Jurisdictional Challenges in Arbitrations in Qatar
In this article, we explore jurisdictional challenges in arbitrations within the State of Qatar, both under Qatar law and the law of the Qatar Financial Centre (QFC). This matter is important for all parties whose arbitrations are seated in either of these jurisdictions, and particularly to parties whose arbitrations are agreed to be subject to the rules of the arbitration centre that administers most Qatari-seated arbitrations, namely the Qatar International Centre for Conciliation and Arbitration (QICCA).
Introduction
The ability of the court or arbitral tribunal to reach a substantive decision on a dispute is based on its jurisdiction to do so. There will always be instances where a party to a dispute challenges the jurisdiction of the court or arbitral tribunal to administer and decide on the dispute.
Challenges to the Jurisdiction of the Arbitral Tribunal
Arbitration is seen as a more time and cost-effective alternative which achieves achieves a similar, if not the same, result for the parties as court litigation. It offers a robust process for dispute resolution with a binding and enforceable award at the end. The consensual rather than mandatory nature of arbitration means that arbitration can be more prone than litigation to jurisdictional challenges.
Jurisdictional challenges often arise in one of two key circumstances. The first is when one party disputes the tribunal’s jurisdiction to administer and decide upon the dispute it has been presented with. The second is when there is a disagreement in respect of the agreement to arbitrate between the parties contained either in a substantive contract or in a separate agreement.
The arbitration agreement sets out the scope of the dispute that the parties have agreed should be subject to resolution by arbitration as well as the process for arbitration. Respondents to arbitration may seek to stop the arbitral process by claiming that the dispute referred to arbitration is outside the jurisdiction of the tribunal formed by that referral.
Some examples of when jurisdictional challenges are raised include:
- when there is a doubt as to whether there is an arbitration agreement in place or not (the writing requirement);
- when there is an argument as to whether there is a valid arbitration agreement in place;
- when there is a concern over the arbitrator’s or the tribunal’s impartiality;
- when there is doubt as to a tribunal’s constitution;
- where one party challenges the scope of the tribunal’s authority.
Frameworks for Challenging a Tribunal’s Jurisdiction in Qatar and the QFC
POSITION IN QATAR OUTSIDE THE QFC
On 16 February 2017, Qatar issued Law No. 2/2017 Promulgating the Civil and Commercial Arbitration Law (the “Arbitration Law”) which amended Law No. 13/1990, the Qatar Civil and Commercial Code of Procedure (CCPC).
The Arbitration Law is primarily modelled on and influenced by the UNCITRAL Model Law on International Commercial Arbitration 1985 (the “UNCITRAL Model Law”) with some modifications. Broadly speaking, the Arbitration Law has been welcomed by the arbitration community in Qatar.
The introduction of the Arbitration Law has encouraged more parties to adopt arbitration as part of their dispute resolution processes in their contracts instead of litigation before the Qatari Courts, where the resolution of disputes can at times be lengthy and very expensive.
The modernisation of the Arbitration Law and the equivalent law applicable in the QFC has placed Qatar on the arbitration map. It is seen as an attractive jurisdiction for parties who are seeking to settle their disputes by arbitration, not least because Qatar has been a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards since 2003.
Article 2 of the Arbitration Law sets out whom the law applies to and in which circumstances it applies. The Arbitration Law applies to all arbitrations, whether public law or private law persons, who are subject to the dispute and who have agreed in their arbitration agreement that the dispute will be subject to the provisions of the law. It does not matter whether the arbitration takes place in Qatar or abroad. Those who work with State counterparties should note that agreement to arbitrate administrative contracts is subject to the approval of the Prime Minister or his delegates.
Article 7(1) of the Arbitration Law provides that the:
“arbitration agreement is the agreement of the parties…. to refer to arbitration, to decide on all or some disputes that have risen or that may arise between them in respect of a defined legal relationship, whether contractual or non-contractual.”
Article 7(3) further provides that the arbitration agreement must be in writing or it will be deemed invalid. Parties can agree to any other substantive terms in the contract, provided that they are not against public policy. For instance, if the terms have an illegal purpose or unenforceable for want of legality.
A key provision to note in the Arbitration Law is Article 8. This provision requires a court to refuse to hear a dispute that is subject to an arbitration agreement unless one or more exceptions are met. This can include a finding by the court that the arbitration agreement is null and void, inoperative or incapable of being performed.
Article 16(1) of the Arbitration Law makes express provisions for an arbitral tribunal to be able to rule on its own jurisdiction (the “competence-competence” rule) as well as to rule in respect of the existence, validity, nullity, expiry of an arbitration agreement or its inapplicability to the subject-matter of the dispute.
Article 16(2) provides that any challenge to the jurisdiction of the arbitral tribunal—including any challenge to the existence, validity, nullity, expiry, or applicability of the arbitration agreement—must be raised no later than the statement of defence or in the reply to counterclaim if a counterclaim has been made.
Article 16(2) also provides that any challenge in respect of the arbitral tribunal exceeding the scope of its jurisdiction in hearing the dispute must be presented as soon as the issues arise during the arbitral proceedings.
Article 16(3) further provides that the arbitral tribunal may determine the jurisdictional challenge as a preliminary matter or may reserve its decision until the award is issued on the substantive dispute. The arbitral tribunal under this article maintains the power to continue with the proceedings and make an award pending any jurisdictional challenge or appeal to the Competent Court.
The party wishing to raise a jurisdictional challenge should be aware as to when they are able to raise such challenges during the proceedings. A claim that the tribunal does not have jurisdiction will need to be raised no later than the statement of claim or, where there is a counterclaim, the challenge should be raised in the reply to the counterclaim.
If the challenge is in respect of the tribunal exceeding its scope of authority, then that challenge should be raised as soon as one or both parties establish the tribunal has exceeded such scope.
POSITION WITHIN THE QFC
The legislative framework in the QFC is similar to the position in the State of Qatar generally. However, it is important to note that the Arbitration Law does not apply to QFC-seated arbitrations because the QFC, as a separate jurisdiction, has its own, separate civil and commercial legal regime based on common law.
As with the Arbitration Law, the QFC Arbitration Regulations 2005 made pursuant to Article 9 of QFC Law No. 7/2005 (the “Arbitration Regulations”) follow the UNCITRAL Model Law.
The Arbitration Regulations apply to all arbitrations where the seat is the Qatar International Court and Dispute Resolution Centre (QICDRC), also known as the QIC. The QIC differs from the Qatari Courts outside the QFC in that the former operates in English with judges who are experts in common law rather than civil law, which is applied in the latter.
Section 5 of the Arbitration Regulations sets out the jurisdiction of the arbitral tribunal. Under Article 21(1), the tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a contract will be treated as an agreement independent of the other terms of the contract. A decision by the tribunal that the contract is null and void will not by itself determine the invalidity of the arbitration clause.
Article 21(2) sets out when a jurisdiction challenge should be made. A plea by a respondent or other party that the tribunal does not have jurisdiction must be raised no later than at the time of the submission of the defence or, for another party, that party’s first written statement in the arbitration. A party is not precluded from raising such a plea by the fact that the party has appointed or participated in the appointment of any arbitrator. A plea that the tribunal is exceeding the scope of its authority must be raised as soon as the matter alleged to be beyond the scope of its authority is identified during the arbitral proceedings. The tribunal may, in either case, admit a later plea if it considers the delay justified.
Under Article 21(3), the tribunal may rule on a jurisdictional challenge either as a preliminary question or in an award on the merits. If the tribunal rules as a preliminary question that it has jurisdiction then any party may request, within 30 days after having received notice of that ruling, that the QIC decide the matter. The decision of the QIC may not be appealed. While this request is pending, the tribunal may continue the arbitral proceedings and make an award.
The scope of the Arbitration Regulations is likely to be expanded by QFC Law No. 14/2021 and Law No.15/2021, which amended QFC Law No. 7/2005. The two new Laws came into effect on 13 October 2021. They extended the jurisdiction of the QIC to cover all civil and commercial suits relating to the Qatar Free Zones (QFZs), being areas managed by the Qatar Free Zones Authority. This means that for commercial entities based in the QFZs at Ras Bufontas (the airport free zone connected to Hamad International Airport) and Umm Al Houl (the seaport free zone), the seat of any arbitrations will be the QIC and not the Qatari Courts, unless another seat is expressly chosen.
Prior to the adoption of the new Laws, there was uncertainty as to whether the QIC was the competent court. The QFC advised that parties should only make applications to the QIC if they both agreed to do so.
The Risk of Jurisdictional Challenges
The obvious benefit to an early jurisdictional challenge from the perspective of a respondent is that the arbitration will be terminated quickly and with a minimal cost exposure. Even if jurisdiction is not dealt with as a preliminary issue and the tribunal makes a finding on its jurisdiction in its final award, a tribunal may still reduce the scope of its substantive findings if it determines that some, or even all, of the claims made are outside its scope of authority.
There remain several risks associated with jurisdictional challenges. The biggest risk to proceedings is the effect it will likely have on the current proceedings. Often by the point when a jurisdictional challenge is made, the arbitral tribunal will have already issued the procedural timetable and a final hearing date may have been agreed.
Generally arbitral tribunals will stay/suspend the proceedings on the substantive matter pending the outcome of the jurisdictional challenge. That said, and as we have noted above, the arbitral tribunal does have the right to continue with proceedings should it wish to do so.
Where proceedings are stayed, this will of course have a knock-on effect on the procedural timetable. In turn, this will undoubtably cause an increase in costs for both parties as well as affecting from a timeframe perspective.
If the arbitral tribunal opts to continue considering and deciding on the substantive matters and does not stay the proceedings pending the outcome of the jurisdictional challenge, there is a risk that any award will be challenged at the competent local court. This can also significantly increase costs as well as affect the timeframe for both parties.
Article 33 of the Arbitration Law and Article 41 of the QFC Regulations provide identical grounds upon which an award may be challenged. They are drawn from the UNCITRAL Model Law. They focus on the invalidity of the arbitration agreement, the violation of due process, the tribunal exceeding its authority, the improper constitution of the tribunal, and/or procedural irregularities.
The Approach of the Qatari Courts and the QIC to Jurisdictional Challenges
Both the Qatari Courts and the QIC have a supervisory role which, to some extent, contradicts the policy written into both the Arbitration Law and the Arbitration Regulations, i.e., that the tribunal is allowed to rule on its own competence. In common with some jurisdictions, such as England and Wales under the Arbitration Act 1996, both courts may review a tribunal’s ruling on jurisdictional issues after
a preliminary ruling by the tribunal on jurisdiction or after the tribunal’s final award on the merits.
POSITION IN QATAR OUTISDE THE QFC
The competent court under the Arbitration Law is the Civil and Commercial Arbitration Disputes Circuit of the Court of Appeals.
The introduction of the Arbitration Law and associated legal updates is indicative of the legislative intention to back tribunals to resolve such matters without the local courts having to intervene. This in turn saves costs and time.
The Courts are taking more of a back-seat approach and aiming to be utilised only as a last resort. This is due predominantly to recognition that the Courts are running to capacity at all levels, not just the Court of Appeal. The underlying rationale, however, is to give investors comfort and assurance that the Arbitration Law provides sufficient backbone to resolve potential disputes without the need for local court involvement leading to additional time and costs.
POSITION WITHIN THE QFC
The QIC has only one reported arbitration decision, published expressly because it dealt with the issue of jurisdiction of the QIC to entertain arbitration matters. This is C v. D [2021] QIC (F) 8. It is a decision of the First Instance Circuit.
Neither party to the arbitration was established in the QFC but the contract between them provided for arbitration under LCIA Rules, with the seat to be the QIC, and for the venue of the arbitration to be Qatar.
The applicant, ‘C’, applied to the QIC for interim relief and precautionary measures in relation to the contract by way of an injunction to maintain the status quo pending the determination of the dispute. C made its application prior to filing a request for arbitration with the LCIA.
Due to the QIC’s “policy to protect the confidentiality of arbitrations” and “as no point arises of general interest apart from the issue of jurisdiction”, the Court directed that only a very brief note of the ruling should be published (para. 8).
The Court was satisfied that it was the seat of the arbitration and that under the applicable law it indeed had jurisdiction to entertain the application “in circumstances in which an arbitral tribunal could not yet act or act effectively”. The Court declined to grant relief on the facts before it at the time the application was made.
Interestingly, and for reasons not expressly set out in the judgment, the Court found that its jurisdiction was founded in part on the Arbitration Law, not the Arbitration Regulations, implying that the parties had chosen a law other than the law of the seat to govern the arbitration process (para. 6).
The inference from C. v. D. is that very few QFC-seated arbitrations have challenges to jurisdiction that reach the QIC. In the absence of any contrary evidence, it seems highly likely that the QIC will take a non-interventionist approach to maintaining the jurisdictional integrity of the arbitrations that it supervises. This would be in alignment with the QIC’s Regulations and Procedural Rules Section 5(1), which promotes arbitration in unequivocal terms:
“The Court will encourage the parties, whenever it is appropriate to do so, to resolve their disputes by resorting to arbitration or mediation or any other method of alternative dispute resolution.”
Conclusions
While many jurisdictional challenges do have merit and their applications are raised out of genuine concern over the impartiality of the tribunal and the scope of the arbitration, it must be pointed out that a significant number of challenges have very little worth. They may derive from a party’s overall arbitration strategy or have been raised from a deliberately obstructive perspective. As arbitral parties continue to become more attuned and accustomed to the use and nuances of the arbitration process as against use of litigious procedures in the courts, it is likely these challenges will continue to increase.
To avoid unnecessary, or indeed even vexatious challenges, we suggest that parties adopt the following arbitration strategies:
- Draft the agreement to arbitrate carefully considering the anticipated disputes the parties wish to arbitrate.
- Ensure that the agreement to arbitrate is watertight. If the signatory to the agreement requires a specific power of attorney and not just a general one, then work to ensure one is in place before the agreement is signed.
- Consider whether the proposed arbitration subject-matter falls squarely within the dispute resolution clause and draft the request to arbitrate accordingly.
- Ensure that parties fully understand and take into consideration the associated cost increase and timeframe impacts that come about as a direct result of such challenges. This should ideally be done before raising them as a respondent or choosing to defend such challenges as a claimant.
This article was first published on The QATAR Business Law Review (LexisNexis) No. 01/2022
