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Is the Principle of Competence-Competence (kompetenze kompetenze) in

Arbitration Undermined in Sri Lanka?

Dr. Asanga Gunawansa*

PhD (NUS); LLM (Warwick); Attorney-at-Law

I. Introduction

The principle of Competence-Competence (kompetenze kompetenze in German) 1 connotes


the idea of empowering arbitrators to rule on their own jurisdiction.

It is based on the theory that arbitrators should have the capacity to independently rule on the
question of whether they have jurisdiction, including any objections with respect to the existence
or validity of the arbitration agreement, without having to resort to a court.

The above theory is supported by another principle, namely, the doctrine of severability in
Arbitration, which means that an arbitration clause found in an underlying contract should be
treated as a distinct (standalone) contract from the underlying contract. As a consequence, a
decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the
invalidity of the arbitration clause. Thus, the doctrine of severability allows the jurisdiction of the
arbitration tribunal to survive even if the underlying contract is terminated or held to be void.
The arbitral tribunals jurisdiction will only be affected where the defect causing the invalidity of
the main contract necessarily extends, by its very nature, to the arbitration clause 2. For example,
case law exists to show that parties have successfully challenged the validity of an arbitration
agreement (arbitration clause) on the basis that the main contract was invalid because a condition

1* Dr. Asanga Gunawansa is the lead counsel at the Colombo Law Alliance, a Law chamber
specializing in investment law, construction law and arbitration. He is also a former Professor
at the National University of Singapore and currently a visiting professor at the University of
Moratuwa. He is also a registered Arbitrator and Mediator with the Kuala Lumpur Regional
Centre for Arbitration and a Consultant to the Asian Development Bank on Public Private
Partnerships. The concept arose in the Federal Constitutional Court in Germany. Literally in
German, the term Kompetenz-Kompetenz entails that arbitrators, and they alone, are
authorized to rule on their own jurisdiction.

2 A/CN.9/264, Analytical commentary on draft text of a model law on international


commercial arbitration, under article 16, para. 2, available on the UNCITRAL website
at http://www.uncitral.org/uncitral/en/commission/sessions/18th.html.

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precedent to the entry into force of that contract had not been fulfilled 3. On the other hand, there
is also case law to show that separability principle has been relied upon by courts to dismiss
objections to arbitral jurisdiction asserting that the main contract had been entered into through
deceit4, or fraud5, or that the main contract was void either on grounds of illegality6.

Although the two principles discussed above serve different functions, together they are intended
to give primary responsibility to the tribunal with respect to determining whether it has
jurisdiction.

II. Competence-Competence in the UNICITRAL Model Law

The Model Law on Arbitration of the United Nations Commission on International Trade Law
(UNCITRAL) which was adopted by UNCITRAL on 21 June 1985, is a non-binding piece of
model legislation that could be adopted by interested countries. The UNCITRAL model law has
had significant influence on many nations and legislation based on the model law has been
adopted in approximately 97 jurisdictions, including Sri Lanka7.

Article 16 of the UNCITRAL Model law states:

3 Cecrop Co. v. Kinetic Sciences Inc., Supreme Court of British Columbia, Canada, 9
April 2001, [2001] BCSC 532 (CanLII), available on the Internet at
http://canlii.ca/t/4xl1

4 Comandate Marine Corp. v. Pan Australia Shipping Pty. Ltd., Federal Court,
Australia, 20 December 2006, [2006] FCAFC 192, available on the Internet at
http://www.austlii.edu.au/au/cases/cth/FCAFC/2006/192.html

5 New World Expedition Yachts LLC v. P.R. Yacht Builders Ltd., Supreme Court of
British Columbia, Canada, 25 October 2010, [2010] BCSC 1496, available on the
Internet at. http://canlii.ca/t/2d2vn.

6 Globe Union Industrial Corp. v. G.A.P. Marketing Corp., Supreme Court of British
Columbia, Canada, 18 November 1994], [1994] CanLII 186 (BC SC), available on the
Internet at http://canlii.ca/t/1dp7k.

7 UNCITRAL, Status of UNCITRAL Model Law, available on the Internet at:


http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/1985Model_arbitration_status.ht
ml

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(1) the arbitral 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 shall be treated as an agreement
independent of the other terms of the contract. A decision by the arbitral tribunal that the
contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later
than the submission of the statement of defence. A party is not precluded from raising
such a plea by the fact that he has appointed, or participated in the appointment of, an
arbitrator. A plea that the arbitral tribunal is exceeding the scope of its authority shall be
raised as soon as the matter alleged to be beyond the scope of its authority is raised
during the arbitral proceedings. The arbitral tribunal may, in either case, admit a later
plea if it considers the delay justified.

(3) The arbitral tribunal may rule on a plea referred to in paragraph (2) of this article
either as a preliminary question or in an award on the merits. If the arbitral tribunal
rules as a preliminary question that it has jurisdiction, any party may request, within
thirty days after having received notice of that ruling, the court specified in article 6 to
decide the matter, which decision shall be subject to no appeal; while such a request is
pending, the arbitral tribunal may continue the arbitral proceedings and make an
award.8 (emphasis added)

Thus, Article 16 (1) of the model law articulates that, the Arbitral tribunal is capable of ruling on
its own jurisdiction. Further Article 16 (2) allows the party in whose disfavour the Arbitration
Tribunal delivers its decision, to raise a plea in determining the jurisdiction of the tribunal not
later than the submission of the statement of the defence, if it has not been ruled out by then. It is
also clearly provided in the said article that the Arbitration Tribunal would in fact be open to late
pleas if the delay can be justified.

Article 16 (3) states that the tribunal may decide on a plea made by the party as to its jurisdiction
either as a preliminary question or in an award on the merits. If such a ruling is made as a
preliminary question stating that the tribunal has jurisdiction to proceed with the disputed matter,
then the affected party has 30 days from the day the notice is received with regard to such ruling
to request the matter to be decided in the Court specified in Article 6 of the Model Law.
However, it will not preclude the tribunal from proceeding ahead with the matter. Therefore, the
tribunal may continue with the proceedings and eventually make an award. This allows the
parties to save time as far as the hearing of the dispute by the tribunal is concerned.

Thus the competence of the arbitral tribunal to rule on its own jurisdiction is, of course, subject
to court control. Where the arbitral tribunal rules as a preliminary question that it has jurisdiction,
8United Nations Commission on International Trade Law (UNCITRAL), UNCITRAL Model Law on International Commercial
Arbitration 1985 With amendments as adopted in 2006, UNCITRAL Secretariat, Vienna International Centre,Austria,2008,p -8.

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Article 16 (3) allows for immediate court control in order to avoid waste of time and money.
However, three procedural safeguards are added to reduce the risk and effect of dilatory tactics,
namely, short time-period for resort to court (30 days), court decision not appealable, and
discretion of the arbitral tribunal to continue the proceedings and make an award while the
matter is pending before the court.

Under the Model Law, in those cases, where the arbitral tribunal decides to combine its decision
on jurisdiction with an award on the merits, judicial review on the question of jurisdiction is
available in setting aside proceedings under Article 34 or in enforcement proceedings under
Article 36.

III. Competence-Competence in the UK Arbitration Law

Section 30 of the Arbitration Act of UK 1996 provides:

Competence of tribunal to rule on its own jurisdiction.

(1) Unless otherwise agreed by the parties, the arbitral tribunal may rule on its own
substantive jurisdiction, that is, as to

(a) Whether there is a valid arbitration agreement,

(b) Whether the tribunal is properly constituted, and

(c) What matters have been submitted to arbitration in accordance with the arbitration
agreement.

(2) Any such ruling may be challenged by any available arbitral process of appeal or
review or in accordance with the provisions of this Part.9

Section 31 of the Arbitration Act of UK 1996 provides:

Objection to substantive jurisdiction of tribunal.

(1) An objection that the arbitral tribunal lacks substantive jurisdiction at the outset of
the proceedings must be raised by a party not later than the time he takes the first
step in the proceedings to contest the merits of any matter in relation to which he
challenges the tribunals jurisdiction.

9Government of United Kingdom, Arbitration Act 1996,Chapter 23, on the Internet at:
http://www.legislation.gov.uk/ukpga/1996/23/pdfs/ukpga_19960023_en.pdf , pp. 11-12.

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A party is not precluded from raising such an objection by the fact that he has appointed
or participated in the appointment of an arbitrator.

(2) Any objection during the course of the arbitral proceedings that the arbitral tribunal
is exceeding its substantive jurisdiction must be made as soon as possible after the matter
alleged to be beyond its jurisdiction is raised.

(3) The arbitral tribunal may admit an objection later than the time specified in
subsection (1) or (2) if it considers the delay justified.

(4) Where an objection is duly taken to the tribunals substantive jurisdiction and the
tribunal has power to rule on its own jurisdiction, it may

(A) rule on the matter in an award as to jurisdiction, or

(b) deal with the objection in its award on the merits.

If the parties agree which of these courses the tribunal should take, the tribunal shall
proceed accordingly.

(5) The tribunal may in any case, and shall if the parties so agree, stay proceedings
whilst an application is made to the court under section 32 (determination of preliminary
point of jurisdiction).

Section 32 Arbitration Act of UK 1996 provides:

Determination of preliminary point of jurisdiction.

(1) The court may, on the application of a party to arbitral proceedings (upon notice to
the other parties), determine any question as to the substantive jurisdiction of the
tribunal.

(2) An application under this section shall not be considered unless

(a)it is made with the agreement in writing of all the other parties to the proceedings, or

(b)it is made with the permission of the tribunal and the court is satisfied

(i)that the determination of the question is likely to produce substantial savings in


costs,

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(ii)that the application was made without delay, and

(iii)that there is good reason why the matter should be decided by the court.

(3) An application under this section, unless made with the agreement of all the other
parties to the proceedings, shall state the grounds on which it is said that the matter
should be decided by the court.

(4) Unless otherwise agreed by the parties, the arbitral tribunal may continue the
arbitral proceedings and make an award while an application to the court under this
section is pending.

(5) Unless the court gives leave, no appeal lies from a decision of the court whether the
conditions specified in subsection (2) are met.

(6) The decision of the court on the question of jurisdiction shall be treated as a judgment
of the court for the purposes of an appeal.

But no appeal lies without the leave of the court which shall not be given unless the court
considers that the question involves a point of law which is one of general importance or
is one which for some other special reason should be considered by the Court of Appeal.
(emphasis added)

Thus the UK legislation in relation to the jurisdiction of the Arbitration Tribunal is somewhat
similar to the Model Law. The UK Arbitration Act provides that the Tribunal is capable of ruling
on its Substantive Jurisdiction. Section 31 of the UK Arbitration Act which articulates the
objections made against substantive jurisdiction of the Tribunal, further emphasizes that when
such objection is brought against the Tribunal by one of the parties, and in the event the Tribunal
decides that it has jurisdiction to hear the matter, then it may either make such ruling as a
preliminary award or deal with the issue by means of an award on the substance as well as the
jurisdiction. Thus, like in the case of the Model Law, the ruling on jurisdiction can be made
under the UK Act either as a preliminary ruling or as part of the final Award.

Interestingly however, whilst the UK Arbitration Act provides that a party dissatisfied with a
ruling on jurisdiction by the Arbitrators could only appeal to the Court with the concurrence of
the other party to the dispute, or in the alternative, with leave from the arbitral tribunal, no such
restriction is found in the Model Law.

When comparing the UK law against the UNCITRAL Model Law, one may observe other
modifications incorporated in the UK law. For example, whilst the Model law makes no

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reference to an Appellate Court, UK allows parties to make further applications to an Appellate
Court such as the Court of Appeal, if the decision made by the High Court is dissatisfactory.

Further, Model law enables the Tribunal to at its discretion continue with the arbitral proceedings
while an application to the Court concerning the Jurisdiction of the Tribunal is pending.
However, the UK law emphasizes on the fact that unless otherwise agreed by the Parties the
Tribunal may continue with the proceedings and make an award. Therefore, if the parties have
agreed to stay the proceedings until after the verdict of the Court is delivered, the Tribunal will
be barred from continuing ahead with the proceedings.

Another interesting point to note is the absence of specific duration of time in the UK Arbitration
Act for a party to challenge a finding made by the Arbitrators on the issue of jurisdiction. Model
Law expressly provides in Article 16(3) that if the Tribunal has made a preliminary ruling as to
its jurisdiction the aggrieved party may apply to the Court within 30 days after having received
notice of such ruling. However, the UK Arbitration Act, unlike the Model Law, does not specify
a period as such.

IV. Ccmpetence-Competence in the Sri Lankan Arbitration Act

Sri Lanka being a member state of the UNCITRAL, the Arbitration Act No.11 of 1995 has been
drafted taking guidance from the Model Law. However, the wording of Section 11 of the Sri
Lankan Arbitration Act No. 11 of 1995 which deals with the competence-competence principle is
not identical to the provisions on competence-competence found in the UNCITRAL Model Law.

Section 11 of the Arbitration Act of Sri Lanka provides:

11 (1) (1) An Arbitral tribunal may rule on its jurisdiction including any question, with
respect to the existence or validity of the arbitration agreement or as to whether such
agreement is contrary to public policy or is incapable of being performed; but any party
to the arbitral proceedings may apply to the High Court for a determination of any such
question. (emphasis added)

(2) where an application has been made to the High Court under subsection (1) the
arbitral tribunal may continue the arbitral proceedings pending the determination of
such question by the High Court.10

The above provisions assert that the tribunal may rule on its own jurisdiction and also expresses
that any party to arbitral proceedings may also apply to the High Court for determination of any
such question. However, it fails to explain as to whether the parties are given the option of
10Parliament of the Democratic Socialist Republic of Sri Lanka, ARBITRATION ACT NO. 11 OF 1995 (Certified on 30th
June-1995) pp. 5-6.

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resorting to the Court in the capacity of an appeal (appealing from the decision of the Arbitration
Tribunal that it has or does not have jurisdiction) or to seek an independent order from the Court.
In other words, unlike in the case of the Model Law or the UK Arbitration Act, the Sri Lankan
Arbitration Act lacs clarity on the issue that a party should raise the objection concerning
jurisdiction (competence of the arbitral tribunal) with the tribunal first and if dissatisfied, then
could appeal to the designated court.

The Sri Lankan Act is ambiguous by the use of the words but any party to the arbitral
proceedings may apply to the High Court for a determination of any such question as one could
argue that the said wording creates a parallel process where whilst raising a jurisdictional
objection before the Arbitral Tribunal, a party could also make a jurisdictional objection as to the
Tribunals competence before the designated court. The question what if the Tribunal and the
Court reach different conclusions, remains unanswered.

V. Further Issues with the Competence-Competence Principle in Sri


Lanka

Attention must be given to section 50 of the Sri Lankan Arbitration Act as well which defines an
award of an Arbitration Tribunal as a decision of the arbitral tribunal on the substance of the
dispute. Therefore, a question arises as to whether the ruling made by the Arbitral Tribunal in
virtue of its jurisdiction under section11 can be referred to as a decision on the substance of the
dispute.

In terms of the Sri Lankan Arbitration Act, only an Award made by the Arbitration Tribunal could
be enforced with the assistance of the Competent Court. Likewise, only an Award made by the
Arbitration Tribunal could be challenged on the limited grounds provided in Part VII of the
Arbitration Act No. 11 of 1995. Section 11 of the Arbitration Act does not come under Part VII
of the Act. Thus, one could easily conclude that the right to take a jurisdictional objection
concerning the competency of an arbitral tribunal to court is a parallel right which exists
alongside the right to raise the same objection before the arbitral tribunal itself.

In the circumstances, the question which remains unanswered is that what is the correct
approach if one of the parties to an Arbitration is dissatisfied with the finding of the Arbitration
Tribunal on the issue of its jurisdiction? In this situation:

1. Could such dissatisfied party appeal to the competent court against such finding? If so,
under what section of the Arbitration Act No. 11 of 1995 could such appeal be made?

2. If the finding of the Arbitration Tribunal on the issue of competence-competence is not an


Award in terms of the Arbitration Act, then what is the purpose of allowing a party to
make a jurisdictional objection before the Arbitration Tribunal itself and also providing in

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Section 11 as follows: but any party to the arbitral proceedings may apply to the High
Court for a determination of any such question?

Another issue to be considered is that given the current wording of Section 11, a party may be
able to, having raised parallel objections to the issue of jurisdiction before the Arbitral Tribunal
as well as before the High Court, appeal from an order made by the High Court to the Supreme
Court, thus completely undermining the principle of competence-competence. It is important to
note here that under the UNCITRAL Model Law, Article 16(3), If the arbitral tribunal rules as a
preliminary question that it has jurisdiction, any party may request, within thirty days after
having received notice of that ruling, the court specified in Article 6 to decide the matter, but
such decision shall be subject to an appeal. This approach found in the Model Law makes sense
as the main idea behind the principle of competence-competence is to facilitate arbitration to
operate as an effective dispute resolution mechanism, as an alternative to litigation, by enabling
the arbitrators appointed by the parties, or by an institution of choice of the parties, to determine
whether they are competent to hear the dispute and resolve it. If the tribunal is of the view that it
has no jurisdiction for reasons such as arbitrability of the dispute, the dispute not falling within
the scope of the agreement to arbitrate etc. that does not mean that it is the end of the road for a
party affected by a breach of contract. Surely, in such a situation, subject to applicable law, the
affected party should be able to take the dispute to court.

VI. Food for thought

To this authors knowledge, at present, several cases are pending before the High Court (the
Commercial High Court) where parties having first raised a jurisdictional objection before the
arbitral tribunal had come to court challenging the ruling of the tribunal. The Supreme Court of
Sri Lanka is yet to decide on this issue to put all doubts as to the interpretation of Section 11 to
rest.

In my humble opinion, it would be better to amend Section 11 of the Arbitration Act by


following Section 16(3) of the UNCITRAL Model Law. It is interesting to note that even the
original version of the UNCITRAL Model Law lacked clarity with regard to the role of the court
in connection with the issue of competence of the arbitral tribunal. Section 16(3) as we see it
now is the result of an amendment to the Model Law in 2006. The Sri Lankan Arbitration Act is
now approximately 21 years old. Section 11 and several other issues (other issues are not
addressed in this article) in the Act need to be addressed. Thus it would be prudent for our
legislators to consider amending the Arbitration Act No. 11 of 1995 and address all such issues,
especially given the renewed interest to promote Sri Lanka as an Arbitration Hub in South Asia.