DEBATE OVER ARBITRAL ‘COMPETENCE/COMPETENCE’ HEATS UP IN US COURTS

The issue of arbitrators’ competence to determine their own jurisdiction – known as ‘competence/competence’ – was a hot issue in the US courts this summer with three federal Courts of Appeals issuing decisions within weeks of each other. Each of the decisions considers the role of the courts in reviewing arbitrators’ jurisdictional decisions as well as the effect of an agreement by the parties to arbitrate under rules that include a competence/competence provision conferring on the arbitrators the power to decide objections to their jurisdiction.

The US framework for determining the standard of judicial review of an arbitral decision concerning arbitral jurisdiction (sometimes referred to as ‘arbitrability’) was established by the US Supreme Court in First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995). In First Options, the Court held in a domestic case governed by the Federal Arbitration Act that the scope of judicial review is determined by whether the parties agreed to submit the question of arbitrability to the arbitrator. Id. at 943. If so, the reviewing court will apply the same deferential standard of review that it applies to any other matters that the parties agreed to arbitrate. If, on the other hand, the parties did not agree to submit the arbitrability question to arbitration, then the question of whether the dispute is arbitrable is subject to independent review by the courts. Id. The Supreme Court instructed that courts should not assume that the parties have agreed to arbitrate arbitrability without ‘clear’ and ‘unmistakable’ evidence of their intent to do so, and in this regard, held that merely submitting a jurisdictional objection to the arbitrator does not indicate a clear willingness to have the arbitrator decide the question of arbitrability. Id. at 945-46.

Oct-Dec 2013 issue

Skadden, Arps, Slate, Meagher & Flom LLP