SEPARABILITY, COMPETENCE-COMPETENCE AND THE ARBITRATOR’S JURISDICTION IN SINGAPORE†

• Author: JACK LEE TSEN-TA
• Date: 01 December 1995
• Published date: 01 December 1995

The concepts of separability and competence-competence, which promote arbitral autonomy, exist in many jurisdictions. This article surveys the extent of their acceptance in Singapore’s domestic and international arbitration law, and suggests that legislative refinements are necessary to remove doubts and resolve conflicts between the law and the SIAC Rules.

Does an arbitrator have the jurisdiction to determine his or her own jurisdiction under an arbitration agreement? This is a question that the law has long wrestled with. The law’s response has been to develop two doctrines: separability and competence-competence. This article investigates their value and compares the current legal position in several jurisdictions with the local position. It is submitted that the two doctrines play an important role in promoting the arbitral process as a means of dispute resolution, and that legislative changes may be needed in Singapore to ensure that this process is not impeded.

I. SEPARABILITY AND COMPETENCE-COMPETENCE COMPARED

A. Scope and Purpose

The doctrines of separability1 and competence-competence2 are related, but distinct. The concept of separability means that the validity of the arbitration clause does not depend on the validity of the remaining parts of the contract in which it is contained. As long as the arbitration clause itself is validly entered into by the parties and worded sufficiently broadly to cover non-contractual disputes, an arbitrator may declare a contract invalid but still retain jurisdiction to decide a dispute as to the consequences of the invalidity.3 By treating arbitration agreements as distinct from the main contract, separability rescues many arbitration agreements from failing simply because they are contained in contracts the validity of which is questioned.

Competence-competence picks up where separability ends. The doctrine has two aspects. Firstly, it means that arbitrators are judges of their own jurisdiction and have the right to rule on their own competence. Therefore, if the validity of the arbitration agreement itself and thus the competence

of the arbitrator is impugned, he or she does not have to stop proceedings but can continue the arbitration and consider whether he or she has jurisdiction. Secondly, in some countries, the arbitration agreement ousts the initial jurisdiction of ordinary courts. If the prima facie existence of the arbitration agreement is objected to, a court must refer the dispute to arbitration.4 But there is great variation where this second aspect is concerned. In civil law countries such as France, arbitrators appear to have a wide jurisdiction to determine their competence. The prevalent view in common law countries is that arbitrators have only a limited competence to rule on their jurisdiction, and that these rulings may be reopened and scrutinised by the courts.5

B. Justifications

Schwebel6 justifies the separability doctrine on four grounds:

1. i. When parties enter into an arbitration agreement which is widely phrased, they usually intend to require that all disputes, including disputes over the validity of the contract, are to be settled by arbitration. This may be an implied term of the contract. For instance, applying the officious bystander test,7 if the parties when concluding the agreement had been asked, “Do you mean, in providing that ‘any dispute arising out of or relating to this agreement’ shall be submitted to arbitration, to exclude disputes over the validity of the agreement?”, surely they would have replied that they did not mean to exclude such disputes. Applying the separability doctrine thus gives effect to the will of the parties.8

2. ii. If simply by denying that the main contract is valid one party can deprive the arbitrator of competence to rule upon that allegation, this provides a loophole for parties to repudiate their obligation to arbitrate. This defeats one of the main advantages of choosing arbitration over litigation as a means of dispute settlement: speed and simplicity without the time and expense of the courts. The

1. problem is worse in international arbitration agreements, since there is no international court with compulsory jurisdiction to determine and enforce the validity of the contract.

2. iii. There is a well-established legal fiction that when parties enter into a contract containing an arbitration clause, they are really entering into two separate agreements: the principal agreement containing their substantive obligations, and the arbitration agreement which provides for the settlement of disputes arising out of the principal agreement. This legal fiction is perfectly justified if we consider what happens if the parties enter into two physically-separate contracts. In this situation, if the principal agreement is alleged to be void, there is no question about the validity of the arbitration agreement since it is an independent contract. Is it logical, then, to treat an arbitration agreement which appears as a clause in a contract differently?9

3. iv. It is a widespread practice that courts usually review only arbitral awards and not the merits of disputes which are meant to be arbitrated. However, if we do not accept the separability doctrine, courts would be forced to do this very thing.

The competence-competence doctrine is more controversial. As a matter of strict logic, it is hard to see how an arbitrator has the jurisdiction to determine his or her own competence since to do so presupposes that he or she already possesses competence under the very agreement which is doubted.10 However, the doctrine has been justified on several grounds:11

1. i. There is a rebuttable presumption that such jurisdictional power has been conferred by the will of the parties when they entered into the arbitration agreement.12 If it is presumed that the parties have conferred the arbitrator with the jurisdiction to decide his or her own jurisdiction in the same way that he or she deals with the other legal matters arising in the arbitration, the court should respect the contract of the parties so long as the arbitrator acts in good faith.13

2. ii. Since section 30 of the Arbitration Act (Cap 10, 1985 Rev Ed) allows exclusion agreements, ie agreements in which the parties

1. exclude judicial review of the award completely, the parties must a fortiori be able to exclude the rule that the arbitrator cannot finally decide on his own jurisdiction.14

2. iii. Competence-competence power is inherent in all judicial bodies and is essential to their ability to function.15

Competence-competence is best seen as a rule of convenience designed to reduce unmeritorious challenges to an arbitrator’s jurisdiction. It also promotes the arbitral process by giving arbitrators the competence to decide their own competence so that parties are not compelled to seek relief in the courts.

Separability and competence-competence are connected. It has been said that the competence-competence rule is a corollary of the separability doctrine since separability creates a need for the arbitrator to have jurisdiction to rule not only on the main contract’s validity but also on the validity of the arbitration agreement.16 Alternatively, separability can be seen as a principle of substantive law which enlarges the effective range of the procedural law principle of competence-competence.17 Working in tandem, the two doctrines prevent attempts to thwart the parties’ true intent, which is usually to have all disputes under the contract resolved by arbitration. They also promote the arbitral process generally by removing the need to resort to the courts to determine preliminary issues of jurisdiction.

II. THE JURISDICTIONS COMPARED

A. England

1. Separability 18

For a long time, the arbitration clause and the other provisions in a contract were seen as an indivisible whole. If the contract was invalid, the arbitration

provisions never bound the parties, and hence no arbitrator appointed under the provisions had any authority to act. This is illustrated by Smith, Corey & Barrett v Becker, Gray & Co19 in which the parties were held to be bound by an arbitration clause because the contract containing it was valid ab initio. The implication is that if the contract had been invalid, the arbitration clause would also have been invalid and of no effect.

It was in Heyman v Darwins20 that the separability doctrine was clearly enunciated by the House of Lords. In Heyman, the defendant steel manufacturers alleged that the plaintiffs, who were their selling agents, had improperly involved them in certain liabilities. They refused to pay commission due to the plaintiffs. The plaintiffs instituted a court action against the defendants, but the defendants applied to court for the action to be stayed, contending that the dispute should be dealt with under the arbitration clause in the contract. The House of Lords found that the parties had entered into a valid and binding contract, and that the difference that had arisen related only to whether either side had breached the contract or whether circumstances had arisen which discharged one or both parties from further performance. In such a situation, the arbitration clause was valid and applicable. Lord Macmillan, with whom Lord Russell of Killowen agreed, approved the severability doctrine:

I venture to think that not enough attention has been directed to the true nature and function of an arbitration clause in a contract. It is quite distinct from other clauses. The other clauses set out the obligations which the parties undertake towards each other him inde, but the arbitration clause does not impose on one of the parties an obligation in favour of the other. It embodies the agreement of both parties that, if any dispute arises with regard to the obligations which the one party has undertaken to the other, such dispute shall be settled by a tribunal of their own...