Orient Case and the Doctrine of Competence-Competence

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Orient Case and the Doctrine of Competence-Competence

Komal Anwar/September, 2021
  1. Introduction
At first sight, the decision of the Supreme Court may seem uninteresting as it upholds the decisions of the Lahore High Court and merely rejects a somewhat desperate attempt to avoid arbitration by the Appellants. However, it is a seminal decision in two respects. Firstly, it sets out the law on Competence-Competence in clear terms which was previously not entirely clear from the earlier jurisprudence as developed by the Pakistani Courts. Secondly, it deals in depth with the law regarding Take or Pay clauses. This article aims to (a) critically analyse the law on Competence-Competence as developed by the Pakistani courts and (b) critically compare the Pakistani law with the law as developed in India on the doctrine of Competence-Competence.
  1. Critical analysis of the law on Competence-Competence under Pakistani law
The lack of uniformity internationally in applying the principle of Competence- Competence has resulted in complexity and obscurity as to its intended purpose. It is generally accepted that an arbitral tribunal has power to investigate its own jurisdiction. This is a power inherent in the appointment of an arbitral tribunal.​1 This principle is known as the doctrine of Competence-Competence.

The Pakistani courts have acknowledged the principle that an arbitral tribunal is a judge of both fact and law, the latter of which includes the question of its own jurisdiction.​2

The law in Pakistan on Competence-Competence in Pakistan is statutorily codified in Section 4 of the Recognition and Enforcement of (Arbitral Agreements and Arbitral Awards) Act, 2011 (“2011 Act”) and Article II(3) of the New York Convention as adopted in the 2011 Act which is as under:
“The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.” ​3
The significance of this principle lies at the heart of arbitration which is to get the matter decided by the arbitrators instead of court. The complexity arises when one of the parties is disputing whether the matter is to be decided through arbitration at all in the first place. In such a situation, the question arises whether arbitrators should be given the power to decide about their jurisdiction or should it be the courts deciding whether the matter ought to be dealt through arbitration.
Honourable Supreme Court relied on the cases Dallah Real Estate and Tourism Holding v.Government of Pakistan​4, Karachi Dock Labour Board v. M/s. Quality Builders Ltd.​5, and SBP & Co. v. Patel Engineering Ltd. wherein the principle of Competence-Competence was recognized and it was held that there is no legal impediment in the way of the court or tribunal to decide its own jurisdiction. The Honorable Supreme Court at para 41 rightly held that “the sole arbitrator was well within his rights to determine his own jurisdiction”. This is because the determination by the arbitrator of not having jurisdiction to decide a matter does not necessarily mean that the arbitrability question should not have been answered by the arbitrator owing to its lack of jurisdiction. The fact that there was some evidence pointing towards arbitration should be enough to send the matter to the arbitrator. While, this may seem contrary to the interests of the party who wants the court to decide the issue of jurisdiction and especially in case of the arbitrator ruling in favor of its jurisdiction. However, this is simply a consequence of international arbitration that is of a different nature from a domestic dispute.
  1. Comparison of the doctrine of Competence-Competence under Pakistani law with Indian law

In India, the theory of Competence-Competence is codified under Section 16 of the Arbitration and Conciliation Act, 1996 (“Indian Act 1996”) which grants the arbitral tribunal the power to rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement. This is in sharp contrast to
Sections 31(2) and 33 of the Arbitration Act 1940, which allows the courts to take the task upon themselves to determine whether or not the arbitrator has rightly conferred on himself his jurisdiction to decide the dispute​6. As far as the 2011 Act is concerned, the jurisdiction to determine issues on arbitrability is given to the arbitrators pursuant to Section 4 and Article II(3) of the New York Convention. It could be strongly argued that under the Arbitration Act 1940, the legislature through Sections 31(2) and 33 presumed that the parties do not normally intend substantive arbitrability questions (the arbitration agreement’s existence, validity, or scope) to be decided by the arbitrator.

The jurisprudence underlying Sections 31(2) and 33 of the Arbitration Act 1940 was elucidated by the Supreme Court of India7, which held that the existence or validity of an arbitration agreement could only be decided by the courts and not by arbitrators as this question is the core foundation of an arbitral proceeding. Further, the court emphasized that the arbitrator cannot clothe himself with jurisdiction to decide conclusively on such matters.​8
In contrast, the Supreme Court of India​9 in a recent case, while dilating upon the object and purpose of the Indian Act 1996 emphasized on the arbitrators to decide issues of non arbitrability and held that:
…The Arbitration Act based upon the UNCITRAL Model Law introduced an entirely new regimen with the objective to promote arbitration in commercial and economic matters as an alternative dispute resolution mechanism that is fair, responsive and efficient to contemporary requirements. One of the primary objectives of the Arbitration Act is to reduce and minimize the supervisory role of courts. Accordingly, the statutory powers of the arbitral tribunal to deal with and decide jurisdictional issues of non-arbitrability were amplified and the principles of separation and competence-competence were incorporated, while the courts retained some power to have a ‘second look’ in the post-award challenge proceeding…
As the Orient case dealt with a foreign award and international arbitration agreement, it still does not provide answers to the jurisdictional issues on arbitrability under the 1940 Act which as argued does not provide power to the arbitral tribunal to decide upon the validity of the arbitration agreement or the jurisdiction of the tribunal. Disputes in this regard have to be determined by the courts. Another question left unanswered by the Honorable Supreme Court is whether the jurisdiction of the tribunal may render the decision either as a jurisdictional decision or along with its final award. Unfortunately, the case law sets out no clear answer and both the 1940 Act and 2011 Act are not quite as clear.
The law on Competence-Competence as enunciated by the Supreme Court in the Orient case in relation to the 2011 Act is in line with the objective of the New York Convention which is to expedite the arbitral process by ensuring that only the tribunal decides upon its jurisdiction and allowing for a challenge of this decision only on very limited grounds. This is in line with Section 16 of the Indian Act 1996.
To conclude, the doctrine of Competence-Competence in Pakistan is very clear after the Orient Case with respect to foreign awards and the courts will no longer have power to decide the question of arbitrability at the interim stage. It is, however, unclear whether the findings of the arbitrators can be challenged post-award or after the first order on jurisdiction is decided by the arbitrators. Thus, it is only after legislative reform and adoption of the UNCITRAL Model Law as suggested by the Honorable Judge in the Orient Case that there can be clarity on such fundamental issues.
  1. Nigel Blackaby & Constantine Partasides, Redfern & Hunter on International Arbitration (6th edn, OUP, 2015) at p. 339
  2. Karachi Dock Labour Board v. Messrs Quality Builders Ltd., PLD 2016 Supreme Court 121 referred in para 40 of the Orient judgment.
  3. See, Section 34 of the Arbitration Act 1940 and Section 4 of the 2011 Act
  4. [2010] UKSC 57
  5. PLD 2016 SC 121
  6. See Karachi Development Company Limited v. IM Technologies Pakistan (Private) Limited, 2017 CLCN 157 Sindh.
  7. U.P. Rajkiya Nirman Nigam Ltd. v. Indure Pvt. Ltd., 1996 S.C.C. (2) 667
  8. Ibid.
  9. Vidya Drolia and Ors. v. Durga Trading Corporation and Ors., 2021 S.C.C (2) 1
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