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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

!. !ntro"uction

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


the idea of empowering arbitrators to rule on their own urisdiction!

"t is based on the theor# that arbitrators should ha$e the capacit# to independentl# rule on the
%uestion of whether the# ha$e urisdiction& including an# obections with respect to the e'istence
or $alidit# of the arbitration agreement& without ha$ing to resort to a court!

The abo$e theor# is supported b# another principle& namel#& the doctrine of se$erabilit# in
rbitration& which means that an arbitration clause found in an underl#ing contract should be
treated as a distinct (standalone) contract from the underl#ing contract! s a conse%uence& a
decision b# the arbitral tribunal that the contract is null and $oid shall not entail ipso ure the
in$alidit# of the arbitration clause! Thus& the doctrine of se$erabilit# allows the urisdiction of the
arbitration tribunal to sur$i$e e$en if the underl#ing contract is terminated or held to be $oid!
The arbitral tribunals urisdiction will onl# be affected where the defect causing the in$alidit# of
the main contract necessaril# e'tends& b# its $er# nature& to the arbitration clause *! +or e'ample&
case law e'ists to show that parties ha$e successfull# challenged the $alidit# of an arbitration
agreement (arbitration clause) on the basis that the main contract was in$alid because a condition

#* Dr. Asanga Gunawansa is the $ea" counse$ at the %o$o&'o Law A$$iance a Law cha&'er
secia$iing in in+est&ent $aw construction $aw an" ar'itration. ,e is a$so a -or&er Pro-essor
at the Nationa$ Uni+ersity o- Singaore an" current$y a +isiting ro-essor at the Uni+ersity o-
Moratuwa. ,e is a$so a registere" Ar'itrator an" Me"iator with the ua$a Lu&ur /egiona$
%entre -or Ar'itration an" a %onsu$tant to the Asian De+e$o&ent 0ank on Pu'$ic Pri+ate
Partnershis. 1he concet arose in the 2e"era$ %onstitutiona$ %ourt in Ger&any. Litera$$y in
Ger&an the ter& 3o&eteno&eten4 entai$s that ar'itrators an" they a$one are
authorie" to ru$e on their own 5uris"iction.

6 A7%N.8769: Ana$ytica$ co&&entary on "ra-t tet o- a &o"e$ $aw on internationa$


co&&ercia$ ar'itration un"er artic$e #9 ara. 6 a+ai$a'$e on the UN%!1/AL we'site
at htt<77www.uncitra$.org7uncitra$7en7co&&ission7sessions7#=th.ht&$.

#
precedent to the entr# into force of that contract had not been fulfilled ,! n the other hand& there
is also case law to show that separabilit# principle has been relied upon b# courts to dismiss
obections to arbitral urisdiction asserting that the main contract had been entered into through
deceit.& or fraud/& or that the main contract was $oid either on grounds of illegalit# 0!

lthough the two principles discussed abo$e ser$e different functions& together the# are intended
to gi$e primar# responsibilit# to the tribunal with respect to determining whether it has
urisdiction!

!!. 3%o&etence%o&etence4 in the UN!%!1/AL Mo"e$ Law

The odel 2aw on rbitration of the 3nited 4ations Commission on "nternational Trade 2aw
(34C"T52) which was adopted b# 34C"T52 on *1 6une 178/& is a non-binding piece of
model legislation that could be adopted b# interested countries! The 34C"T52 model law has
had significant influence on man# nations and legislation based on the model law has been
adopted in appro'imatel# 79 urisdictions& including :ri 2anka 9!

rticle 10 of the 34C"T52 odel law states;

> %ecro %o. +. inetic Sciences !nc. Sure&e %ourt o- 0ritish %o$u&'ia %ana"a 8
Ari$ 6??# @6??# 0%S% B>6 (%anL!!) a+ai$a'$e on the !nternet at
htt<77can$ii.ca7t7:$#

: %o&an"ate Marine %or. +. Pan Austra$ia Shiing Pty. Lt". 2e"era$ %ourt
Austra$ia 6? Dece&'er 6??9 @6??9 2%A2% #86 a+ai$a'$e on the !nternet at
htt<77www.aust$ii.e"u.au7au7cases7cth72%A2%76??97#86.ht&$

B New Wor$" Ce"ition achts LL% +. P./. acht 0ui$"ers Lt". Sure&e %ourt o-
0ritish %o$u&'ia %ana"a 6B Ecto'er 6?#? @6?#? 0%S% #:89 a+ai$a'$e on the
!nternet at. htt<77can$ii.ca7t76"6+n.

9 G$o'e Union !n"ustria$ %or. +. G.A.P. Marketing %or. Sure&e %ourt o- 0ritish
%o$u&'ia %ana"a #= No+e&'er #88: @#88: %anL!! #=9 (0% S%) a+ai$a'$e on the
!nternet at htt<77can$ii.ca7t7#"Fk.

F UN%!1/AL Status o- UN%!1/AL Mo"e$ Law a+ai$a'$e on the !nternet at<


htt<77www.uncitra$.org7uncitra$7en7uncitra$tets7ar'itration7#8=BMo"e$ar'itrationstatus.ht
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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.  decision by the arbitral tribunal that the
contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

(!)  plea that the arbitral tribunal does not have jurisdiction shall be raised not later
than the submission of the statement of defence.  party is not precluded from raising
such a plea by the fact that he has appointed, or participated in the appointment of, an
arbitrator.  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. "he arbitral tribunal may, in either case, admit a later
plea if it considers the delay justified.

(#) "he arbitral tribunal may rule on a plea referred to in paragraph (!) of this article
either as a preliminary $uestion or in an award on the merits. %f the arbitral tribunal
rules as a preliminary $uestion that it has jurisdiction, any party may re$uest, within
thirty days after having receive d notice of that ruling, the court specified in article & to

decide the matter, which decision shall be subject to no appeal' while such a re$uest is
pending, the arbitral tribunal may continue the arbitral proceedings and mae an
award.* (emphasis added)

Thus& rticle 10 (1) of the model law articulates that& the rbitral tribunal is capable of ruling on
its own urisdiction! +urther rticle 10 (*) allows the part# in whose disfa$our the rbitration
Tribunal deli$ers its decision& to raise a plea in determining the urisdiction of the tribunal not
later than the submission of the statement of the defence& if it has not been ruled out b# then! "t is
also clearl# pro$ided in the said article that the rbitration Tribunal would in fact be open to late
pleas if the dela# can be ustified!

rticle 10 (,) states that the tribunal ma# decide on a plea made b# the part# as to its urisdiction

either as a preliminar#
preliminar# %uestion
%uestion stating that or
theintribunal
an award
hason the merits!to"fproceed
urisdiction such a ruling is disputed
with the made as matter&
a
then the affected part# has ,< da#s from the da# the notice is recei$ed with regard to such ruling
to re%uest the matter to be decided in the Court specified in rticle 0 of the odel 2aw!
=owe$er& it will not preclude the tribunal from proceeding ahead with the matter! Therefore& the
tribunal ma# continue with the proceedings and e$entuall# make an award! This allows the
parties to sa$e time as far as the hearing of the dispute b# the tribunal is concerned!

Thus the competence of the arbitral tribunal to rule on its own urisdiction is& of course& subect
to court control! >here the arbitral tribunal rules as a preliminar# %uestion that it has urisdiction&

=3nited 4ations Commission on "nternational Trade 2aw (34C"T52)& ?34C"T52 odel 2aw on "nternational Commercial
rbitration 178/ >ith amendments as adopted in *<<0& 34C"T52 :ecretariat& @ienna "nternational Centre&ustria&*<<8&p -8!

>
rticle 10 (,) allows for immediate court control in order to a$oid waste of time and mone#!
=owe$er& three procedural safeguards are added to reduce the risk and effect of dilator# tactics&
namel#& short time-period for resort to court (,< da#s)& 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!

3nder the odel 2aw& in those cases& where the arbitral tribunal decides to combine its decision
on urisdiction with an award on the merits& udicial re$iew on the %uestion of urisdiction is
a$ailable in setting aside proceedings under rticle ,. or in enforcement proceedings under
rticle ,0!

!!!. 3%o&etence%o&etence4 in the U Ar'itration Law

Section 30 of the Arbitration Act of UK 1996 provides:

“+ompetence of tribunal to rule on its own jurisdiction.

(1) nless otherw ise agreed by the parties, the arbitral tribunal may rule on its own
substantive jurisdiction, that is, as to-

(a) hether there is a valid arbitration agreement,

(b) hether the tribunal is properly constituted, and

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

(!) ny such ruling may be challenged by any available arbitral process of appeal or
review or in accordance with the provisions of this /art.0

:ection ,1 of the rbitration ct of 3A 1770 pro$ides;

“bjection to substantive jurisdiction of tribunal.

(1) n objection that the arbitr al tribunal lacs subs tantive jurisdiction at the outset of
the proceedings must be raised by a party not later than the time he taes the first
step in the proceedings to contest the merits of any matter in relation to which he
challenges the tribunal2s jurisdiction.

8Go$ernment of 3nited Aingdom& rbitration ct 1770&Chapter *,& on the "nternet at;
http;BBwww!legislation!go$!ukBukpgaB1770B*,BpdfsBukpga1770<<*,en!pdf& pp! 11-1*!

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

(!) ny 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.

(#) "he arbitral tribunal may admit an objection later than the time specified in
subsection (1) or (!) if it considers the delay justified.

(3) here an objection is duly taen to the tribunal2s substantive jurisdiction and the
tribunal has power to rule on its own jurisdiction, it may-

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

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

%f the parties agree which of these courses the tribunal should tae, the tribunal shall

proceed accordingly.
(4) "he tribunal may in any case, and shall if the parties so agree, stay proceedings
whilst an application is made to the court under section #! (determination of preliminary
point of jurisdiction).

:ection ,* rbitration ct of 3A 1770 pro$ides;

“5etermination of preliminary point of jurisdiction.

(1) "he court may, on the applicat ion of a party to arbitral proceedings (upon noti ce to
the other parties), determine any $uestion as to the substantive jurisdiction of the
tribunal.

(!) n 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 $uestion is liely to produce substantial savings in


costs,

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

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

(#) n 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.

(3) nless otherwise agreed by the parties, the arbitral tribunal may continue the
arbitral proceedings and mae an award while an application to the court under this
section is pending.

(4) nless the court gives leave, no appeal lies from a decision of the court whether the
conditions specified in subsection (!) are met.

(&) "he decision of the court on the $uestion of jurisdiction shall be treated as a judgment
of the court for the purposes of an appeal.

6ut no appeal lies without the leave of the court which shall not be given unless the court
considers that the $uestion 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 +ourt of ppeal.
(emphasis added)

Thus the 3A legislation in relation to the urisdiction of the rbitration Tribunal is somewhat
similar to the odel 2aw! The 3A rbitration ct pro$ides that the Tribunal is capable of ruling
on its “:ubstanti$e 6urisdiction”! :ection ,1 of the 3A rbitration ct which articulates the
obections made against substanti$e urisdiction of the Tribunal& further emphasizes that when
such obection is brought against the Tribunal b# one of the parties& and in the e$ent the Tribunal
decides that it has urisdiction to hear the matter& then it ma# either make such ruling as a
preliminar# award or deal with the issue b# means of an award on the substance as well as the
urisdiction! Thus& like in the case of the odel 2aw& the ruling on urisdiction can be made
under the 3A ct either as a preliminar# ruling or as part of the final ward!

"nterestingl# howe$er& whilst the 3A rbitration ct pro$ides that a part# dissatisfied with a
ruling on urisdiction b# the rbitrators could onl# appeal to the Court with the concurrence of
the other part# to the dispute& or in the alternati$e& with lea$e from the arbitral tribunal& no such
restriction is found in the odel 2aw!

>hen comparing the 3A law against the 34C"T52 odel 2aw& one ma# obser$e other
modifications incorporated in the 3A law! +or e'ample& whils t the odel law makes no

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reference to an ppellate Court& 3A allows parties to make further applications to an ppellate
Court such as the Court of ppeal& if the decision made b# the =igh Court is dissatisfactor#!

+urther& odel law enables the Tribunal to at its discretion continue with the arbitral proceedings
while an application to the Court concerning the 6urisdiction of the Tribunal is pending!
=owe$er& the 3A law emphasizes on the fact that “unless otherwise agreed b# the Darties the

Tribunal
agreed toma#
sta# continue with theuntil
the proceedings proceedings
after the and make
$erdict ofan
theaward”!
Court isTherefore&
deli$ered&ifthe
theTribunal
parties ha$e
will
be barred from continuing ahead with the proceedings!

nother interesting point to note is the absence of specific duration of time in the 3A rbitration
ct for a part# to challenge a finding made b# the rbitrators on the issue of urisdiction! odel
2aw e'pressl# pro$ides in rticle 10(,) that if the Tribunal has made a preliminar# ruling as to
its urisdiction the aggrie$ed part# ma# appl# to the Court “within ,< da#s” after ha$ing recei$ed
notice of such ruling! =owe$er& the 3A rbitration ct& unlike the odel 2aw& does not specif#
a period as such!

!H. 3%c&etence%o&etence4 in the Sri Lankan Ar'itration Act

:ri 2anka being a member state of the 34C"T52& the rbitration ct 4o!11 of 177/ has been
drafted taking guidance from the odel 2aw! =owe$er& the wording of :ection 11 of the :ri
2ankan rbitration ct 4o! 11 of 177/ which deals with the competence-competence principle is
not identical to the pro$isions on competence-competence found in the 34C"T52 odel 2aw!

:ection 11 of the rbitration ct of :ri 2anka pro$ides;

“11 (1) (1) n rbitral tribunal may rule on its jurisdiction including any $uestion, 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 7igh +ourt for a determination of any such
$uestion. (emphasis added)

(!) where an application has been made to the 7igh +ourt under subsection (1) the
arbitral tribunal may continue the arbitral proceedings pending the determination of
such $uestion by the 7igh +ourt.18

The abo$e pro$isions assert that the tribunal ma# rule on its own urisdiction and also e'presses
that an# part# to arbitral proceedings ma# also appl# to the =igh Court for determination of an#
such %uestion! =owe$er& it fails to e'plain as to whether the parties are gi$en the option of
#?Darliament of the Eemocratic :ocialist 5epublic of :ri 2anka& ?5F"T5T"4 CT 4! 11 + 177/ (Certified on ,<th
6une-177/) pp! /-0!

F
resorting to the Court in the capacit# of an appeal (appealing from the decision of the rbitration
Tribunal that it has or does not ha$e urisdiction) or to seek an independent order from the Court!
"n other words& unlike in the case of the odel 2aw or the 3A rbitration ct& the :ri 2ankan
rbitration ct lacs clarit# on the issue that a part# should raise the obection concerning
urisdiction (competence of the arbitral tribunal) with the tribunal first and if dissatisfied& then
could appeal to the designated court!

The :ri 2ankan ct is ambi guous b# the use of the words “but an# par t# to the arbitral
proceedings may apply to the 7igh +ourt for a determination of any such $uestion as one could
argue that the said wording creates a parallel process where whilst raising a urisdictional
obection before the rbitral Tribunal& a part# could also make a urisdictional obection as to the
Tribunals competence before the designated court! The %uestion  what if the Tribunal and the
Court reach different conclusions& remains unanswered!

H. 2urther !ss ues wit h the %o&etence%o&etence Princi$e in Sr i


Lanka

ttention must be gi$en to section /< of the :ri 2ankan rbitration ct as well which defines an
award of an rbitration Tribunal as “a decision of the arbitral tribunal on the substance of the
dispute!” Therefore& a %uestion arises as to whether the ruling made b# the rbitral Tribunal in
$irtue of its urisdiction under section11 can be referred to as a decision on the substance of the
dispute!

"n terms of the :ri 2ankan rbitration ct& onl# an ward made b# the rbitration Tribunal could
be enforced with the assistance of the Competent Court! 2ikewise& onl# an ward made b# the
rbitration Tribunal could be challenged on the limited grounds pro$ided in Dart @"" of the
rbitration ct 4o! 11 of 177/! :ection 11 of the rbitration ct does not come under Dart @""
of the ct! Thus& one could easil# conclude that the right to take a urisdictional obection
concerning the competenc# of an arbitral tribunal to court is a parallel right which e'ists
alongside the right to raise the same obection before the arbitral tribunal itself!

"n the circumstances& the %uestion which remains unanswered is that  what is the correct
approach if one of the parties to an rbitration is dissatisfied with the finding of the rbitration
Tribunal on the issue of its urisdictionH "n this situation;

1! Could such dissatisfied part# appeal to the competent court against such findingH "f so&
under what section of the rbitration ct 4o! 11 of 177/ could such appeal be madeH

!. "f the finding of the rbitration Tribunal on the issue of competence-competence is not an
“ward” in terms of the rbitration ct& then what is the purpose of allowing a part# to
make a urisdictional obection before the rbitration Tribunal itself and also pro$iding in

=
:ection 11 as follows; “ but any party to the arbitral proceedings may apply to the 7igh
+ourt for a determination of any such $uestion 9

nother issue to be considered is that gi$en the current wording of :ection 11& a part# ma# be
able to& ha$ing raised parallel obections to the issue of urisdiction before the rbitral Tribunal
as well as before the =igh Court& appeal from an order made b# the =igh Court to the :upreme
Court& thus completel# undermining the principle of competence-competence! "t is important to
note here that under the 34C"T52 odel 2aw& rticle 10(,)& "f the arbitral tribunal rules as a
preliminar# %uestion that it has urisdiction& an# part# ma# re%uest& within thirt# da#s after
ha$ing recei$ed notice of that ruling& the court specified in rticle 0 to decide the matter& but
such decision shall be subect to an appeal! This approach found in the odel 2aw makes sense
as the main idea behind the principle of competence-competence is to facilitate arbitration to
operate as an effecti$e dispute resolution mechanism& as an alternati$e to litigation& b# enabling
the arbitrators appointed b# the parties& or b# an institution of choice of the parties& to determine
whether the# are competent to hear the dispute and resol$e it! "f the tribunal is of the $iew that it
has no urisdiction for reasons such as arbitrabilit# 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
part# affected b# a breach of contract! :urel#& in such a situation& subect to applicable law& the
affected part# should be able to take the dispute to court!

H!. 2oo" -or thought

To this authors knowledge& at present& se$eral cases are pending before the =igh Court (the
Commercial =igh Court) where parties ha$ing first raised a urisdictional obection before the
arbitral tribunal had come to court challenging the ruling of the tribunal! The :upreme Court of
:ri 2anka is #et to decide on this issue to put all doubts as to the interpretation of :ection 11 to
rest!

"n m# humble opinion& it would be better to amend :ection 11 of the rbitration ct b#
following :ection 10(,) of the 34C"T52 odel 2aw! "t is interesting to note that e$en the
srcinal $ersion of the 34C"T52 odel 2aw lacked clarit# with regard to the role of the court
in connection with the issue of competence of the arbitral tribunal! :ection 10(,) as we see it
now is the result of an amendment to the odel 2aw in *<<0! The :ri 2ankan rbitration ct is
now appro'imatel# *1 #ears old! :ection 11 and se$eral other issues (other issues are not
addressed in this article) in the ct need to be addressed! Thus it would be prudent for our
legislators to consider amending the rbitration ct 4o! 11 of 177/ and address all such issues&
especiall# gi$en the renewed interest to promote :ri 2anka as an rbitration =ub in :outh sia!