Construction Arbitration in Sri Lanka
Disputes are inevitable occurrences in many contracts in the construction industry as well as in the commercial world. Arbitration is becoming a well-accepted alternative dispute resolution mechanism for many of those disputes. As many scholars define, Arbitration is a private method of dispute resolution. Parties themselves chose this method as an effective way of putting an end to disputes between them without recourse to the Courts of law. It is a specially designed tool established for the final and binding resolution of disputes. It is an alternative to litigation. The distinct feature of arbitration compared to other alternative dispute resolution methods is its finality and binding nature. Compared to litigation, it is flexible, less costly, speedier, private, and confidential.
Powers of Arbitral
Tribunals Parties to the Contract have the power to appoint arbitrators. For that, they must have an agreement to resolve their disputes through arbitration. The arbitration agreement may be in the form of a clause in another agreement. Or it may be in the form of a stand-alone agreement. The parties to the contract can structure the arbitration panels to meet the specific needs of their relationship. The parties can set out the powers of the arbitrators, their jurisdiction, and their qualifications to suit the party’s contractual relationship.
However, after the appointment of arbitrators, the power to administer proceedings is deemed to have been conferred on the arbitrators. This is derived from the consent of the parties as expressed in their arbitration agreement. Other than the agreement, arbitrators derive powers from the applicable law. For example, in Sri Lanka, it is the Arbitration Act no. 11 of 1995 (the ACT). Some of the International examples are the UNCITRAL Model Law on International Commercial Arbitration, the English Arbitration Act, and ICC Arbitration Rules.
Doctrine of Competence – Competence
One of the areas that empower the arbitration tribunal is to give a ruling on its own jurisdiction. This is the Doctrine of Competence – Competence. Modern international arbitration practices all over the world generally accept this principle. Clause 11 (1) of the ACT affirms this. Article 16 of UNCITRAL Model Law on International Commercial Arbitration also provides that arbitral tribunal may rule on its own jurisdiction. This doctrine is embodied in Indian law under section 16 of the Arbitration and Conciliation Act, 1996 of India. Under English law, it is section 30 and section 31 of the Arbitration Act, 1996 of the United Kingdom.
This doctrine helps to overcome the latent problem that would have occurred where a tribunal decides preliminarily that the arbitration agreement is invalid. In such a case, the tribunal itself lacks the authority to make that finding. Therefore, this doctrine gives the tribunal the legal standing to proceed when faced with an objection raised by an uncooperative party. Further, this doctrine facilitates the expeditious settlement of disputes. It is done by ensuring that claims relating to jurisdiction are settled at the very beginning.
However, the power vested in the tribunal is ultimately subject to Court control. Therefore, we can assume that the doctrine of competence-competence has two aspects. It has the power to decide on the existence of its own jurisdiction but subjected to control of the court. Arbitration laws in many countries recognize both aspects. But, their form and application vary.
Clause 11(1) of the ACT
Clause 11(1) of the ACT says that any unsatisfied party to the arbitral proceedings may apply to the High Court for a determination. This safeguards the interests of a party who genuinely aggravated by the decision of a tribunal. According to Clause 11(2), the tribunal may continue the proceedings pending determination by the Court. Tribunal may proceed even if an application has been made to High Court as per Clause 11(1). However, if the Court later determines that the tribunal lacked competent jurisdiction, it can re-examine the tribunal’s jurisdiction. And the Court can deem the award to be invalid and therefore unenforceable.
Clause 5 of the ACT
According to Clause 5 of the ACT, if parties agree to settle their disputes through arbitration, the Court does not have jurisdiction to hear and determine such matters without the consent of both parties. This is also embodied in Article II (3) of the New York Convention. This principle, refraining the Court from engaging in the examination of arbitrator’s jurisdiction before arbitrators themselves having the opportunity to do so, is known as negative effect of the principle of competence – competence.
The tribunal can render an award as to its jurisdiction in two ways. It can either rule on the matter, in the form of a preliminary award as to jurisdiction, or deal with the jurisdictional question in its award on merits.
In some civil law countries, the competence-competence rule is more far-reaching. For instance, under Article 1466 of the French Nouveau Code de Procedure Civile, it is the arbitrator who rules both on the limits of his or her jurisdictional power and on the merits of the matter. Under Article 1458, a court must, absent manifest nullity of the arbitration clause, declare itself incompetent to render a decision on the merits. Therefore, arbitrators have exclusive competence to decide challenges to their jurisdiction. Even whether it based on the alleged invalidity of the arbitration agreement or the main contract containing it.
Case Law – 1
There are several international cases that support the Doctrine of Competence – Competence. In the case of Texaco Overseas Petroleum Co/ California Asiatic Oil Co. v. Government of Libya, the sole arbitrator, appointed by the president of International Courts of Justice (ICJ), had to determine its jurisdictional competence over an objection made by the Libyan government. The Libyan government opposed from the beginning and refused to participate in a subsequent hearing. The sole arbitrator held that it had jurisdiction to determine its own jurisdiction based on the customary rule of international law. And the arbitrator gave the award in favor of two companies TOPCO and CAOC.
Case Law – 2
In another case, Ontario Medical Association v. Willis Canada Inc., Appeal Court of Canada has affirmed the competence-competence principle and held that it applies to Ontario’s Arbitration Act, 1991. Wills and Aviva, two companies entered into a written agreement (Broker/Agent Agreement) pursuant to which Wills would broker Aviva insurance coverage to members of the Ontario Medical Association (OMA). The Broker/Agent agreement contained an arbitration clause.
The OMA was not a signatory to the above agreement. The OMA was only a party to an addendum to the agreement. The preamble to the addendum stated that the OMA joined exclusively for the purpose of the fees the OMA was to receive from Aviva under Broker/Agent Agreement and the addendum.
The OMA subsequently commenced a court action against Aviva and Wills. The OMA alleged that Aviva had defaulted on the fees owed to it under the Broker/Agent agreement and the addendum. Aviva moved for a staying order. It stated that the court should not proceed when the parties are bound by the arbitration agreement. The OMA took the position that it was not a party to the Broker / Agent agreement and was therefore not subject to the arbitration clause.
Challenge to the arbitrator’s jurisdiction to resolve first by the arbitrator
During the hearing of this case, Justice Newbound held that whether the Ontario Medical Association and its claim are subject to the arbitration agreement should properly be left to the arbitrator appointed under the Broker/Agent Agreement. Giving judgment, Court stated the general rule laid down by the Supreme Court of Canada in the Dell Computer Corp. v. Union des Consommateurs. This rule states that, except in the narrow category of cases in which a challenge to an arbitrator’s jurisdiction is based solely on a question of law, “in any case involving an arbitration clause, a challenge to the arbitrator’s jurisdiction must be resolved first by the arbitrator”.
Case Law – 3
In the English case, Christopher Brown v. Genossenschaft Österreichischer Waldbesitzer Holzwirtschaftsbetriebe, Registrierte GmBH, it was held that when the jurisdiction of arbitrators is challenged, they may, if they wish, immediately refuse to act until their jurisdiction has been determined by a court which has the power to make a final determination. But they can also choose to decide for themselves whether they have jurisdiction. In this case, their determination will not be binding; the losing party can challenge the ruling in the courts. From the above and some other English cases, it seems that the competence-competence rule exists in England. However, it is not absolute. The Court continues to control arbitration agreements.
Case Law – 4
In a recent Indian case, the Indian Supreme Court upholds the competence-competence principle. In World Sport Group (Mauritius) Ltd v MSM Satellite (Singapore) Ltd, the Supreme Court of India held that issues of fraud should properly be dealt with initially by the arbitral tribunal in accordance with the arbitration agreements entered into between the parties, and not initially by the courts.
Competence-competence is now a foundational principle of the modern law of arbitration. According to that principle, an arbitral tribunal is competent to decide its own competence. In other words, the tribunal has jurisdiction to decide its own jurisdiction. That principle demands, in turn, that the arbitral tribunal, and not the court, should in the first instance decide the tribunal’s competence.
- Lew, J. et al, Comparative International Commercial Arbitration (The Hague, Kluwer Law, 2003) p.1
- https://www.quimbee.com/cases/texaco-overseas-petroleum-co-v-libya (accessed on 12th February 2015)
- http://www.canadianappeals.com/2013/12/27/the-court-of-appeal-affirms-that-the-competence-competence-principle-applies-to-ontariosarbitration-act-1991 (accessed on 12th February 2015)