Severability and Competence-Competance: Darwins LTD

SEVERABILITY AND COMPETENCE-COMPETANCE
To gauge a better understanding of the doctrine of competence-competence, it is pertinent to

study it simultaneously with another doctrine- the doctrine of severability. This doctrine states
that the arbitration clause is a separate agreement in itself. Its validity does not depend on the rest
of the clauses of in the contract. This autonomy of the arbitration clause enables it to survive any
invalidity in the main underlying contract. Though both the doctrines are distinct, their primary
aim is to give responsibility to the arbitral tribunal to determine its jurisdiction. The arbitral
tribunal derives its existence from the arbitration clause in a contract. In order to enable it to
decide the issue of its jurisdiction, the arbitration clause has to be valid. Severability rescues
arbitration agreements from failing merely due to the invalidity of the main contract.
Severability, along with the doctrine of competence-competence is recognized in Article
16(1) of the UNCITRAL Model Law. It treats the arbitration clause as an agreement independent
of other terms of the contract. Severability originated in common law in the case of Heyman v
Darwins Ltd,1 where Lord MacMillan held that invalidity of the main contract would not affect
the efficacy of the arbitration agreement contained therein. It was codified in the English
Arbitration Act of 1996 under Sec. 7.2 Under the Indian law, it is incorporated in Sec. 16(1) on
the lines of the UNCITRAL Model Law.
DOCTRINE OF COMPETENCE-COMPETENCE
As stated, the doctrine of competence-competence gives the arbitral tribunal the authority
to rule on its own jurisdiction and also on the existence and validity of an arbitration agreement.
If the arbitrators do not have this power, then it may be said that the arbitration proceedings
should stop automatically when a challenge is made to the jurisdiction of the arbitral tribunal and
the issue should be decided by the court. However, such a stance would defeat the advantage
associated with arbitration of expeditiously settling the disputes. A plea on the issue of
1
[1942] AC 346, 374.
2
Separability of arbitration agreement: Unless otherwise agreed by the parties, an arbitration agreement which forms
or was intended to form part of another agreement (whether or not in writing) shall not be regarded as invalid, non-
existent or ineffective because that other agreement is invalid, or did not come into existence or has become
ineffective, and it shall for that purpose be treated as a distinct agreement.
jurisdiction, which is capable of being settled at the beginning under the doctrine of competence-
competence, will be presented before the court which will result in a loss of time. 3 Additionally,
it also serves a practical purpose. It does not allow a respondent with mala fide intentions to stall
the arbitration proceedings by simply raising a jurisdictional challenge. On the other hand,
allowing the courts to review the decision of the arbitral tribunal on their jurisdiction allows a
genuinely aggrieved party to protect its interests.4 The original aim of the doctrine is to give
more power to the arbitral tribunal rather than curbing the powers of the courts.
The doctrine of competence-competence has been incorporated in the UNCITRAL Model
Law in Article 16(1) in the following words:
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.
This article highlights the severability of the arbitration clause where it says that the arbitration
clause shall be treated as an independent contract.
Like the UNCITRAL Model law, the doctrine has been incorporated in Sec. 16 of the Act.
The Indian Act has adopted the doctrine in a way to minimize the intervention of courts in the
arbitration process and speed up the proceedings. Before the act of 1996 was enacted, arbitration
regime in India was governed by the Arbitration Act, 1940, the Arbitration (Protocol and
Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, of 1961.
Since the 1940 act was passed when India was still a British colony, it borrowed immensely from
the provisions of the English Arbitration Act, 1934. 5 Under the Arbitration Act, 1940, the
tribunal did not have the power to decide on its own jurisdiction or the validity of the arbitration
clause.6 It was to be decided by the courts. This was highlighted by the SC in UP Rajkiya
3
Gas Authority of India Ltd v Keti Construction (I) Ltd [2007] 5 SCC 38.
4
Doug Jones, ‘Competence-Competence’ [2009] 75 ARB: The Int’l J of Arb, Mediation &DispMgmt 56.
5
LAW COMM’N OF INDIA, SEVENTY: SIXTH REPORT ON ARBITRATION ACT, 1940 [1978] [1.24].
available at <http://lawcommissionofindia.nic.in/51-100/Report76.pdf>
6
Arbitration Act 1940, s 31(2) and s 33. Under Sec. 31(2), all questions regarding the validity or existence of an
arbitration agreement between the parties were to be decided by the court. Sec. 33 provided that any party wishing to
challenge the validity or existence of an arbitration agreement had to apply to the court and the court would decide
on the basis of affidavits.
Nirman Nigam Ltd. v Indure Pvt Ltd.7 Here the court reiterated the statutory position that the
arbitral tribunal had no power to decide the existence or validity of an arbitration agreement.
Since this issue formed the basic foundation of arbitration proceedings, it could only be decided
by the courts. This position has been reversed by Sec. 16 of the 1996 Act which grants the
authority to the arbitral tribunal to decide its own jurisdiction.
Challenge to jurisdiction- The ‘who decides’ Question

The challenge to the jurisdiction of the arbitral can be of two types- partial or total. In a
partial challenge, it is asserted by one of the parties that certain (not all) claims or counterclaims
that are brought before the tribunal do not fall within its jurisdiction. Such a challenge is not a
fundamental attack on the jurisdiction of the tribunal. 8 On the other hand, a total challenge
questions the entire basis on which the arbitral tribunal acts. It usually raises the question of
whether there is a valid arbitration agreement at all.
Under the UNCITRAL Model Law, the arbitral tribunal can rule on the plea of jurisdiction
either as a preliminary question or in the award on merits. 9 If the tribunal rules that it has
jurisdiction on a preliminary question, then a party may apply to the competent court under
Article 6 to decide the issue. Such a decision is not further appealable. During the pendency of
such a request, the tribunal may continue to hear the dispute.
Under Sec. 16 of the Act, a challenge to jurisdiction of the tribunal ‘shall be raised not later
than the submission of the statement of defence.’ 10 If the tribunal rejects a plea made by a party
that challenges its jurisdiction, it shall continue with the arbitral proceedings and make an
award.11 The aggrieved party may then make an application for setting aside this award under
Sec. 34 of the Act.12 This indicates the purpose of having minimal court intervention while the
arbitration proceedings are going on.
One pertinent difference between the UNCITRAL Model Law and the Act is that under the
former, the tribunal’s decision accepting or rejecting a challenge to its jurisdiction can be
7
[1996] 2 SCC 667.
8
Allan Redfern and Martin Hunter, Law and Practice of International Commercial Arbitration (4th Edn, Sweet and
Maxw ell 2004) 296.
9
UNCITRAL Model Law, Art 16(3).
10
Arbitration and Conciliation Act 1996, s 16(2).
11
Arbitration and Conciliation Act 1996, s 16(5).
12
ibid, s 16(6).
appealed in court. But under the latter, a party can appeal in court only if the tribunal accepts the
jurisdictional challenge.13 If the challenge is rejected, the arbitration proceedings continue and
the tribunal proceeds to make an award. The party aggrieved by the award can later approach the
court to set it aside.
The Indian SC recognized the doctrine of competence-competence in Shin Etsu Chemical
Co. Ltd. v. Aksh Optifibre Ltd. 14 it held that the courts should satisfy themselves on a prima facie
basis if the arbitration agreement is not ‘null and void, inoperative or incapable of being
performed.’15 If the courts were to fully examine the arbitration agreement, then the arbitration
proceedings would have to be stalled till the time the court decided the matter. This would defeat
the very objective of the Act to ensure a speedy arbitration process with minimal intervention of
the courts.
However, the power of the tribunal under competence-competence was diluted by the SC
in SBP & Co v. Patel Engineering Ltd 16 (hereinafter Patel Engineering case). Before this
decision, the courts had been reluctant to rule on jurisdiction of the arbitral tribunal and referred
the dispute back to the tribunal after prima facie reviewing the procedural compliances.17 In
Konkan Railway Corp Ltd v. Rani Construction Pvt Ltd,18 a Constitution Bench of the SC held
that all issues relating to jurisdiction of the tribunal and validity of the arbitration agreement have
to be taken before the arbitral tribunal. But in the Patel Engineering case, the Court interpreted
Sec.s 11(6) and 11(7) in a manner that jeopardized the arbitral tribunal’s power under
competence-competence.
13
SumeetKachwaha and DharmendraRautray, ‘Arbitration procedures and practice in India: overview’ available at
<http://uk.practicallaw.com/9-502-0625> (1 July 2014).
14
[2005] 7 SCC 234.
15
Requirements of a valid arbitration agreement under New York Convention, Article II(3).
16
[2005] 8 SCC 618.
17
Panjwani and Pathak (n 2) 30.
18
[2002] 2 SCC 388.

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SEVERABILITY AND COMPETENCE-COMPETANCE

To gauge a better understanding of the doctrine of competence-competence, it is pertinent to

Challenge to jurisdiction- The ‘who decides’ Question

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