Arbitration Agreement, MDR Clauses and Relation Thereof to Nature of Jurisdictional Decisions on the...

Alexander J. B lohlávek, Arbitration Agreement… 401

Alexander J. Bělohlávek *

Arbitration Agreement, MDR Clauses and Relation Thereof to Nature of Jurisdictional Decisions On The Break Of Legal Cultures

1. The nature of Arbitration Agreement

Arbitration is usually defi ned as a manner of dispute resolution. A dispute is bro-ught forward for binding resolution by one or more persons, the arbitrators. The following are the defi ning elements of arbitration: (i) exclusion of court com-petency of general courts in favour of arbitrators, (ii) independence and impar-tiality of arbitrators, (iii) competency of arbitrators to make a fi nal decision in re (arbitral award)1, which is endowed with enforceability (usually upon fulfi lling other terms, in particular delivery to parties).2 While in most legal systems the arbitration agreement is considered a type of procedural agreement,3 it is more closely connected with substantive law than procedural agreements stricto sensu,

* Lawyer admitted and practising in Prague, Senior Partner of Belohlavek and Partners (Prague/Czech Republic; Branch N.J./US), Dept. of Law Sciences Faculty of Economics, Ostrava, Czech Repu-blic; Dept. of Int. and European Law, Faculty of Law, Masasaryk University, Brno (externally), Czech Republic. Arbitrator at the Prague Arb. Court attached to the Chamber of Commerce of the Czech Republic and the Agrarian Chamber of the Czech Republic, Int. Arb. Court attached to the Economic Chamber Austria, Int. Arb. Court attached to the Chamber of Commerce and Industry Kyiv/Ukraine, ICC arbitration, arbitrator pursuant to UNCITRAL. Member of ArbAut, ASA, DIS etc.1 In Switzerland, arbitration is defi ned as a private law method of dispute resolution on the basis of agreement of parties on such procedure. Its main typical features include the fact that a dispute is sub-mitted to persons directly or indirectly selected by parties, i.e. that parties have a chance to infl uence the constitution of the tribunal. B. Dutoit, F. Knoepfl er, P. Lalive, Mercier, Répertoire de Droit Interna-tional Privé Suisse, Vol. I – Le contrat international – L‘arbitrage International, Bern 1982, p. 241.2 Cf. Section 28 of Czech Act No. 216/1994 Coll., on arbitration and on the execution of arbitral awards.3 In Germany, there is some discussion about the nature of arbitration agreements, but the majority of authors tend to agree on its procedural nature: Stein/Jonas-Schlosser (2002), Art. 1029, Para. 1; MünchKommZPO-Münch (2001), Art. 1029, Para. 6; Schwab/Walter (2005), Chapter 4, Para. 16; Zöl-ler-Geimer (2007), Art. 1029, Para. 15; see also BGH 3/12/1986, BGHZ 99, 143 (147).For Austria, see S. Riegler, in: S. Riegler, A. Petsche, A. Fremuth-Wolf, M. Platte, C. Liebscher (eds), Arbitration Law of Austria: Practice and Procedure, Huntington (NY): Juris Publishing, 2007, Sec-tion 609, p. 483.For Switzerland, see Judgment of 15 March 1990, Sonatrach v. K.C.A. Drilling Ltd., 1990 Rev. arb. 921, 923 (Swiss Federal Tribunal).

402 Część IV. Z problematyki międzynarodowej i prawa obcego

i.e. agreements entered into between parties related to particular pending or im-mediate proceedings with the intention of directing the course thereof.4

If one accepts the defi nition of procedural agreement5 as an agreement that in-duces its direct eff ect in the area of procedure,6 in relation to a certain formal procedure (whatever the kind), i.e. that these agreements are eff ective in relation to such procedure, such defi nition is evidently correct and relatively broad and is a defi nition of procedural agreement in the broad sense7. The term procedural agreement so broadly defi ned can no doubt cover also arbitration and prorogation agreements8, as arrangements on the manner of resolving potential disputes ari-sing from substantive legal relations based either on a contract or otherwise (for example within extra-contractual obligations9) and on jurisdiction of a particular forum / tribunal or the manner of constituting tribunal to hear and to resolve such disputes, as well as other procedural terms relating to the particular procedure. It is an arrangement on a potential [ future]10 procedure (approved and regulated at least in its basic principles by law) in its broadest sense, usually a procedure in the sense of an adversary fact-fi nding proceeding. Therefore there is no need for such an agreement to be made in respect of one specifi c proceeding. The basic typical feature of procedural agreement in the above-defi ned broad sense is its ability to induce eff ects approved by procedural law, including establishing the jurisdiction of particular forum (tribunal) before which a certain proceeding may be commenced and held. Besides, there is also another type of procedural agreement which I call procedural agreement in the narrow sense (or narrow procedural agreement) and which are entered into only in the course of a particular proceeding. The eff ects of these agreements are operative solely and exclusively within such particular proce-eding or with respect to the subject of the proceeding, whether to the subject in its entirety or partially, when the subject-matter scope delimited by the relevant pro-cedural agreement is more narrow than the scope of the subject of the given pro-ceeding. Thus the subject of such procedural agreement in the narrow sense cannot in any situation exceed the scope of the subject of the proceeding. If such situation occurs, it has to be considered according to the relevant applicable law whether

4 A typical example is the Agreement on Procedure for Selecting Arbitrators, pursuant to Art. 1035 (1) of the German ZPO.5 V. Steiner, V. Steiner, K teoretické koncepci rozhodčí smlouvy v mezinárodní arbitráži [title in transla-tion: On Theoretical Concept of Arbitration Agreement in International Abitration], Právník (CZ), 1971, No. 11, pp. 904–923, B. Wagner, Prozeßverträge, Tübingen: Mohr Siebeck, 1998; G. Wagner, Recht-swahlfreiheit im Schiedsverfahren: Ein Probierstein für die juristische Methodenlehre. Liber Amicorum Schumann, 2001, p. 535 et seq., A. Winterová et al., Civilní procesní právo [title in translation – Civil Procedure Law], 4th ed., Praha (CZ): Linde, 2006.6 Cf. for example H.-J. Musielak, Grundkurs ZPO, 7th ed., München, 2004, marg. 52 and elsewhere.7 The distinction between procedural agreements in the broad sense and procedural agreement in the narrow sense is not any standard classifi cation generally accepted by the expert public. It is a mere attempt to diff erentiate between the eff ects of the individual types of procedural agreements that may be encountered.8 Including derogation agreements (agreements derogating jurisdiction of another fora).9 See for example N. Rozehnalová, J. Valdhans, A Few Observations on Choice of Law, in: A. Běloh-lávek, A. Bělohlávek, Czech Yearbook of International Law (CYIL), Huntington (NY): JurisPublishing, 2010, Vol. I, p. 3–22.10 Usually as an arbitral clause.


such subject-matter excess of the procedural agreement brings about some quali-fi ed eff ect (such as invalidity/nulity or simply ineff ectiveness of the agreement) in respect of the procedural agreement in its entirety or to the part exceeding the subject of the procedure only. This category of procedural agreements includes for instance reconciliation agreements concluded in the course of proceedings, agre-ements on withdrawal of action, agreements on withdrawal of a remedy already fi led, evidentiary agreements (on types of evidence11 and manner of taking evi-dence)12 etc.

Procedural agreements in the narrow sense may be entered into not only in liti-gation, but also in arbitration when there is considerably greater scope for that13 than in litigation14 and when it is even assumed that it is in the parties’ interest to regulate a number of issues by agreement15 to the largest extent possible. In terms of this view, the subject-matter of civil proceedings both in litigation as well

11 Cf. for instance Amerasinghe, Evidence in International Litigation, Brill Martinus Nijhoff Publishers, 2005, p. 43 and elsewhere.12 Agreements on [the manner of] taking evidence, and by extension on [the manner of] conducting proceedings, may in some situations be a part (as optional content) of a procedural agreement in the broad sense as well, i.e. particularly of arbitration agreements where the parties may agree crucially and beforehand (within the limits granted for such freedom of contract by the applicable legis arbitri rule) within a lesser scope; nevertheless, a majority of procedural regulations on civil litigation in in-dividual states grant to the parties some space for agreements primarily on the manner of taking evi-dence also in such litigation. This is typical for example of agreements on experts to be subsequently admitted by a court for purposes of questioning and/or elaboration of those expert’s reports. While in arbitration it is usual that such agreement of parties is binding for the arbitrator, in litigation in most of civil law (i.e. continental European) countries it serves rather as a guideline for the judge, who is not obliged to respect this agreement.13 National legis arbitri in this respect usually give parties a maximum freedom to make agreements (usually procedural agreements in the narrow sense) which may be substantiated by nowadays relati-vely rich international practice and by the decision-making practice of individual national courts. For example Kurkela identifi es in Due Process in International Commercial Arbitration, New York: Oceana Publishing, 2005, p. 47, the sources of rules applicable to arbitration as lex arbitri, rules formulated in arbitration agreements and rules set by arbitration tribunal. He stresses that as regards rules of proce-dure, one of the most important rules is a negative rule – unless parties agree otherwise, the law and rules valid for local courts or for proceedings before local courts will not be applied. M. Kurkella, Due Process in International Commercial Arbitration, New York: Oceana Publishing, 2005, p. 47.14 After all, the basic formulation in particular lex arbitri as well as the structure of the regulations is very similar and draws very often on the UNCITRAL Model Law as well as on extensive international practice and usage. Cf. for instance A. Bělohlávek, T. Pezl, Aplikace procesních předpisů na rozhodčí řízení [title in translation: Application of procedural regulations to arbitration], Právní rádce (CZ), 2008, Vol. XVI., No. 2, pp. 16–24, V. Steiner, O vzorovém zákonu pro mezinárodní obchodní arbitráž [title in translation: On Model Law for International Trade Arbitration], Právník (CZ), 1992, No. 8, pp. 730–753 and elsewhere.15 See for instance A. Bělohlávek, Procesní předpisy a rozhodčí řízení [title in translation: Procedural Regulations and Arbitration], Právní fórum (CZ), 2007, Vol. 3, No. 12, pp. 431–444, P. Fouchard, E. Gaillard, B. Goldmann, Fouchard Gaillard Goldmann on International Arbitration, Kluwer, 1999, marg. 1171; P. Lalive, J.F. Poudret, C. Reymond, Le droit de l’arbitrage interne et international en Suisse, Edi-tions Payot, Lausanne, 1989, pp. 350–351; Poudret, Besson, Comparative Law of International Arbi-tration, London/Zürich: Sweet and Maxwell / Schulthess, 2007, marg. 522; A. Redfern, M. Hunter, N. Blackaby, C. Partasides, Law and Practice of International Commercial Arbitration, 4th ed., London: Sweet and Maxwell, 2004, marg. 6-01; J.D.M. Lew, L.A. Mistelis, S.M. Kröll, Comparative Interna-tional Commercial Arbitration, Den Haag/London/New York: Kluwer Law International, 2003, p. 522 marg. 21-3 and elsewhere.


as in arbitration ensues from the action, both from the statement of claim and from the reasons given for such action, as well as from the objection to claim and in the broad sense also from all other submissions of parties (or from the claims they contain, to be precise). It also ensues to a certain degree from evidence.16 All these procedural acts and facts determine what issues will have to be considered by the forum/tribunal; the scope of the subject-matter thus consists also of all pre-judicial questions. The need for deciding a number of substantive legal questions of a prejudicial nature is frequently closely linked to the procedural strategy that the parties adopt for negotiating a matter and that is often changed in the course of a proceeding. The subject-matter of proceedings so delimited is one of the factors li-miting the scope of the subject-matter content of procedural agreement. Procedural agreements may also have as their subject all questions of a procedural nature, ho-wever, always only to such extent to which a relevant procedural law or any other rules applicable to a given proceeding17 grant such autonomy to the parties18 (usu-ally with a relatively large degree of freedom)19. Basically in procedural agreements

16 J. Fiala, et al. Problémy dokazování – Pojem důkazu ve smyslu procesním [title in translation: Issues of Proof – The term “Evidence” in a Procedural Sense]. Stát a právo, Praha (CZ): Academia, 1967, No. 13.17 Cf. for example A. Bělohlávek, Právo použitelné na řízení před rozhodci [title in translation: Law Applicable to Arbitral Proceedings], Právo a podnikání (CZ), 2005, No. 11, pp. 2–9, A. Bělohlávek, Pro-cesní předpisy a rozhodčí řízení [title in translation: Procedural Rules and Arbitration], Právní fórum (CZ), 2007, Vol. 3, No. 12, pp. 431–444 or A. Bělohlávek, T. Pezl, Aplikace procesních předpisů na rozhodčí řízení [title in translation: Application of Procedural Regulations to Arbitration], Právní rádce (CZ), 2008, Vol. XVI, No. 2, pp. 16–24, for the topic in general see also P. Fouchard, E. Gaillard, B. Goldmann, Fouchard Gaillard Goldmann on International Arbitration, Den Haage: Kluwer Law Inter-national, 1999, marg. 1171; P. Lalive, J.-F. Poudret, C. Reymond, Le droit de l’arbitrage interne et inter-national en Suisse, Editions Payot, Lausanne, 1989, pp. 350–351; J.-F. Poudret, S. Besson, Comparative Law of International Arbitration, London/Zürich: Sweet and Maxwell/Schulthess, 2007, marg. 522; A. Redfern, M. Hunter, N. Blackaby, C. Partasides, Law and Practice of International Commercial Arbi-tration, 4th ed., London: Sweet and Maxwell, 2004, marg. 6-01; J.D.M. Lew, L.A. Mistelis, S.M. Kröll, Comparative International Commercial Arbitration, Den Haag/London/New York: Kluwer Law Inter-national, 2003, p. 522, marg. 21-3.18 It is in arbitration that this autonomy fi nds its expression on such a signifi cant scale. For instance, two conferences organized by the International Arbitration Institute in Paris and in Geneva in 2003 and 2004, respectively, dealt with the question whether there is a set of rules developing that are ge-nerally applied in international arbitration. The materials from the conferences that have been publi-shed suggest that such a tendency really exists. It is noticeably present in the directives issued by ILA and IBA. IBA has adopted directives in respect of some frequently occurring procedural issues, such as taking of evidence and impartiality of arbitrators. The UNCITRAL task forces regularly discusses some practical procedural questions; recently for example preliminary measures. The UNCITRAL has also issued a document commenting on the organization of arbitration. Although these analyses and recommendations are not binding for any arbitral tribunal, they show that party in arbitrations work out their own sets of rules that are quite diff erent from the procedural rules applicable in litigation. Cf. for example L. Degos, P. Pinsolle, A.-V. Schläpfer (ed), Towards a Uniform International Arbitration Law, New York: Juris Publishing, 2005.19 In many countries courts commonly accept the fact that the procedural mode in which litigations are conducted is not fi t for arbitration, either international or domestic, which may be illustrated by a Swiss Supreme Court decision. The Swiss Federal Supreme Court (Tribunal Fédéral) arrived basi-cally at the conclusion that: (i) civil litigation laws of national origin do not apply to arbitration in questions such as taking of evidence, that (ii) an arbitral award may be annulled on the ground of a breach of procedural regulation only when such breach may be qualifi ed as a breach of procedural ordre public, specifi cally as a breach of the right for equal treatment and for a due and fair negotiation of a matter, and that (iii) the requirements of domestic law regarding the procedure in litigation be-


parties may bind themselves to anything that is not explicitly forbidden by law. In this respect one should draw on the general constitutional principles20 rather than the principle of civil procedure.21 However, factors limiting the freedom of parties in proceedings,22 as regards the execution of a procedural agreement, include not only explicit rules and law relating to a particular contractual arrangement but also general legal regulations limiting the validity and eff ectiveness of agreements (as in its substantial nature).23

Procedural agreements in the narrow sense may operate either directly (i.e. in pro-cedural reconciliations) or just indirectly, e.g. withdrawing the case. If an agre-ement operates indirectly, the arrangements agreed by the parties must be applied in the particular proceeding. If this does not happen and a party breaches such ob-ligation arising from the procedural agreement, the only right arising to parties is an obligational right for fulfi llment of the agreed procedure (withdrawal of action, for example). Thus narrow procedural agreement (as usually accepted in civil law) comes into eff ect (oneself) between parties in a proceeding in respect of legal con-sequences of that proceeding (it means often in the particular proceeding only), whereas broad procedural agreement (as usually in common law), is an agreement in respect of future (potential) proceedings that might probably be compared, in terms of substantive legal terminology, to agreement with suspensive clause in which the fulfi llment of the suspensive condition rests in the occurrence of a di-

fore general (state) courts do not constitute a part of such procedural ordre public and hence the less they are a part of ordre public that should be applied to arbitration, and therefore they cannot in any situation stand as the reason for an arbitral award to be annulled and/or for recognition or enforce-ment of foreign arbitral award to be dismissed. For the above decision of the Swiss Tribunal Fédéral see for example Mantilla-Serrano, Towards a Transnational Procedural Public Policy, in: L. Degos, P. Pinsolle, A.-V. Schläpfer (eds), Towards a Uniform International Arbitration Law, New York: Juris Pu-blishing 2005, p. 186 and elsewhere.Analo gically in other countries. Cf. (just for illustration) pursuant to English law: In the crucial matter in the given context the High Court Queen’s Bench Division (Assimina Maritime Ltd. vs. Paki-stan National Shipping Corp. (usually referred by commentators as The Tasman Spirit case) confi rmed the fundamental diff erence that exists in English law also between the procedure in litigation and arbitration and refused to apply to arbitration the general rules applicable to civil proceedings before courts. Specifi cally, the court refused to apply the usual non-party disclosure principle, embedded in the English civil procedure code, to arbitration except where the application of such rules is expressly agreed by the parties. The cited judgment, in: [2004] EWHC 3005; [2005] 1 All E.R. (Comm) 460 (QBD (Comm), commented on by S. Zachary, in: Int. A.L.R., 2005, Vol. 8, No. 2, pp. 15–17.20 J. Valdhans, The Infl uence of Constitutional Rights on the Formulation of Modern Private Interna-tional Law Regulations. In The Organic Law of the State: Stages of Becoming and Developments in Central and East Europe. Janka Kupala State University in Grodno, Belarus, 2009, pp. 44–50.21 In this context see for instance in the Czech Constitution: Art. 2: […] “(3) State power shall serve all citizens and may be applied only in cases, within limits and by methods defi ned by law. (4) Every citizen may do what is not prohibited by law and nobody may be forced to do what the law does not instruct them to do.“Cf. for example J. Blahož, Úvaha o podstatě lidských a občanských práv [title in translation: Refl ection on the Nature of Human and Civil Rights], Právník (CZ), 1998, No. 10–11 and elsewhere.22 A. Cahn, Prozessuale Dispositionsfreiheit und zwingendes materielles Recht. Arb. Int., 1988, pp. 174–227.23 In this context see also for example German judicial decisions, e.g. the decision of BGH (Germany) cited, in: NJW, 1982, p. 2072 et seq., p. 2073 herein, or the decision of BGH (Germany) cited, in: NJW, 1986, p. 198 et seq.


spute and a qualifi ed act constituting lis pendens, made by that party to a sub-stantive legal relation who at least claims his active procedural and substantive legitimacy.

Despite the fact that it is not only possible but in the author‘s opinion also neces-sary to apply substantive law to procedural agreements, at least as supportive in-struments in questions not regulated by procedural law, the eff ect of procedural agreements (in any case at least of narrow procedural agreements and as a rare exception possibly also in broad procedural agreements in some countries accor-ding to their legal approach under the theory of extensive eff ect) is limited solely to the area of procedure. For a narrow procedural agreement to be valid and binding for parties, the parties must act within their respective procedural capacities, that is, within their respective procedural personalities. It is an agreement entered into by parties in civil proceedings in which they agree certain procedural legal eff ects. The subject-matter of the agreement is all relations that are subject to discretio-nary freedom of the parties in compliance with the law and rules applicable to a given specifi c proceeding and to the manner and course of the proceeding.

Neither in cases of narrow procedural agreements is the situation identical with all agreements that are or may be entered into by parties in the course of proceedings. The agreements that may be entered into during a specifi c proceeding include: (i) agreements concerning subjective substantive rights (typically a consent decree). The validity of such legal transaction will be evaluated exclusively in terms of sub-stantive legal regulations, despite the fact that these are agreements that may be executed only in the course of a particular proceeding and that are eff ective only within such proceeding and are classifi ed as procedural arrangements (procedural agreements), because such agreements are executed (usually and in the given con-text solely) in the course of a particular adversary proceeding. (ii) Further, there are agreements with solely and exclusively procedural eff ects, such as agreements on procedure, agreements regarding evidence and manner of taking evidence etc.24 Also included are arrangements made by parties in the course of a specifi c proceeding that induce (iii) eff ects in relation to a given proceeding but also to the

24 Such diff erences between individual types of narrow procedural agreements are quite properly pointed to for instance in M. Gonsorčíková, Právně teoretické aspekty procesní smlouvy jako nástroje upravujícího rozhodčí řízení [title in translation: Theoretical Legal Aspects of Procedural Agreement as Arbitration Regulating Instrument], iPrávník (CZ), 12 June 2006, Section: Civilní proces. Available in electronic form at http://www.ipravnik.cz/cz/clanky/civilni-proces/art_3708/pravne-teoretic-ke-aspekty… (21 July 2008). However, in the above author’s classifi cation the second group, i.e. agreements with exclusively procedural eff ects, comprises arbitration and prorogation agreements. I agree that the latter two are procedural agreements which induce predominantly or almost exclu-sively eff ects of a procedural nature, primarily by establishing the jurisdiction of a particular forum with simultaneous derogation (whether expressed or implied in such agreement) of the jurisdiction of another (generally competent) forum, if judged on the basis of a typical continental civil law system according to which questions of jurisdiction fall within the domain of procedural law. Nevertheless, in my opinion the author of the particular paper made the essential error that she failed to make a distinction between arbitration/prorogation agreement and arrangements executed in the course of a particular, specifi c dispute, even though she evidently was aware of these diff erences. I dare say that the distinction between these two types, which I took the liberty to denote for the purposes of the present study as broad procedural agreement and narrow procedural agreement, is absolutely fundamental and has to be taken as the basis for all further speculations on the nature and eff ects of


substantive legal relation that is examined within such adversary proceeding, i.e. narrow procedural agreements with combined eff ects. The individual subclasses of narrow procedural agreements as regard their relation to applicable law will also diff er primarily in how closely they are linked to subjective law and in the manner concerning how substantive law is applied to questions arising from a given spe-cifi c procedural agreement.

In any case the procedural agreements in terms arbitration agreement (arbitration clause) will commonly be evaluated pursuant to substantial law and its institutes, at least in civil law, while in the common law the judges dispose of a broad range of possibilities to evaluate such agreements abstractedly from the substantive law. This close link between arbitration agreements and substantive law arises from the fact that arbitration clauses are entered by the parties before any particular pro-ceedings are initiated, and in most cases, simultaneously with the establishment of a substantive legal relation itself, i.e. a particular contract or legal relation si-milar in nature, and they are intended to serve as a dispute resolution mechanism in order to settle disputes concerning the main agreement in cases concerning arbitration clauses, or a separate contract in cases of formally separate arbitra-tion agreements. The concept of the separability of the arbitration agreement has strong supporters who assert that such separability is inherent to the arbitration agreement,25 but also critics who point out the fact that the arbitration agreement itself, without the main agreement, is a legal instrument without purpose.26 The comparison of these two views can raise the conclusion that the arbitration agre-ement is not entirely dependent on the main agreement, but their relation is more likely accessorial.

Therefore, the purpose of the arbitration agreement is purely procedural, i.e. de-signating the method of dispute resolution for the main agreement, and is in fact also connected to the substantive law of the main agreement,27 a feature which is even more apparent in arbitration clauses included in the main agreement. The consensus achieved with respect to the main agreement (i.e. the substantive contract)28 is, in most cases, hardly separable from the consensus that forms the

procedural agreements as well as for defi ning the law applicable to these procedural agreements and the manner of such application. 25 S.M. Schwebel, The Severability of the Arbitration Agreement. International Arbitration: Three Sa-lient Problems, Cambridge: Grotius Publications, 1987, pp. 1–60, at p. 5. The author of this contri-bution can not share this opinion. The main contract usually qualifi es the ratione materiae of the arbitration clause and not its purpose.26 J.-F. Poudret, S. Besson, Droit comparé de l’arbitrage international, Bruylant, 2002, pp. 133–150.27 A. Bělohlávek, Law Applicable to the Merits of International Arbitration adn Current Developments in European Private International Law: Confl ict-of-laws Rules and the Applicability of the Rome Conven-tion, Rome I Regulation and Other EU Law Standards in International Arbitration, in: A. Bělohlávek, N. Rozehnalová, Czech Yearbook of International Law (CYIL), Huntington (NY) / JurisPublishing Inc., 2010, Vol. I, pp. 25–46.The law applicable to the merits in much broader context in common law, fi rst of all in the English law (broader than the simple proper law). See for example Tweeddale, Tweeddale, Arbitration of com-mercial disputes: international and English law and practice, 2007, p. 180, marg. 6.02. For example as defi ned by Lord Wilberforce in Armin Rasheed Shipping Corp. v. Kuwait Insurance Co., [1984] AC 50.28 J. Lapierre, Z problematyki ugody w procesie cywilnym, in: M. Sawczuk, Jednolitość prawa sądowego cywilnego a jego odrębności krajowe, Lublin 1997.


basis on which the arbitration agreement originates and is perfected. Both parts of the contract as a whole (or a set of contracts and individual points of consensus) have their respective autonomous existence and are in principle independent of one another; nevertheless, in practice, one would scarcely fi nd an arbitration agre-ement that does not correspond with the main agreement as to the expression of will and the consensus of such expression of the parties to a substantive relation.29 Technically, these two relatively independent parts of a contract are often hardly distinguishable. Although the expression of will, and the content and eff ect the-reof has to be interpreted separately, as a matter of principle, in practice it is very uncommon to arrive at diff erent conclusions as regards the will of the parties (as for the content, expression and intended eff ect of such expression of will of the parties).

In determining the subject, or specifi cally the extent of the subject-matter, of arbi-tration agreements, one has to take into account as a matter of principle the deli-mitation of the subject of the substantive legal relation.

Thus, if one states that lex arbitri regulations (which also defi ne the general scope of objective arbitrability)30 have the nature of a procedural norm, it follows that such procedural norm, in which arbitration agreements are concerned, and above all arbitration clauses, can only delimit the general boundaries of the scope of the subject matter of an arbitration agreement (whereas the exact limits of the scope of the subject matter may be delimited, and the subject thereof only specifi ed by means of substantive law) by defi ning the limits of subjective rights and duties ac-cording to the relevant main agreement, i.e. according to the relevant substantive legal relation.

Arbitration agreements are thus identical to the actions of the parties in a sub-stantive legal relation, and must be interpreted within the scope generally outlined above, primarily according to procedural law, and secondarily also sub-stantive law. At the same time, these procedural acts have direct eff ects of a sub-stantive nature as well, although not as contractual relations, but rather as legal actions. Arbitration agreements are closely connected to substantive law, and may be interpreted according to such law, depending on the given situation and type of procedural agreement, but do not contain elements of a contractual rela-tion, and the rights and duties of the parties arising from these agreements may not be enforced directly before courts; it should be stressed at this point that in case a breach of an arbitration agreement is concerned, a party enforces its claim through an action fi led with a state court, instead of enforcing it in arbitration. Although this can certainly indicate a breach of agreement, it is not a breach of an agreement directly establishing subjective rights that would enjoy any protec-tion. Therefore in cases of the aforementioned example of a breach of an arbitra-tion agreement, it is not possible, for example, to assert a claim for compensation

29 J. Fiala, J. Švestka, Několik úvah nad pojetím právního vztahu [title in translation: Some Refl ections on the Concept of Legal Relation], Právník (CZ), 1968, No. 8, pp. 665–682, J. Hurdík, Zásady soukro-mého práva [title in translation: Principles of Private Law], Brno (CZ): Masarykova univerzita, 1998.30 L.A. Mistelis, S.L. Brekoulakis (eds), Arbitrability: International and Comparative Perspectives, Kluwer, 2009, p. 10.


of damage31 (at least in terms of the law of a number of civil law countries). The eff ect of non-compliance with the prescribed arbitration procedure is merely in the realm of a procedural failure, i.e. the rejection of a wrongly-fi led submission, and in the worst case, the duty to pay the costs of such failed proceeding.32

If any party enforces its claim in contradiction with an arbitration agreement in li-tigation, instead of enforcing it in arbitration, and such litigation is discontinued on grounds of a duly and timely fi led objection, and the parties are remanded to resolve their dispute before arbitrators, the costs incurred by the defendant in consequence of such procedure by the party having violated the provision contained in the arbitration agreement (plaintiff ) may not be enforced as a claim for compensation of damage, but solely as a claim for compensation of costs of proceedings pursuant to the proce-dural regulations applied in discontinuing the litigation. On the other hand, potential claims of parties arising from the invalidity of an arbitration agreement caused by any of the parties (insofar as such claim may be asserted in a particular case pursuant to applicable substantive legal regulations) can be classifi ed as substantive claims. Thus, arbitration agreements are contracts of a mixed type33 – sui generis.

2. Multi-step Dispute Resolution Agreements

The theoretical problem of distinguishing between the procedural and substan-tive nature of dispute resolution agreements becomes very real in practice when it comes to the question of determining the nature and legal eff ect of multi-step (called as combined or multi-tired as well) agreements. The determination of the substantive or procedural nature of such agreements directly aff ects their enforce-ment in practice.34

Multi-step dispute resolution agreements represent a quite common phenomenon in contractual practice when it comes to the negotiation of various mechanisms concerning the procedure of the parties in resolving potential disputes.35 So-called combined or tiered arrangements are employed when the parties wish for an ami-cable process of dispute settlement prior to potential adversarial and fact-fi nding proceedings, which can either take the form of litigation or arbitration proce-edings. Arrangements are sometimes called multi-step or escalation36 clauses, but international practice has settled on the most frequently used term, multi-tiered dispute resolution clauses, here abbreviated as MDR clauses or agreements.

31 N. Yeo, D. Tan, Damages for Breach of Exclusive Jurisdiction Clauses, in: S. Worthington, Commercial Law and Commercial Practice, Hart Publishing, 2003, pp. 403 et seq., P. Rogerson, Quantifi cation of damages: substance or procedure? The Common Law, 2006, Vol. 65, No. 3, pp. 515–518.32 G.B. Born, International Commercial Arbitration, Kluwer, 2009, p. 841.33 J.D.M. Lew, L.A. Mistelis et al., Comparative International Commercial Arbitration, Kluwer, 2003, p. 165. 34 G.B. Born, International Commercial Arbitration, Kluwer, 2009, p. 847.35 D. Joseph, Jurisdiction and arbitration agreements and their enforcement, London: Sweet & Ma-xwell, 2005, mar. 4.32.36 This concerns the escalation of the dispute resolution methods – on the other hand – this solution seeks to prevent the escalation of the actual dispute between parties to the MDR agreement.


MDR clauses provide for distinct stages (i.e. tiers), involving various steps of pro-cedures, for dealing with and resolving disputes. The typical model of such clauses is to provide for certain steps and eff orts to be taken by the parties prior to com-mencing arbitration. Such arrangements may have miscellaneous in form, and some of them may even anticipate a larger number of tiers of dispute resolution procedures, which usually gradually become more institutionalized. These initial steps are aimed at reaching an amicable settlement of disputes in order to avoid ar-bitration or litigation. Typically, the initial tiers of such clauses provide for a duty to enter into negotiations, sometimes requiring the attendance of particular re-presentatives of a party, and/or a duty to participate in conciliation or mediation processes. Only the last tier of such clauses provides for the most institutionalized process of adversarial proceedings (arbitration), which are only intended to be conducted if the eff orts taken in the initial tiers have failed. The intended eff ect of such clauses depends only on the actual enforceability of such clauses, particu-larly on the enforceability of the duty to attend to the initial “tiers” of the dispute resolution process.37 This causes some practical issues regarding the successful ap-plicability of such contractual provisions, which are mostly caused by the non-in-stitutionalized character of the “negotiation” or “mediation” stages of the dispute resolution process. The issue remains as to what the consequences are if a party ignores or fails to properly exercise the initial stages and skips to the “regular” dispute resolution method, such as fi ling a request for arbitration without having engaged in the agreed negotiations or mediation. It is therefore necessary to try to determine the eff ect and possible enforceability of the initial pre-arbitration or pre-trial stages of multi-tiered dispute resolution clauses.

2.1. The nature of MDR Agreement

MDR agreements, as described above, prescribe two or more dispute resolution steps, and therefore the agreement (or clause) itself can be divided into two or more separate contractual terms of diff ering nature. The MDR clause most often consists of the agreement on the (more or less) compulsory negotiation or me-diation process, as well as the arbitration agreement.38 If the main agreement or clause can be so separated, it is also necessary to treat the separate parts of such agreements diff erently. While there is general consensus on the universal recogni-tion of arbitration as a legally binding and enforceable dispute resolution alterna-tive to regular court proceedings, this cannot in any way be said of compulsory negotiation and mediation.39

If it has been concluded that the arbitration agreement is an agreement of a pro-cedural nature, one may fi nd it diffi cult to ascribe the same nature and eff ect to

37 M. Pryles, Multi-Tiered Dispute Resolution Clauses, Journal of International Arbitration (Kluwer Law International 2001, Vol. 18, Issue 2), pp. 161.38 Christian Bühring-Uhle, Lars Kirchhof, et al., Arbitration and Mediation in International Business (Kluwer Law International 2006), p. 201.39 M. Pryles, Multi-Tiered Dispute Resolution Clauses, Journal of International Arbitration (Kluwer Law International 2001, Vo.l 18, Issue 2), pp. 161.


the mediation agreement, i.e. an agreement on a procedure to reach a settlement. There is discussion both among leading authors and indirectly among courts in various jurisdictions on the nature of mediation agreements, particularly with respect to when subsequent court40 or arbitration proceedings should take place. The question is whether mediation clauses have an exclusively substantive nature, in which case their eff ects may exclusively be evaluated according to substantive legal rules, or whether they are analogous in eff ect to arbitration agreements or are of a procedural nature.41

In order to cope with this practical defi ciency of standalone mediation clauses, the process of multi-stage proceedings is employed in order to preserve the poten-tially cost-saving mediation phase, but without having to submit to other means of dispute resolution, while at the same time ensuring that the initial stages of the multi-stage dispute resolution method will not be omitted.

2.2. MDR Agreements in Practical Application

So does the fact that the eff ect of the initial tiers of the MDR agreement is limited mean that MDR clauses are unsuitable as effi cient means of dispute resolution? It has to be stated that by saying that the MDR clause is not suitable to prevent resor-ting to the arbitration or court proceedings, it does not mean that it is of no eff ect. The nature of the clause as a substantive agreement does indeed aff ect the position of the parties in the dispute. The question of the eff ectiveness and nature of MDR clauses has to be separated.

This position is refl ected in the relevant case law concerning the application of MDR clauses. As is obvious, the most pressing issue in these cases has been the qu-estion of whether it is possible to enforce the obligation of the contractual party to attend the process of negotiation or mediation as stipulated in the respective MDR agreement. Diff erent courts and arbitral tribunals in various jurisdictions have coped with this issue, and the results have varied from jurisdiction to jurisdiction as to the practical status of the enforceability of the multi-tiered clauses.

2.2.1. Case Law in Switzerland

The case law in Switzerland is inconsistent in attaching the nature of pre-adversa-rial proceedings. In the fi rst case, the Court of Cassation of Zürich held that com-pliance with a multi-tiered dispute resolution clause that imposes an obligation on the parties to mediate their dispute prior to any court action is a question of

40 With respect to standalone mediation clauses that prescribe the compulsory requirement to resort to the mediation process with the intention of avoiding premature court litigation, they can raise si-milar issues as true MDR clauses (those including mediation and arbitration clauses), i.e. the question of enforceability of compulsory mediation as a procedural obstacle preventing resorting to adjudica-tive proceedings. 41 A. Jolles, Consequences of Multi-tier Arbitration Clauses: Issues of Enforcement. Arbitration, 2006, Vol. 72, p. 336.


substantive law, and not a prerequisite for litigation. Consequently, courts cannot reject a claim for lack of jurisdiction in case one party has not complied with its obligation to mediate the dispute. On the other hand, failure to comply with the obligation to mediate may lead to a dismissal of the claim on the merits, or to other negative eff ects according to substantive law.42 This would indicate that MDR agre-ements are of no procedural eff ect, and if any attention is to be paid to them, this has to be in the proceedings on the merits, but the existence of the MDR clause is not to be resolved in the jurisdictional phase of proceedings.

Another decision of the Swiss court, in this case made by the Court of Appeals of Zurich,43 held that the issue of the enforcement of the MDR clause should be exa-mined by the arbitral tribunal in the jurisdictional phase of proceedings. However, in this case the court did not resolve the nature of the MDR clause itself, but me-rely delegated the authority to the arbitral tribunal when there was an arbitration proceeding involved in the relevant MDR clause. This means that the arbitral tri-bunal is still entitled to treat the obligation to mediate as a question of merits, if it considers it appropriate.

The third decision by the Court of Appeal of the Canton of Thurgau expressed the opinion of the jurisdictional nature of the MDR clause even more clearly, by stating that the obligation to submit the case to the mediation body constitutes a procedural obstacle for dealing with the matter before the court.44

The impact of these decisions cannot be overestimated, since it produced quite a debate among relevant commentators, who remained unimpressed by those de-cisions stating the procedural nature of MDR clauses.

2.2.2. Case Law in Germany

German law and the German legal practice, as repeatedly expressed by the German Supreme Federal Court (BGH) in 1983 and 1998,45 is based on the assumption that a mediation agreement or an agreement establishing the obligation to en-gage in mediation or other similar proceedings prior to litigation or arbitration is a substantive agreement, and in the event of a failure to follow this procedure, enforcement of a claim by means of law in an adversarial fact-fi nding proceeding (that is, in litigation or arbitration) is excluded, and the action is inadmissible and should be dismissed. In other words, the court confi rmed that if the parties agreed on a mandatory settlement clause, both parties were obliged to co-operate in car-rying out the settlement negotiations. An action brought before the courts prior to the completion of an agreed settlement procedure was inadmissible.

42 Cassation Court of the Canton of Zürich on 15 March 1999, published in ZR 99 (2000) No. 29.43 Decision by Zurich Court of Appeals of 11 September 2001, published in ZR 101 (2002), No. 21, 77–81, especially p. 78.44 Decision of 23 April 2001 by Court of Appeals, Canton of Thurgau; reported in ASA Bulletin 2003, pp. 418–420.45 Judgment of Bundesgerichtshof – BGH, File No. VIII ZR 344/97 of 18 November 1998, published in: NJ 1999, p. 647, and other decisions.


2.2.3. Case Law in France

Although the French legal practice can hardly be considered unifi ed and it is di-sputable to say that it has formed a clarifi ed opinion on the topic at issue, the ap-proach of the French courts largely deviates from the usual practice of common law models of continental Europe.

For example, the French Cour de Cassation concluded in its decision in the case of Polyclinique des Fleurs46 that the fi rst-instance court refused to hear a plaintiff ’s action (to hear and decide on the merits of the case) and dismissed the action for the reason that the plaintiff failed to proceed according to the agreed mediation agreement, and prior to fi ling an action with a state court did not initiate media-tion, as required by the contractual provision agreed between the parties.

2.2.4. Case Law in Ireland

Even though there is hardly any extensive or signifi cant series of judicial decisions to be spoken of that would be infl uential in this respect at least in European prac-tice or in European opinions, one should mention, for the sake of completeness, the decision of High Court of Ireland of 31 January 2002 (Euro Petroletum Trading Limited v. Transpetroleum International Limited)47. The Irish court does not make any essential expression as to whether mediation or other similar arrangement is a procedural or substantive agreement. In fact this cannot even be expected from common law legal systems or systems close to common law. However, in the matter under discussion, when litigation was instituted where procedure through obliga-tory mediation should have been taken as a fi rst step, but was not, the High Court of Ireland ruled that the condition of mediation agreed between parties as a pre-trial, party-agreed obligatory procedure for fi nding possible consensus is fulfi lled even in cases when it is possible to infer a mere attempt for fi nding an amicable settlement by mutual communication (such as from exchanged letters). This ap-proach of the Irish High Court seems to be as pragmatic as the solutions made by courts in common law countries usually tend to be. In general practice, particu-larly in commercial practice, it is a common phenomenon that a creditor addresses and calls on the debtor to fulfi l his obligations prior to instituting adversary pro-ceedings. The communication between the parties or its nature, content and the attitude of parties, especially the attitude of the defendant, is often instrumental in deciding whether there is actually any point in initiating the mediation process. One should not forget the fact that MDR are usually agreed together with main contracts as transactions establishing substantive legal relations. In this phase the parties have some optimism, as it were. However, when the relations between par-ties are so tense that an authoritative resolution of the matter, either in litigation or arbitration, seems to be the only possibility, such arrangement very often loses its practical sense and creates, ironically, a space for abuse of law by the debtor who

46 6 July 2000 – Cour de cassation (2e Ch. civ.), Revue de l’Arbitrage (Comité Français de l’Arbitrage 2001, Vol. 2001, Issue 4), pp. 749 – 750.47 The decision was cited in: A.L.R., 2002, Vol. 5, No. 1, p. 1 et seq.


as an entity unwilling to fulfi l his obligations tries in whatever ways to delay or even halt the course of law. Therefore it is more than advisable that a forum should be granted a large space to assess whether any mediation in a given situation can fulfi l its purpose at all and whether it would not merely be an extension of the agony of apparently unsound relations between parties to a substantive agreement and a provision of undoubtedly inappropriate protection to the debtor.

A jurisdictional arrangement48 which clearly has a procedural nature (in the civil law systems of continental Europe) must not in any case be mistaken for agre-ements on applicable substantive law, even though on the other hand also in a majority of arbitration and choice-of-jurisdiction arrangements49 the parties have,50 depending on the particular case, greater or lesser autonomy to agree the law applicable51 to such procedural agreements within the scope granted by lex arbitri regulations. In any case, one always has to consider, as a matter of principle, whether there exists a possibility to enter into choice-of-jurisdiction (prorogation) agreement as well, since it is always necessary to consider the qu-estion of arbitrability (here objective arbitrability52) of a dispute at the time of

48 V. Týč, N. Rozehnalová, Prorogace. Mezinárodní rozhodčí řízení – vzájemné vztahy řízení před roz-hodci a řízení soudního [title in translation: Prorogation. International arbitration – mutual relation between arbitration and litigation], in: Vybrané problémy mezinárodního práva soukromého v justiční praxi [title in translation: Selected problems of private international law in jurisdictional practice], 2nd ed., Brno, 1997, pp. 27 et seq.49 Ch. Kohler, Internationale Gerichtsstandsvereinbarungen: Liberalität und Rigorismus im EuGVÜ, IPRax 1983, pp. 265–272.50 P. Bříza, Choice of Court Agreements: Could the Hague Choice of Court Agreements Convention and the Reform of the Brussels I Regulation be the Way Out of the Gasser-Owusu Disillusion?, Journal of Private International Law 2009, p. 537–563.51 M. Czepelak, Umowa międzynarodowa jako źródło prawa prywatnego międzynarodowego [title in translation: Conventions as Source of Private International Law], Warszawa: Wolters Kluwer Polska, 2008.52 Interestingly N. Rozehnalová considers that objective arbitrability as the admissibility of arbitra-tion agreement has to be evaluated pursuant to (i) lex arbitri, (ii) lex causae of the main contract and (iii) pursuant to the law applicable to the arbitration agreement. The author of this paper generally agrees with it, except the signifi cance of the substantive lex causae, which should have no infl uence to the objective arbitrability. Some exceptions, however, may entitle to apply the substantive lex causae, as for example if refl ecting foreign ovverriding mandarotry rules. See for example M. Pauknerová, Overriding Mandatory Rules and Czech Law, in: A. Bělohlávek, N. Rozehnalová, (eds), Czech Yearbook Of International Law (CYIL), Huntington (NY): Juris Publishing, 2010, Vol. I, pp. 81–94, M. Pauk-nerová, Evropske pravo a některe nove trendy v mezinarodnim pravu soukromem [title in translation: European law and certain new trends in private international law], Právník, Vol. 148, no. 2, pp. 121 et seq., A. Bělohlávek, Římská úmluva / Nařízení Řím I. Komentář [title in translation: Rome Convention / Rome I Regulation. Commentary], Praha: C.H. Beck, 2009, commentary to Art. 9 Rome I Regulation, Z. Nový, Arbitration Clause as Unfair Contract Term from the Perspective of Czech and EC Law. Global Jurist, Berkeley, CA, U.S., The Berkeley Electronic Press, 2009, Vol. 9, no. 4, pp. 36 et seq., N. Roze-hnalová, Party Autonomy and its Restrictions According to Rome I Regulation, in: The Role and Place of Law in a Society Based on Knowledge. Targu-Jiu (Romania): “ACADEMICA BRANCUSI” Publisher, 2009, p. 28–35, Z. Kučera, Použití tuzemského práva v občanskoprávních vztazích s mezinárodním prvkem [title in translation: Application of Domestic Law to Civil Legal Relations with International Ele-ment], Právník (CZ), 1985, p. 274 et seq., J. Valdhans, Interakce komunitarni procesni a kolizni upravy deliktů za současneho vlivu nestatnich prostředků [title in translation: The interplay of community pro-cedural law and community collision rules for tort under the infl uence of non-governmental means], in: Uloha medzinarodneho prava a europskeho prava v 21. storoči z pohľadu krajin V4 [title in trans-


entry into an arbitration agreement. At Community level, the choice of forum principle, i.e. the possibility to agree the jurisdiction of a state court, is defi ned for instance in Article 17 and Article 18 of the Brussels Convention, in Section 23 and Section 24 of Council Regulation No. 44/2001 or in Article 17 and Article 18 of the Lugano Convention. Besides, the question of the possibility of making prorogation agreements is provided for also in national laws, usually in civil liti-gation regulations (for instance in Germany it is the provisions of Section 38 et seq., ZPO-D and other provisions).

2.2.5. Case Law in U.S.

Courts in the United States do not concur on whether an agreement to negotiate in any context is enforceable.53 Consequently, courts in the same federal district have held both that an agreement ‘to use best eff orts to reach an agreement’ constituted an enforceable agreement, and that ‘[a]n agreement to negotiate in good faith’54 is unenforceable, because it is ‘even more vague than an agreement to agree’. The court went on to state: “An agreement to negotiate in good faith is amorphous and nebulous, since it implicates so many factors that are themselves indefi nite and uncertain that the intent of the parties can only be fathomed by conjecture and surmise.”55

As a general rule, it can be stated that the more institutionalized the mediation or negotiation phase of the MDR agreement is, the better the chances are that the court shall enforce such provisions.56

2.2.6. Case Law in England

Until recently, the courts in England generally did not recognize agreements to “negotiate” as a jurisdictional obstacle for further proceedings, which were seen as agreements to agree to terms that had not been fi nalized, so they were therefore incomplete and unenforceable.57 The primary reasoning has been the

lation: The Role of International Law and European Law in the 21st Century from the Perspective of the Vysegrad Four]. Trnava (Slovakia): Trnavska univerzita v Trnave, Pravnicka fakulta, 2009, pp. 1–10, A. Bělohlávek, Arbitrabilita sporů [titile in translation: Disputes Arbitrability], Právní rozhledy, Praha. C.H. Beck, 2003, no. 3, pp. 6 et seq., Z. Kamenská, Možnosti využitia rozhodcovského konania v treťom sektore [title in translation: The Possibilities To Use Arbitration In The Third Sector], in: Dny práva 2009, Brno: Masarykova univerzity, 2009, F. Křepelka, Problems with Understanding of European Law in New Member State, Czech Law in European Regulatory Context, 2009, Vol. 1, pp. 1–11 and elsewhere.53 See e.g. Vestar Development II LLC v. General Dynamics Corp., 249 F 3d 958, 961 (9th Cir. 2001) – Federal Court for the 9th Circuit Copeland v. Baskin Robbins USA, 96 California Court of Appeal, 4th 1251, 1257 (Cal Ct App. 1992) – California Court of Appeal.54 Regarding the signifi cance of the principle of good faith in the current international practice (ma-inly from the civil law perspective) for example Z. Nový, Dobra vira a mezinarodni obchodni smlouvy [title in translation: Good Faith and International Commercial Contracts], in: R. David, J. Neckař, D. Sehnalek, COFOLA 2009: The Conference Proceedings, Masaryk University, 2009, pp. 1135–1167.55 Candid Productions, Inc v. Int’l Skating Union, 530 F Supp. 1330, 1337 (SDNY 1982).56 Gary B. Born, International Commercial Arbitration (Kluwer Law International 2009), p. 848.57 Courtney and Fairbairn Ltd. v. Tolaini Brothers (Hotels) Ltd. [1975], ADR.L.R.-UK House of Lords.


assertion that the obligation to “negotiate” is so vague and legally uncertain that the enforcement of such contractual provision would be impossible. The fi rst decision that started the debate on the possibility of enforcement of me-diation clauses was delivered in connection with the important Channel Tunnel case,58and was set out in the opinion of Mr. Justice Coleman in the Cable & Wi-reless case.59

An arbitral tribunal applying English law will decline jurisdiction, in which a con-tractual provision expressly states that determinate procedures are a condition precedent to arbitration, until they have been followed. But indeterminate proce-dures, e.g. negotiation or mediation, would be considered unenforceable and not constituting a condition precedent to the tribunal assuming jurisdiction.

2.3. Concluding Remarks on Comparison of MDR Case Law

As is apparent from the above-presented overview, there is hardly any global con-sensus with respect to the nature of and approach to the enforcement of MDR clauses. Perhaps the above-cited note alone on the chances of successful enfor-cement relying on the level of institutionalization of the selected pre-arbitration procedure can serve as a unifying rule across the examined jurisdictions.

Common law systems also share court opinion that tends to consider MDR clauses as substantive contracts, i.e. the obligations of such clauses constitute a substan-tive obstacle to pursuing the contractual claim, since the completion of pre-arbi-tration proceedings is a precondition for the claim be perfected.60 The downside of this approach is the need for the MDR clause to be drafted in such a manner that would directly aff ect the nature of the claim. Parties, however, rarely seek this solution, since the usual desired eff ect is forming a jurisdictional obstacle, rather than changing the nature of the claim itself.

The MDR usually creates the substantive condition precedent for admissibility of the claim both in civil law as well as in common law. It means that the jurisdictional arrangements are closer to substantive law, than the common law commentators often present.

3. Jurisdiction of Tribunals In Arbitration

The question of the competency of arbitral tribunals to determine whether they have power to resolve a dispute submitted to them based on an MDR clause is re-gulated by the rules of the jurisdiction. First and foremost, these rules are gene-

58 Channel Group v. Balfour Beatty Ltd. [1993], Adj.L.R. 01/21 House of Lords.59 Cable & Wireless PLC v. IBM United Kingdom Limited [2002], EWHC 2059 – High Court of England and Wales.60 A. Jolles, Consequences of Multi-tier Arbitration Clauses: Issues of Enforcement (2006) 72 Arbitration Sweet & Maxwell London, p. 336.


rally dependent on the applicable arbitration rules, but will also be signifi cantly aff ected by the law applicable in the place (seat) arbitration.61 There has recently been discussion on the nature of the decision of the arbitral tribunal on jurisdic-tion, i.e. whether the decision on jurisdiction constitutes a fi nal decision, or whe-ther the arbitral tribunal is at liberty to decide on this issue at various times during the proceedings.

Because of the complexity of certain cases, arbitral tribunals very often decide on issues of jurisdiction at the outset in order to settle what is certainly the most pres-sing issue, whether or not they have the power to resolve the dispute at all. The arbitral tribunal will issue a separate jurisdictional award, which usually contains provisions on the costs adjudicated to a certain party,62 and considering the com-plexity of a particular case, these costs adjudicated in such jurisdictional decisions, which are in turn enforceable under respective international63 and national legal rules, consist of substantial amounts.

Although this approach is most often highly logical, economical and effi cient, it also usually leaves one party to a dispute unsatisfi ed with the result of the juris-dictional decision, the costs of which it has to bear. This creates potential for the review of an unfavourable decision before the respective authority – most often the courts of lex fori – upon an objection raised by the unsuccessful party.

This is, of course, a regular process, but in connection with the unresolved issue of the nature of the jurisdictional decisions, this potentially creates a Pandora’s Box of disputes arising from jurisdictional decisions in those countries in which the nature of these decisions is procedural, i.e. questionable as to its ability to create legal obligations of any nature, e.g. the obligation to pay the costs of the arbitra-tion proceedings.

3.1. Deciding on Jurisdiction

An arbitral tribunal may only validly resolve those disputes within the scope of authority that has been given by the parties to a respective arbitration agreement. This rule is an inevitable and proper consequence of the voluntary nature of ar-

61 N. Rozehnalová, Doložky o právním režimu a o řešení sporů v případě smluv v mezinárodním ob-chodním styku [title in translation: Clauses on Legal Framework and Dispute Resolution in International Trade Relations], Právní praxe v podnikání (CZ), 1998, No. 1, p. 2 et seq.; N. Rozehnalová, Určení fór a jeho význam pro spory s mezinárodním prvkem [title in translation: Specifi cation of forum and its meaning for disputes with international elements], Bulletin advokacie (CZ), 2005, I: No. 4, II: No. 5; Ro-zumov, K. The Law Governing the Capacity to Arbitrate, ICCA Congress Series, 1994, No. 7; K. Růžička, Je rozhodčí smlouva základem rozhodčího řízení? [title in translation: Does Arbitration Agreement Con-stitute Basis for Arbitration?], Bulletin advokacie (CZ), 2005, No. 10.62 V. Fon, F. Parisi, On the Optimal Specifi city of Legal Rules, Journal of Institutional Economics, 2002, George Mason Law & Economics Research Paper No. 04-32 et Minnesota Legal Studies Research Paper No. 07-17.63 P. Myšáková, Vymezeni mezinarodni obchodni arbitraže – problematika mezinarodniho prvku [title in translation: Delineation of international commercial arbitration – the dilemma of defi ning the inter-national element], Právník, Vol. 148, no. 4, pp. 377–388.


bitration.64 In consensual arbitration, the authority or competence of the arbitral tribunal comes from the agreement of the parties; indeed, there is no other source from which it can come. It is the parties who give a private tribunal the autho-rity to decide disputes between them; and the arbitral tribunal must take care to stay within the terms of its mandate. The rule to this eff ect is expressed in several diff erent ways. It is sometimes said that an arbitral tribunal must conform to the mission entrusted to it; or that it must not exceed its mandate; or that it must stay within its terms of reference, competence, or authority. Another way of expressing the rule is to state that an arbitral tribunal must not exceed its jurisdiction (this term being used in the sense of mandate, competence, or authority).

The question is at what stage is the arbitral tribunal to determine its jurisdiction. As stated above, it is usually done as the fi rst step in the proceedings for practical reasons. But what in fact happens to the issue of jurisdiction? Is the question so-lved for good, or can it be raised again at further stages of the arbitration proce-edings?

3.2. Determining Jurisdiction in Selected Legislation – an Overview

3.2.1. Civil Law Jurisdictions

3.2.1.1. Austria65

Arbitral tribunals are obliged to issue a decision on their jurisdiction in every case. The arbitral tribunals are required to address the issue of their jurisdiction no later than in the fi nal award, or in a separate preliminary award. The fi rst solution is usually used when there is no objection to the jurisdiction of the tribunal raised during the proceedings, but when an objection has been raised by one of the par-ties, the court will issue a preliminary award.

The parties are required to raise any objection to the jurisdiction of the tribunal no later than in their fi rst pleading on the subject matter, although the arbitral

64 B. Hanotiau, Problems Raised by Complex Arbitrations Involving Multiple Contracts-Parties-Issues-An Analysis, Journal of International Arbitration, Kluwer Law International 2001, Vol. 18, Issue 3, p. 256.65 Section 592 of the Austrian Code of Civil procedure – Zivilprozessordnung – Befugnis des Schiedsge-richts zur Entscheidung über die eigene Zuständigkeit – (1) Das Schiedsgericht entscheidet selbst über seine Zuständigkeit. Die Entscheidung kann mit der Entscheidung in der Sache getroff en werden, aber auch gesondert in einem eigenen Schiedsspruch. (2) Die Einrede der Unzuständigkeit des Schieds-gerichts ist spätestens mit dem ersten Vorbringen zur Sache zu erheben. Von der Erhebung dieser Einrede ist eine Partei nicht dadurch ausgeschlossen, dass sie einen Schiedsrichter bestellt oder an der Bestellung eines Schiedsrichters mitgewirkt hat. Die Einrede, eine Angelegenheit überschreite die Befugnisse des Schiedsgerichts, istzu erheben, sobald diese zum Gegenstand eines Sachantrags erhoben wird. In beiden Fällen ist eine spätere Erhebung der Einrede ausgeschlossen; wird die Ver-säumung jedoch nach Überzeugung des Schiedsgerichts genügend entschuldigt, so kann die Einrede nachgeholt werden. (3) Auch wenn eine Klage auf Aufhebung eines Schiedsspruches, mit welchem das Schiedsgericht seine Zuständigkeit bejaht hat, noch bei Gericht anhängig ist, kann das Schiedsge-richt vorerst das Schiedsverfahren fortsetzen und auch einen Schiedsspruch fällen.


tribunal may still agree to hear the objection of a party submitted later in the pro-ceedings, if the delay is suffi ciently justifi ed.

Either the preliminary award or the fi nal award can be subject to the review of the regular courts in annulment proceedings.

The decision on the question of jurisdiction in Austria is based on the principle of the continuous review of the competence of the arbitrators. As indicated above, the question of jurisdiction can, in relevant cases, be subject to review at any moment of the arbitration proceedings on the condition that the reasons for the review are suffi ciently justifi ed.66 This leads to the conclusion that, within the framework of Austrian law, the decision on jurisdiction as a preliminary award doesn’t consti-tute a fi nal decision in this regard, and in exceptional circumstances, the arbitral tribunal is still authorized to rule on jurisdiction, if the competence of the tribunal is questioned.

3.2.1.2. Germany67

Since both the Austrian and German arbitration rules are currently based on the UNCITRAL model law on international arbitration, the framework of the two is similar. The diff erence between the German and Austrian provision on the power of the tribunal to decide on jurisdiction lies in the less formal requirement of the German arbitral tribunals to decide on jurisdiction. Arbitral tribunals subject to German legislation are not required to issue an award on their jurisdiction in all cases. While it is regular practice for an arbitral tribunal to deal with the issue of acquiring jurisdiction in the fi nal award, the less formal requirements of German law do not provide for the tribunal to issue a special decision in this regard, unless an objection is raised by either of the parties. In this case, the tribunal shall ad-dress the issues in a preliminary ruling.

Parties to a dispute are also limited as to time in that they are to present their objections no later than the moment of their fi rst submission on the merits of the

66 H. Schumacher, I. Chapter, The Arbitration Agreement and Arbitrability – Current Questions on the Jurisdiction of Arbitral Tribunals, in: Ch. Klausegger, P. Klein et al. (eds), Austrian Arbitration Year-book 2008, C.H. Beck, Stämpfl i/Manz 2008, p. 47.67 Section 1040 of the German Code of Civil Procedure – Zivilprozessordnung – Befugnis des Schieds-gerichts zur Entscheidung über die eigene Zuständigkeit – (1) Das Schiedsgericht kann über die eigene Zuständigkeit und im Zusammenhang hiermit über das Bestehen oder die Gültigkeit der Schiedsvere-inbarung entscheiden. Hierbei ist eine Schiedsklausel als eine von den übrigen Vertragsbestimmungen unabhängige Vereinbarung zu behandeln. (2) Die Rüge der Unzuständigkeit des Schiedsgerichts ist spätestens mit der Klagebeantwortung vorzubringen. Von der Erhebung einer solchen Rüge ist eine Partei nicht dadurch ausgeschlossen, dass sie einen Schiedsrichter bestellt oder an der Bestellung eines Schiedsrichters mitgewirkt hat. Die Rüge, das Schiedsgericht überschreite seine Befugnisse, ist zu erheben, sobald die Angelegenheit, von der dies behauptet wird, im schiedsrichterlichen Verfahren zur Erörterung kommt. Das Schiedsgericht kann in beiden Fällen eine spätere Rüge zulassen, wenn die Partei die Verspätung genügend entschuldigt. (3) Hält das Schiedsgericht sich für zuständig, so entscheidet es über eine Rüge nach Absatz 2 in der Regel durch Zwischenentscheid. In diesem Fall kann jede Partei innerhalb eines Monats nach schriftlicher Mitteilung des Entscheids eine gerich-tliche Entscheidung beantragen. Während ein solcher Antrag anhängig ist, kann das Schiedsgericht das schiedsrichterliche Verfahren fortsetzen und einen Schiedsspruch erlassen.


case, but in justifi ed circumstances, the tribunal may also allow the objection to be reviewed even when submitted late.

Therefore the German model is also based on the continuous review of jurisdiction scheme, but the requirements for the arbitrators are less formal, and arbitrators are not required to review the jurisdiction ex offi cio.

3.2.1.3. France68

The French model is based on the Kompetenz–Kompetenz principle, while the legal norms regulating the application of this principle are somewhat limited. The cited provision of the French Code of Civil Procedure mentions merely the capacity of the arbitrator to address a jurisdictional objection raised by one of the parties. The provision itself doesn’t impose a limitation on the submission of the objection, but practice has established the requirement for serving submissions while in doubt of the jurisdiction of the arbitral tribunal has to be served in limine litis, i.e. without prejudice to the jurisdictional objection of the party.69

The intervention of the French Courts in the process of determining jurisdiction is limited by the requirement to fi le a jurisdictional objection to a regular court only after the award on the merits has been issued by the arbitral tribunal.70 Once submitted, however, the French courts are at quite broad liberty to determine the jurisdictional issue in question.71

3.2.1.4. Switzerland72

The Swiss Private International Law Act (“PILA”) is not based on the UNCITRAL model law, although the solution chosen follows the doctrine of Kompetenz–Kom-petenz in its most liberal form, enabling the arbitral tribunal to review its jurisdic-tion without parties having to resort to judicial system. The arbitral tribunal shall decide the issue in the form of an interim award, which can then be subjected to judicial review at the relevant court.73 The possibility of the pre-arbitration exa-

68 Art. 1466 – Code of Civil Procedure Book IV Arbitration – If a party challenges in arbitration the existence or scope of the arbitrator’s jurisdiction, the arbitrator shall decide on the issue. 69 Y. Derains, L. Kiff er, France (2010), in: J. Paulsson (ed.), International Handbook on Commercial Arbitration, Kluwer, 2010, Vol. 58, p. 19.70 See E. Gaillard, J. Savage (eds), Fouchard Gaillard Goldman on International Commercial Arbitra-tion, 1999, p. 672.71 See Judgment of 6 January 1987, So. Pac. Properties Ltd. v. République Arabe d’Egypte, in: 26 Int’l Legal Mat. 1004, 1006 (1987) (French Cour de cassation civ. 1e); Judgment of 6 January 1987, So. Pac. Properties Ltd. v. République Arabe d’Egypte, in: 26 Int’l Legal Mat. 1004, 1006 (1987) (French Cour de cassation civ. 1e). See also Judgment of 16 June 1988, Société Swiss Oil Corp. v. Société Petrogab & République du Gabon, in: 1989 Rev. arb. 309 (Paris, Cour d’appel).72 Art. 186 of Swiss Private International Law Act – Chapter 12: International Arbitration (and se-lected articles), 18 December 1987 – 1: “The arbitral tribunal shall itself decide on its jurisdiction. 1bis. It shall decide on its jurisdiction notwithstanding an action on the same matter between the same parties already pending before a State Court or another arbitral tribunal, unless there are se-rious reasons to stay the proceedings. 2. A plea of a lack of jurisdiction must be raised prior to any defence on the merits. 3. The arbitral tribunal shall, as a rule, decide on its jurisdiction by preliminary award.”73 The Swiss Federal Supreme Court has jurisdiction over these types of objections.


mination of the jurisdiction of the arbitral tribunal, as suggested by Article 7 of the PILA,74 has been limited by the Swiss Supreme Court in numerous decisions75 to the prima facie examination of the existence of the arbitration proceedings. If after prima facie examination of the case the court fi nds that there is an arbitration agreement, it will decline jurisdiction, but without addressing the question of the jurisdiction of the arbitral tribunal itself.

3.2.1.5. Czech Republic

The powers of the arbitrator to resolve the issue within the scope of Czech law are regulated by Article 15 of the Czech Arbitration Act,76 which has recently been amended77 in order to provide for more accurate interpretation without changing the nature of this provision.

The construction of this provision shows that (i) the parties are required to present their objections to jurisdiction before their fi rst submission on the subject matter – this is a refl ection of the requirements of speed and effi ciency; and (ii) the ar-bitral tribunal has, however, the power to examine and decide on jurisdiction at any point of the proceedings – this shows that Czech law has adopted an objective approach towards jurisdictional issues, i.e. even though the arbitral tribunal has examined the objections of a party and the proceedings were continued, this does not prevent the issue from being examined further in the proceedings.

The question of jurisdiction must be addressed by the arbitrators throughout the procedure, and at every stage, because this is one of the preconditions to the ar-bitration proceeding. Specifi c decisions on the issue are only produced if such de-cision is based on an objection of one of the parties. The form of such decision is a resolution. If the arbitrators reach a decision stating that they lack jurisdiction, the tribunal will issue a resolution subject to Article 23, Point b) of the Arbitration Act, which formally terminates the arbitration proceeding.

As noted, the arbitrators must address the issue of their powers and jurisdiction throughout the proceedings, i.e. even in cases of a change in any of the proce-

74 “If the parties have concluded an arbitration agreement with respect to an arbitrable dispute, the Swiss court before which the action is brought shall decline its jurisdiction unless […] b. The court fi nds that the arbitration agreement is null and void, inoperative or incapable of being performed.”75 See e.g. Judgment of 16 January 1995, Compagnie de Nav. et Transports SA v. Mediterranean Ship-ping Co., in: XXI Y.B. Comm. Arb. 690, 696 (Swiss Federal Tribunal) (1996); Judgment of 29 April 1996, Found. M v. Banque X, in: 14 ASA Bull., 527 (Swiss Federal Tribunal) (1996).76 Art. 15 (1) – Arbitrators are entitled to review their jurisdiction. If they reach the conclusion that they lack jurisdiction pursuant to the arbitration clause submitted to them, they shall so decide in the form of a decision. (2) The objection of a lack of jurisdiction based on the non-existence, invalidity, or termination of the arbitration clause, unless the invalidity arises from the fact that it was impossible to conclude an arbitration clause in the matter, must be raised as a party’s fi rst act in proceedings on the subject matter. 77 Amended by Act No. 7/2009 Coll. of 11 December 2008, which amends the Code of Civil Procedure (Art. XIV). The new regulation of Art. 15 (1) came into force on 1 July 2009. The respective amend-ment was published in the Collection of Acts on 8 January 2009. The wording of Section 15 (1) in force as of 30 June 2009 (cit.): “The arbitrators are entitled to decide on their jurisdiction. If they reach the conclusion that they lack jurisdiction, they shall so decide in the form of a decision.”


dural circumstances. For example, such issues must always be addressed when the claims in the request for arbitration have been amended., although it is not always necessary to decide in the form of a separate decision (for example a procedural resolution).

Because the arbitrators are required to address the question of their jurisdiction throughout the entire arbitration procedure, the fi nding of a lack of jurisdiction in the fi nal decision cannot be excluded, i.e. after the execution and completion of evidence. However, following such an inquiry, the arbitrators cannot conclude that they only have jurisdiction with respect to one or some of the parties.

A jurisdictional objection may be raised by a party as its fi rst act in the subject matter of the dispute. It has to be raised in the fi rst act on the merits, which do-esn’t include submissions of a technical nature, e.g. a request for an extension of the deadline for reply, or a request for the adjournment of an oral hearing. Should a party not exercise its right to make a written reply to the Request for arbitration before the oral hearing (if the agreement reached in the arbitration agreement does not provide for written proceedings), the objection in question has to be ra-ised as the fi rst argument at the fi rst hearing in the case.

3.2.1.6. Poland

Polish doctrine and legislative tradition considers the question of determining ju-risdiction as strictly procedural question that shall be examined by the court (ex offi cio) in order to commence or continue the proceedings otherwise later in some cases regarded as invalid.78 In order to fulfi ll these requirements that shall on the other hand not impede the parties from the justice, the Polish Act on civil pro-cedure lays down basic procedural rules for determining the jurisdiction of the courts (arbitral tribunal).79

As a general jurisdiction rule a court examines and rules on its own jurisdic-tion to the moment that an action was brought before the court80 and to this point the jurisdiction is fi xed even in case the circumstances over which the decision was made changes later in the proceedings (perpetuatio fori) with exception of Art. 18 (doubts on jurisdiction), Art. 44 (impediments on the side of court) and Art. 193 § 2 (change of claim by the party) of Act on Civil procedure.81 Even when not expressly stated by the code examination of the jurisdiction of the

78 See e.g. (i) Judgement of the Supreme court dated 11 December 1967 r., II PZ 60/67, in: LexPo-lonica, No. 314681, OSNCP 1968, no. 5, pos. 93, (ii) Judgement of the Supreme court dated 22 July 2005, III CZP 39/05, in: Lex Polonica 159117.79 Coll. 1964, no. 43, pos. 296 – Act on Civil Procedure (Kodeks postępowania cywilnego).80 Art. 15 § 1 in Polish original: „Sąd właściwy w chwili wniesienia pozwu pozostaje właściwy aż do ukończenia postępowania, choćby podstawy właściwości zmieniły się w toku sprawy. § 2. Sąd nie może uznać, że jest niewłaściwy, jeżeli w toku postępowania stał się właściwy.“ 81 For the exact time period the parties may object the jurisdiction see e.g.: (i) Judgement of the Su-pereme court dated 6 April 1963, I CR 213/62, in: OSNCP 1964, no. 6, pos. 113; (ii) Judgement of the Supereme court dated 18 May 1982, I CR 49/83, in: OSNCP 1982, no. 11–12, pos. 182; (iii) Judgement of the Supereme court dated 16 June 2004, I CK 41/04, in: LexPolonica no. 372466, OSNC 2005, no. 7–8, pos. 136.


court is obligatory (ex offi cio)82 at every stage of the proceedings in order to con-tinue the proceedings before this court or to refer to the other court.83 The same doctrine and procedural principle applies in a number of civil law jurisdictions. In the most Central and East European Countries will often be understood as one of the basic procedural principal. Nevertheless procedural resolution upon the jurisdiction is pursuant to Polish law required only in case the court refuses its own jurisdiction.

As to the arbitral proceedings, latest legislative changes84 in the Polish civil pro-cedural law brought into the arbitral proceedings most of the fundamental rules of UNCITRAL model law that was unknown to the Polish legal order before this date and enabled the arbitral tribunal to rule on its own jurisdiction, inclu ding an objections with respect to the existence, validity or eff ectiveness of the arbitration agreement85. As a general rule on jurisdiction of the arbitral tribunal, Polish code of civil procedure provides that arbitral tribunal may decide on its jurisdiction (i) at any point of the arbitration proceedings in separate procedural resolution (preliminary question)86 or (ii) in the fi nal arbitral award on the merits. Such a provision is regarded as special procedural rule that exclude the general jurisdic-tion rule applied to the general courts that cannot be applied in arbitral proce-edings.87

The lack of jurisdiction may be objected by the party no later than the submission of the statement of defense or at any time later if agreed by the parties, unless the party could not be fairly aware of the circumstances of the objection or the reason for the objection arises later at the proceedings.88 The above mentioned power of the arbitral tribunal can be reviewed by the general courts on the request of any party submitted within 14 days of the delivery of such procedural resolution.89

82 Polish law specifi es the issues of jurisdiction that has to be examined at the proceedings by the court (ex offi cio) and (ii) those when objected by the parties only. The fi rst one refers only to the juris-diction in rem and exclusive territorial jurisdiction that would cause the invalidity of whole proceed-ings (Art. 202 and Art. 379 of Act on Civil Procedure).83 See Art. 200 and 202 of the Act on Civil Procedure.84 Act that changes Civil procedural act from 16th September 2005 (Coll. no. 178, pos. 1478), eff ective as of October 17th 2005.85 Art. 1180 § 1 of the Act on Civil Procedure in Polish original: „Sąd polubowny może orzekać o swej właściwości, w tym o istnieniu, ważności albo skuteczności zapisu na sąd polubowny. Nieważność albo wygaśnięcie umowy podstawowej, w której zamieszczono zapis na sąd polubowny, samo przez się nie oznacza nieważności lub wygaśnięcia zapisu.“86 See e.g. T. Ereciński K. Weitz, Sąd arbitrażowy, LexisNexis, Warszawa 2008, p. 239.87 As expressly stipulated in Art. 1184 § 2 of Polish code of civil procedure. Diff erently see e.g. § 30 of Czech Arbitration Act that allows subsidiary application of Czech civil procedure act.88 Art. 1180 § 2 of the Act on Civil Procedure in Polish original language: „Zarzut braku właściwości sądu polubownego może być podniesiony nie później niż w odpowiedzi na pozew lub w innym ter-minie określonym przez strony, chyba że przed upływem terminu strona nie znała i przy dołożeniu należytej staranności nie mogła poznać podstawy takiego zarzutu albo jego podstawa powstała do-piero po upływie tego terminu. W obu wypadkach sąd polubowny może rozpoznać zarzut podnie-siony po terminie, jeżeli uzna opóźnienie za usprawiedliwione.“89 See e.g. A. Wach, Stosowanie zasady Kompetenz–Kompetenz w postępowaniu arbitrażowym, Radca prawny 2007, no. 1, p. 71.


3.2.2. Common Law Jurisdictions

3.2.2.1. England and Wales90

England’s arbitration act was inspired by the UNCITRAL model law, but with an addition of certain items special to common law. However, provisions on the ju-risdictional powers of the arbitral tribunal are among those that have been most infl uenced by the UNCITRAL model.91

Although Arbitral tribunals are authorized to rule on their own jurisdiction, these decisions can be subject to challenge before courts, which will ultimately decide on the disputed matter.92

One item special to England’s arbitration act is the right of third parties claiming to be party to the arbitration proceedings.93 The non-party may seek a declaration on the validity of the arbitration agreement and on other substantive jurisdictional issues.94 This seemingly serves as a backdoor for the previous common law prac-tice of the possibility of a court to review the jurisdiction of arbitrators. While this originally served parties to arbitration as well, it is now a right reserved only for non-parties, who are of course excluded from fi ling an objection within the arbi-tration proceedings.95

90 Arbitration Act 1996 – CHAPTER 23:“30 Competence of tribunal to rule on its own jurisdiction – (1) Unless otherwise agreed by the par-ties, the arbitral tribunal may rule on its own substantive jurisdiction, that is, as to – (a) whether there is a valid arbitration agreement, (b) whether the tribunal is properly constituted, and (c) what matters have been submitted to arbitration in accordance with the arbitration agreement. (2) Any such ruling may be challenged by any available arbitral process of appeal or review or in accordance with the provisions of this Part.31 Objection to substantive jurisdiction of tribunal – (1) An objection that the arbitral tribunal lacks substantive jurisdiction at the outset of the proceedings must be raised by a party not later than the time he takes the fi rst step in the proceedings to contest the merits of any matter in relation to which he challenges the tribunal’s jurisdiction. […] A party is not precluded from raising such an objection by the fact that he has appointed or participated in the appointment of an arbitrator. (2) Any objection during the course of the arbitral proceedings that the arbitral tribunal is exceeding its substantive jurisdiction must be made as soon as possible after the matter alleged to be beyond its jurisdiction is raised. (3) The arbitral tribunal may admit an objection later than the time specifi ed in subsection (1) or (2) if it considers the delay justifi ed. (4) Where an objection is duly taken to the tribunal’s substan-tive jurisdiction and the tribunal has power to rule on its own jurisdiction, it may – (a) rule on the matter in an award as to jurisdiction, or (b) deal with the objection in its award on the merits.If the parties agree which of these courses the tribunal should take, the tribunal shall proceed ac-cordingly. (5) The tribunal may in any case, and shall if the parties so agree, stay proceedings whilst an application is made to the court under Section 32 (determination of preliminary point of jurisdic-tion).” 91 P. Aeberli, Jurisdictional Disputes under the Arbitration Act 1996: A Procedural Route Map, Arbitra-tion International, Kluwer, 2005, Vol. 21, Issue 3, p. 253. 92 Fiona Trust & Holding Corporation & 20 Others v. Yuri Privalov & 17 Others [2007] EWCA Civ. 20, 24 January 2007, Court of Appeal [Civil Division].93 Section 72 of the Arbitration Act 1996.94 Law Debenture Trust Corp. PLC v. Elektrim Finance, BV [2005] EWHC 1412, High Court of England and Wales.95 P. Aeberli, Jurisdictional Disputes under the Arbitration Act 1996: A Procedural Route Map, Arbitra-tion International, Kluwer, 2005, Vol. 21, Issue 3, p. 254.


The parties to a dispute have to submit their objections before the fi rst submission on the merits, or as a part of this submission. This, however, leaves the option to the court to allow the late submission of an objection – this solution is similar to other UNCITRAL model law-based jurisdictions.

3.2.2.2. United States

The United States’ Federal Arbitration Act96 provides no guidance on the question of jurisdictional challenges. The current U.S. case law, which shapes the attitude of U.S. courts towards the question of the competence of arbitrators to decide on their jurisdiction, has been shaped by the decision in the First Options case.97 This decision further shaped the principle requiring “clear and unmistakable” evidence of the parties’ intention to submit the issue of jurisdiction to the arbitral tribunal, which was fi rst stated in the AT&T Technologies case.98 Therefore, the question of whether the arbitral tribunal will be competent to rule on jurisdiction itself is left to the consideration of the parties, or otherwise the powers remain with the re-gular courts.

A jurisdictional award issued by a properly authorized tribunal can be a subject to challenge under Section 10 of the Federal Arbitration Act, which only stipulates a limited range of grounds for such review.99

3.3. Comparison of Common Law and Civil Law Approaches to Jurisdictional Awards

Civil law jurisdictions generally tend to provide a less rigorous approach to jurisdic-tional awards, which means that the judicial review of such awards is performed at the outset, i.e. the court is authorized to fully remit the arguments of the arbitral tribunal related to jurisdiction and in turn overturn the arbitral tribunal’s decision on grounds of improper justifi cation of the award or inconsistency with applicable law.100 This solution is adopted in Germany, France and Switzerland, where the

96 The Federal Arbitration Act Title 9, U.S. Code, Section 1–14, was fi rst enacted 12 February 1925 (43 Stat. 883), codifi ed 30 July 1947 (61 Stat. 669), and amended 3 September 1954 (68 Stat. 1233). Chapter 2 was added 31 July 1970 (84 Stat. 692); two new Sections were passed by the Congress in October of 1988 and renumbered on 1 December 1990 (PLS 669 and 702); Chapter 3 was added on 15 August 1990 (PL 101-369); and Section 10 was amended on 15 November. 97 First Options of Chicago, Inc. v. Kaplan 514 U.S. 938 (U.S. S.Ct. 1995) – U.S. Supreme Court.98 AT&T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643 (1986) – U.S. Supreme Court.99 FAA Section 10: “Same; vacation; grounds; rehearing – (a) In any of the following cases, the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration – (1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or corruption in the arbitra-tors, or either of them; (3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon suffi cient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehaviour by which the rights of any party have been prejudiced; or (4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, fi nal, and defi nite award upon the subject matter submitted was not made.”100 Born, G., B. International Commercial Arbitration, Kluwer, 2009, p. 981.


courts are authorized to perform a full review of the jurisdictional award. In other civil law jurisdictions, such as the Czech Republic and Austria, the rigid nature of the jurisdictional ruling is softened by the possibility of the continuous review of the issue of jurisdiction, which can be addressed throughout the proceedings. In the Czech arbitration law there is also an otherwise rarely recognized101 duty of arbitrators to address the issue of jurisdiction ex offi cio.102

On the other hand, common law jurisdictions only provide limited possibility for the review of jurisdictional decisions. This solution gives the arbitrators great au-tonomy to acquire jurisdiction over disputes, or more precisely, it enables parties to the arbitration agreement to transfer their fate fully into the hands of arbitrators. This situation103 is both criticized and praised104 at the same time. While the au-thors applying to the former point of viewwarn against the irresponsible handover of the parties’ autonomy to the arbitrators, those in favour of the latter state that these fears are unfounded, because the limitation of the excessively broad applica-tion of the powers of arbitrators is in the interests of the arbitrators themselves.105 This optimistic assertion could possibly have some basis in arbitration markets of great quality, in which there is little fear of the abuse of powers of arbitrators, but where the arbitral culture is less developed, then the danger of the misuse of these powers gradually increases. It is necessary to point out that the quality of the ar-bitrators is not only a question of the degree of development of the legal culture – no doubts are expressed here about the sophistication of the common law legal systems – but the quality of the arbitrators is also dependent on the quality and legal awareness of the parties themselves. In the case of an imbalance between the legal capacities of the parties, the danger of a biased application of otherwise seemingly harmless legal standards dramatically increases. The same can be said about exporting these liberal standards to legal systems that are not accustomed to such rules, due to the ongoing globalisation of arbitration proceedings. The application of these rules in arbitration proceedings can produce varying results, with eff ects that can hardly be foreseen.

From the above, it seems obvious that a decisive majority of those legal systems that have been examined do not consider the decision on jurisdiction to be a deci-sion on the merits, or a substantive decision. This decision, in terms of the defi ni-tions presented, is of a purely procedural nature, and in turn does not constitute a res iudicata objection. One of the consequences is that for example the rendering of an award on jurisdiction as a kind of interim award does not limit the court to set-aside the fi nal award in the same proceedings, even if any setting-aside has not been applied specifi cally regarding the [interim] award on jurisdiction, if ren-dered. The jurisdictional issue is, as a matter of principle, to be understood in the particular jurisdictions as a spine of the whole proceedings (arbitration).

101 Ibid., p. 997.102 In connection with the analogous application of the provision of Art. 104a of the Czech Code of Civil Procedure. 103 W. Park, The Arbitrability Dicta in First Options v. Kaplan: What Sort of Kompetenz-Kompetenz Has Crossed the Atlantic?, 12 Arb. Int’l 137 (1996), reprinted 11 Int’l Arb. Rep. 28 (Oct. 1996), p. 787.104 Born, G., B. International Commercial Arbitration, Kluwer, 2009, p. 981.105 Ibid., p. 984.


Except specifi c disputes, the arbitration is usually closely connected to the seat of arbitration.106 Trying to present arbitration as anational proceedings107 is in fact and in practice a mystery, often harming the interests of the parties as presenting a little bit naive (even if very nice) idea. The practise confi rms that the jurisdiction of arbitral tribunals is, in fact, strictly limited by the law applicable to the arbitra-tion clause as well as lex arbitri and the arbitrator have only as much competency asthe state power allows. It is often basically limited by the law of the seat of arbi-tration.108 This conclusion applies not only to specifi c disputes.109 Analogically the similar applies to the importancy of the place of enforcement, even if the duty to refl ect the rules of a [potential] place of enforcement by arbitrators (if any) is com-pletely diff erent than their duty to conduct in accordance with the rules applicable in the place of arbitration.110 The same applies in respect to the form of decision on jurisdiction as well as the stage of proceedings, which such decision will be ren-dered in. In a similar manner it may be argued, if, for example, some common law institutes or procedural measures will be coopted into another legal cultures.111

106 A. Bělohlávek, Místo konání rozhodčího řízení [title in translation: Venue of Arbitration], Právní zpravodaj (CZ), 2004, No. 3, pp. 13–15. From among foreign books, this issue is dealt with for example in: S. Jarvin, The place of arbitration, Bulletin – The ICC International Court of Arbitration. Den Haag/Paris: Kluwer Law International/ICC (December), 1996, vol. 7, No. 2, pp. 54–58 et alia.107 L. Lalive, On the Neutrality of the Arbitration and of the Place of Arbitration. Recueil de Travaux Suisse sur l’Arbitrage International, Zürich: Schulthess Polygraphischer Verlag, 1984, or T. Rensmann, Anationale Schiedsssprüche im nationalen Recht, 1997 or Rennsmann, T. Anational arbitral awards – legal phenomenon or academic phantom? Journal of International Arbitration, 1982, J. Paulsson, Ar-bitration Unbound: Award Detached from the Law of its Country of Original. International Commercial Law Quarterly, 1981, Vol. 4. 30, p. 358 et seq. et al.108 In great detail, with transparency and precision for instance N. Rozehnalová, Určení fór a jeho vý-znam pro spory s mezinárodním prvkem [title in translation: Specifi cation of forums and its signifi cance meaning for disputes with international elements], Bulletin Advokacie, Praha (CZ): Česká advokátní komora Czech Bar Association, 2005, I: No. 4, pp. 16–23 and II: No. 5, p. 12–16, which also transpa-rently and exactly expresses the importance of the place of proceedings both in cases of proceedings before courts in the event of existence of international elements and in the event of proceedings mis-sing such international elements. In the manner abstract to arbitration but fully applicable to the par-ticular issue for example, J. Bejček, Transition Countries Facing Transitory Competition Rules: Moving Shooter Taking Aim at a Moving Target, in: R. Zäch, A. Heinemann, The Development of Competition Law, Global Perspectives, Cheltenham: Edward Elgar, Ascola Competition Law, 2010, s. 181–208, D. Baizeau, Arbitration and Insolvency: Issues of Applicable Law, in: Ch. Müller, A. Rigozzi (eds), New De-velopments in International Commercial Arbitration, Zürich/Basel/Genève: Schulthess, 2009 et alia.109 For example P. Dobiáš, P. Dobiáš, Arbitrabilita sporů týkajících se nemovitostí podle platné právní úpravy ČR [title in translation: Arbitrability of Real Estate Disputes Pursuant to CZ Law], Právník (CZ), 2005, No. 8, K. Chovancová, Medzinárodná arbitráž v bankových úverových zmluvách s cudzím prvkom [title in translation: International Arbitration Concerning Foreign and Domestic Bank Loan Agree-ments], Obchodné právo (SK), 2003, Vol. 3, No. 11, pp. 72–76, P. Mates, Rozhodování sporů orgány veřejné správy [title in translation: Resolution of Disputes by Administrative Tribunals], Právní rádce (CZ), 2007, No. 12, pp. 41–46, K. Marek, Poznámky k rozhodčímu řízení podle slovenské právní úpravy [title in translation: Commentaries to Arbitral Proceedings Pursuant to Slovak Law], Daňová a hospo-dářská kartotéka (DHK) (CZ), 2006, Vol. 14, No. 3, pp. 27–29, T. Sokol, Vázanost rozhodce právem ČR ve vnitrostátním sporu [title in translation: Selected Issues Concerning Domestic Disputes before CZ Arbitral Proceedings], Právní fórum (CZ), 2008, Vol. 5, No. 4, pp. 134–139.110 D. Sehnálek, Sudiště v elektronickém rozhodčím řízení [title in translation: Place of Electronic Arbi-tral Proceedings]. Časopis pro právní vědu a praxi (CZ), 2004, Vol. 12, No. 4, pp. 313–317.111 See T. Giovannini, M. Scherer, Anti-Arbitration and Anti-Suit Injunctions in International Arbitra-tion, Stockholm: International Arbitration Review, 2005, vol. 1, pp. 201–218.

Arbitration Agreement, MDR Clauses and Relation Thereof to Nature of Jurisdictional Decisions on the...

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Transcript of Arbitration Agreement, MDR Clauses and Relation Thereof to Nature of Jurisdictional Decisions on the...