The competence-competence principle in arbitration essentially means that, before a judge issues a ruling on a matter, the arbitrator or arbitration tribunal may determine its own jurisdiction to oversee the arbitration.
According to Mexican law, alternative dispute resolution methods are optional for parties that decide to use them, and arbitration is one such method. These alternative methods aim to provide a faster or more specialized option for resolving disputes between parties.
In general, parties freely and voluntarily agree to submit to arbitration to settle disputes arising from the execution of a contract. An arbitration agreement is independent of other agreements between the parties, based on the principle of separability of the arbitration clause.
If one of the parties does not recognize or intends not to recognize the validity of the arbitration agreement and instead seeks to initiate a judicial process, as a general rule, the arbitration regulatory body will refer the case back to arbitration upon the request of one of the parties, unless the judge examines the arbitration clause and decides on its nullity.
The Supreme Court made this procedure a legal requirement through Jurisprudential Thesis 1a/J, 25/2006, which resulted from Contradiction of Theses 51/2005-PS. In summary, the mentioned thesis establishes that, in order to declare the nullity, inefficiency, or lack of enforceability of an arbitration clause and therefore deny the referral to arbitration, a prior judicial ruling annulling said clause must exist.
This procedure raises several problems that have been gradually overcome in practice with the specialization of the judiciary in commercial arbitration matters, however, the issues persist.
- It is possible for a party that voluntarily and freely agreed to arbitration to later claim that the clause or agreement is null. However, it is highly unlikely that the clause or agreement is actually null, although it may be ineffective in resolving the dispute that arises.
- Arbitrators do not enjoy the same absolute power (imperium) as judges, which means that judges can issue coercive orders. However, parties in arbitration will require judicial action to enforce or execute an arbitration order that is not voluntarily complied with by the losing party.
- According to Mexico’s commercial laws, referral to arbitration is considered standard practice if there is an arbitration agreement, and the standard of review by the state judge should be such that unless the nullity of the arbitration agreement is obvious (such as the matter not being arbitrable, for example), the judge should refer directly to arbitration. However, interpreting the national judge’s analysis of nullity broadly could render the arbitration agreement ineffective.
- Given that, based on this criterion, it would be necessary to obtain a prior and special resolution from a judge regarding the nullity of an arbitration agreement to reverse the referral to arbitration, it becomes necessary to resort to litigation before arbitration proceedings can be executed (which can take a long time, potentially years). This goes against one of the fundamental purposes of arbitration, which is to be an alternative dispute resolution that avoids parties having to go to trial.
The existence of a jurisprudential criterion that establishes the need for a judicial procedure to apply the referral to arbitration affects the functionality of the competence-competence principle.
This is because it prolongs the process, and in accordance with theories such as the “two-shots” theory, the arbitral tribunal must have the first opportunity to rule on its own jurisdiction in the matter, so the judge has an obligation to refer to arbitration as soon as one of the parties in the process indicates the existence of an arbitration agreement to settle disputes, and the party that believes that jurisdiction should have remained with the national courts will have subsequent opportunities during the process to argue in favor of this.
However, it should not be overlooked that allowing the national judge’s analysis of the validity of the arbitration clause to occur prior to the arbitral tribunal’s analysis of its own jurisdiction would render the initial decision of the parties to resort to arbitration as a means of dispute resolution meaningless, and instead resort to litigation in order to arbitrate, which clearly contradicts the parties’ initial intention.
This is even more concerning, as the aforementioned judicial procedure could be abusively used to delay or obstruct the referral to arbitration and consequently hinder the arbitration proceedings before they even commence, diminishing their effectiveness.
