A recent decision of the
- kompetenz-kompetenz: the arbitral tribunal's power to rule on its own jurisdiction; and
- interpretation of arbitration clauses: determining whether a claim falls within the scope of an agreement to arbitrate to give effect to the parties' intention to arbitrate.
- the defendant in the main action and plaintiff in a third-party claim,
ARVOS GmbH (ARVOS); and - the defendants in the third-party claim, Arsopi,
Industries Metalurgicas Arlindo S. Pinho, S.A. and Arsopi-Industrial Metalurgicas Arlindo S. Pinho, LDS (collectively, Arsopi). - a claim for contribution of indemnity under the Tort-Feasors Act (
Alberta ) (the TFA Claim); - a tort claim based in negligence and negligent misrepresentation (the Tort Claim); and
- a contract claim based in breach of implied terms of the Purchase Order and the Purchase Conditions (the Contract Claim).
- Does the kompetenz-kompetenz principle apply, such that ARVOS must commence arbitral proceedings in
Germany to have an arbitrator rule on whether they have jurisdiction over the third-party claim? - If not, should ARVOS' third-party claim be stayed or struck under the ICAA?
On the first issue, the Court applied existing jurisprudence to find that the kompetenz-kompetenz principle does not apply to jurisdictional challenges where (1) the challenge involves pure questions of law, (2) the challenge involves questions of mixed fact and law requiring only superficial consideration of the record, or (3) there is a real prospect that referring the challenge to arbitration would mean that it is never resolved.
On the second issue, the Court held that claims arising by operation of law, such as indemnity claims under the Tort-Feasors Act (
The decision serves as an important reminder to arbitration practitioners that even the most established concepts are not unlimited in scope and are increasingly becoming subject to emerging exceptions.
Background
This case focused on a third-party claim which arose in the context of litigation, but which was subject to an arbitration agreement. To set the stage, the case involved three sets of parties:
-
the plaintiffs in the main action,
In
The defendant, ARVOS, operated primarily in
In
In response, Arsopi brought an application under the
Arsopi's application raised the following issues before the Court:
Decision
Application of the Kompetenz-Kompetenz Principle
The Court first considered whether it had jurisdiction to determine Arsopi's application, or whether the application ought to be heard in the first instance by an arbitral tribunal seated in
The Court applied the principles previously established by the
1. If the jurisdictional challenge involves:
a. pure questions of law; or
b. questions of mixed fact and law requiring only superficial consideration of the evidentiary record.
2. If there is a bona fide jurisdictional challenge that only a court can realistically resolve. This second exception involves the following two-part test:
a. taking the facts pleaded as true, there must be a genuine challenge to arbitral jurisdiction; and
b. there must be a real prospect that the challenge may never be resolved by the arbitrator.
Applying these principles, the Court declined to apply the kompetenz-kompetenz principle, finding that both of the above scenarios arose on the facts of the case.
With respect to the first exception, the Court held that Arsopi's application involved pure questions of law or questions of mixed fact and law requiring only superficial consideration of the evidentiary record. While the Court acknowledged that the contract between ARVOS and Arsopi was governed by German law, and that the effect of German law was a question of fact, the Court found that there was no conflicting evidence in that regard. As such, the Court found that the determination of Arsopi's application required only superficial consideration of the evidentiary record.
With respect to the second exception, the Court held that the question of whether ARVOS' third-party claim is subject to arbitration was a genuine challenge to arbitral jurisdiction. The Court was further satisfied that the time to commence arbitration in
Scope of Arbitration Agreement
The second issue raised by Arsopi's application was whether the third-party claim should be stayed, in whole or in part, under ICAA. The parties relied on section 10 of ICAA, which states:
Where, pursuant to article II(3) of the [1958
Article II of the 1958
1. Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.
[...]
3. The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. [emphasis added.]
Article 8(1) of the UNCITRAL Model Law similarly provides as follows:
A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed. [emphasis added.]
The key question was whether ARVOS' third-party claims against Arsopi concerned a matter in respect of which there was an arbitration agreement between ARVOS and Arsopi.
Relying on expert testimony regarding German law, the Court found that both the Tort Claim and the Contract Claim were "differences arising out of a commercial legal relationship"—namely the Purchase Order between ARVOS and Arsopi—and therefore fell within the scope of the arbitration clause in the Purchase Conditions. Significantly, the Court found that the Tort Claim and the Contract Claim by ARVOS against Arsopi had to be resolved by arbitration, even though they related to the claims made by Orica against ARVOS in the litigation proceedings.
However, the Cout came to the opposite conclusion regarding the TFA Claim. The Court held that the TFA Claim arose by operation of law under the Tort-Feasors Act and the common law. As such, the TFA Claim had its genesis in Canadian law, as opposed to the Purchase Order between ARVOS and Arsopi and was therefore not subject to the arbitration agreement. On this basis, the Court declined to stay the TFA Claim.
Finally, the Court considered whether the fact that an arbitration was likely time-barred by operation of German limitations law rendered the arbitration agreement "null and void, inoperative or incapable of being performed." The Court concluded that it did not, holding that the mere fact that an arbitrator could potentially apply limitations law to dismiss claims does not make an arbitration agreement inoperative or incapable of being performed.
Discussion and Implications
The decision in Orica offers an important reminder that even the most established concepts in arbitration are increasingly becoming subject to new and expanding exceptions.
With respect to the kompetenz-kompetenz principle, the decision in Orica does not actually tread much new ground. What it does is apply and highlight two existing exceptions to this long-standing principle that were recently articulated by the
Indeed, it can be argued that the decision in Orica potentially expands the exception found in Uber. In Uber, the Supreme Court found that there was a real prospect that the jurisdictional challenge might never be resolved by an arbitrator because arbitration was prohibitively expensive. In Orica, the Court found that this prospect also exists where arbitration is likely time-barred, signaling that there may be other, additional scenarios where the exception in Uber may apply. In this sense, the decision in Orica continues the trend toward expanding carve-outs established by the
By contrast, Orica breaks potentially significant new ground in holding that claims arising by operation of law, such as claims for indemnity under the Tort-Feasors Act (
To begin, parties seeking to resist or frustrate arbitration proceedings now have a new ground to mount jurisdictional challenges in cases where part of the claim arises by operation of law, and such challenges may well be successful in arbitrations seated in
At this point, the ruling in Orica on the scope of arbitration clauses is only law in
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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