Second Circuit on Reviewing the Scope of an International Tribunal's Authority

The Second Circuit Court of Appeals recently had occasion to find fault in a district court determination of arbitral authority to rule on the scope of an international arbitration agreement.  But the Court of Appeals nevertheless affirmed the tribunal award on the ground that clear and unmistakable evidence of an agreement of arbitral authority existed in the record.

In Schneider v. Kingdom of Thailand, Thailand appealed a judgment of the district court (which had jurisdiction pursuant to the New York Convention) confirming an arbitration award in favor of Walter Bau AG, for which Schneider was acting as administrator in insolvency.  In 2002, Bau had entered into an agreement to build a tollway project in Thailand, pursuant to a bilateral investment treaty between Germany and Thailand.  In 2005, Bau initiated arbitration against Thailand alleging that the Kingdom had interfered with those investments.

The Terms of Reference executed by the parties empowered the arbitration tribunal to “consider… objections to jurisdiction” and provided that the proceeding was to be conducted pursuant to UNCITRAL Arbitration Rules.

The tribunal conducted a two-day hearing in the question whether it had jurisdiction to consider Bau’s claim, in light of Thailand’s objection that the tollway project was not an “approved investment” within the meaning of the BIT.  Concluding in a 43-page opinion that the dispute was subject to arbitration, the tribunal then held an 11-day hearing and issued an award in Bau’s favor of over 30,000,000 euros.

When Bau moved to confirm the award in the Southern District of New York, Thailand cross-moved to dismiss the petition on the ground that the tribunal lacked jurisdiction to enter the award.  The district court held that the question of scope of the tribunal’s authority was not “a question of agreement formation” and thus it did not undertake a de novo review of the award, confirming it on a deferential standard.  The question before the Court of Appeals was whether the district court erred in failing to conduct an independent determination of the arbitrability of the dispute.

Citing both Howsam and First Options of Chicago, the court held that “a party resisting confirmation of an arbitration award is entitled to an independent court review of a question of arbitrability unless there is clear and unmistakable evidence that the parties agreed to arbitrate that question.”   The district court erred, held the Court of Appeals, and its analysis was flawed, because its duty to conduct an independent review of arbitrability “does not turn on whether that question was one of scope or formation.  It turns on whether there was clear and unmistakable evidence of the parties’ intent to commit that question to arbitration.  For in the absence of such clear and unmistakable evidence, questions of arbitrability are presumptively resolved by the court, regardless of whether they are related to scope or formation.”

The Court of Appeals nevertheless did not vacate or remand, finding that the explicit delegation of delegation of such issues to the arbitrator, in the language of the Terms of Reference, constituted such clear and unmistakable evidence, satisfying the rule and meriting affirmance of the district court’s order confirming the award.

QUAERE:  If the rule that an American court will follow in reviewing international arbitration awards pursuant to the New York Convention is that questions of the tribunal’s authority will be determined by a court in the absence of clear and unmistakable evidence of delegation of that authority to the tribunal, what is the current status of the established international doctrine of kompetenz-kompetenz and Article 23 of the UNCITRAL Arbitration Rules?

QUAERE:  Is the concept of the arbitrability of a dispute identical to the concept of the jurisdiction of a tribunal?

Leave a Reply

Your email address will not be published. Required fields are marked *