcation by the applicable rules. Specifically, in an ICSID and ad hoc UNCITRAL arbitration the issue of an award on jurisdiction is a common practice not an exception.

[12] Cap A18 LFN, 2004

[13] Ibid.

[14] William Park, supra. See note (iii).

[15] See generally the IBA Guidelines on Conflicts of Interest in International Arbitration (2004) (http://www.ibanet.org/LPD/ 3Dispute_Resolution_Section/Arbitration/Projects.aspx#guidelines).

[16] See section 12(3) Arbitration and Conciliation Act, Cap A18, LFN 2004.

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