When can parties raise objections on jurisdiction?

Parties to an international arbitration can object to the jurisidiction of the seat of arbitration through “preliminary objections”. These can be heard separately before the full matter–a process known as bifurcation– and can result in considerable costs savings to both parties.

It is commonplace in international disputes for the respondent to raise jurisdictional objections in the form of ‘preliminary objections’ (POs) and for these POs to be separated from the merits of the dispute.

The respondent is generally required to raise its preliminary objections on jurisdiction not later than in the statement of defence or, with respect to a counterclaim, in the reply to the counterclaim. The 2022 ICSID Arbitration Rules also contemplate time limits for submitting requests for bifurcation – the requests for bifurcation must be made “as soon as possible” and where the request for bifurcation concerns POs, the request must be made within 45 days after filing the memorial on the merits. (Rule 44(1)(a)(i), ICSID Arbitration Rules 2022).

Through bifurcation of POs, issues concerning the tribunal’s jurisdiction are decided before the parties make out a full case on the merits. This can bring substantial savings for the parties, especially if the tribunal recognises jurisdictional bars early in the proceedings.

Bifurcation – a way to preserve procedural efficacy

Under the Arbitration Rules of the United National Commission on International Trade Law 1976 (UNCITRAL Rules), the tribunal, as “master of its own proceedings”, is entitled to exercise procedural flexibility (Article 15(1), UNCITRAL Rules 1976.) Article 21(4) of the UNCITRAL Rules also stipulates that the tribunal should, in general, “rule on a plea concerning its jurisdiction as a preliminary question. However, the arbitral tribunal may proceed with the arbitration and rule on such a plea in their final award.” In doing so, the tribunals “weigh for both parties the benefits of procedural fairness” and “may conduct the arbitration in such manner as it considers appropriate, provided that the parties are treated with equality and that at any stage of the proceedings each party is given a full opportunity of presenting his case” (Article 15(1), UNCITRAL Rules 1976).

The UNCITRAL Rules embody a general “presumption in favour of the tribunal preliminarily considering objections to jurisdiction” (see Glamis Gold Ltd. v. United States of America).  However, they also give tribunals the “power to conduct the arbitration in an appropriate manner” which was “essential to the very process of dispute settlement by way of arbitration and might be thought to be inherent even if not expressly stated”.

Tribunals have exercised their discretion under the UNCITRAL Rules to join POs to the merits, therefore proceeding with the arbitration under an un-bifurcated calendar. Bifurcation is also contingent on the respondent seeking it. Take for instance the ICSID award in Caratube International Oil Company v Kazakhstan, where the tribunal noted that with the wisdom of hindsight “the majority of the costs and expenses of each party and of the dispute, both in duration and expense, would have been avoided had the Respondent opted for bifurcation and the preliminary determination.”

Test for appropriateness of bifurcation

Applications for bifurcation of POs are tested on the touchstone of procedural efficacy. The tribunal must therefore consider the substantiality of the objection, the cost in time and money to the parties of such a preliminary ruling, and the practicality of bifurcating the proceedings to address jurisdiction preliminarily, especially where jurisdictional issues are intertwined with the merits.

This may be done by assessing relative differences between bifurcated and un-bifurcated timetables. This factors in the time and cost savings by bifurcation and allocated towards a bifurcation hearing. Other factors that tribunals take into account when balancing procedural fairness are the desirability of hearing POs before and after submissions on merits. The evidence and the extent of overlap between evidence in respect of POs versus evidence traversed with respect to merits are also to be factored into the determination. The nature of dispute, and any impact of the passage of time on claims for damages (including the threats or probability of dissipation of assets) are also to be considered.

The relevant criteria to test for appropriateness of bifurcation of POs gleaned from the NAFTA tribunal in Glamis Gold Ltd., the UNCITRAL tribunal in Philip Morris and several ICSID tribunals are as follows:

  1. whether the PO is prima facie serious and substantial (i.e., not frivolous);
  2. whether the PO can be examined without prejudging or entering the merits;
  3. whether the PO to jurisdiction if granted would result in a material reduction of the proceedings at the next phase;
  4. whether bifurcation is impractical in that the PO identified is so intertwined with the merits that it is very unlikely that there will be any savings in time or cost i.e., whether the PO, if successful, would dispose of all or an essential part of the claims raised.

Bifurcation reflects the discretion and procedural flexibility that are some of the main advantages of arbitration and is widely applied by tribunals in practice. In exercising this discretion, it is imperative that tribunals act within fundamental safeguards to conduct the arbitration in such manner as is appropriate, subject to the applicable rules, the bilateral investment treaty and the laws of the seat.