INSTITUE OF LAW

NIRMA UNIVERSITY

CENTRE FOR ALTERNATIVE DISPUTE RESOLUTION

ARTICLE ON:
SEPARABILITY PRINCIPLE IN INTERNATIONAL COMMERCIAL
ARBITRATION

SUBMITTED TO: SUBMITTED BY:

Mrs. NIKITA KORADIA HARSHUL KHADIYA
& (18BBL013)
Ms. ANUBHUTI DUNGDUNG
INTRODUCTION
International commercial arbitration is used by more and more people in the world. National
courts are usually rigid and lack expertise in solving international disputes. Arbitration is an
informal and private dispute resolution mechanism in which parties to the arbitration agree, in
writing, and submit their disputes to a third party who will adjudicate and resolve the matter
by issuing a final and binding Arbitral award unless it is subject to section 34 of the Act of
1996. It is becoming an attractive method of dispute resolution due its flexible, speedier and
confidential approach than the courts procedure. International commercial arbitration is almost
always consensual.1
In Arbitration, the parties must have an Arbitration Agreement in order to refer their dispute
to any arbitration tribunal. “Arbitration agreement is an agreement by the parties to submit to
arbitration all or certain disputes which have arisen, or which may arise between them in
respect of a defined legal relationship, whether contractual or not”2

S 7 of Arbitration and conciliation act 1996 deals with Arbitration Agreement. 3

It goes like this,

Arbitration Agreement –

(1) In this Part, arbitration agreement means an agreement by the parties to submit to arbitration
all or certain disputes which have arisen, or which may arise between them in respect of a
defined legal relationship, whether contractual or not.

(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the
form of a separate agreement.

(3) An arbitration agreement shall be in writing.

(4) An arbitration agreement is in writing if it is contained in-

(a) A document signed by the parties;

(b) An exchange of letters, telex, telegrams or other means of telecommunication which

provide a record of the agreement; or

(c) An exchange of statements of claim and defence in which the existence of the agreement is
alleged by one party and not denied by the other.

1
. G. A. Born, International Commercial Arbitration, p. 5(2nd ed. Wolters Kluwer 2001)

2
Arbitration agreement - article 7 of Model law of ICA, 1985

3
S. 7, Arbitration and Conciliation Act 1996
(5) There reference in a contract to a document containing an arbitration clause constitutes an
arbitration agreement if the contract is in writing and the reference is such as to make that
arbitration clause part of the contract.

Functions of Arbitration Agreement-

The functions that an arbitration agreement performs are-
1. To show the consent of parties to resolve disputes by arbitration. This is necessary
because without consent no arbitration is valid. Once both the parties have consented
to the agreement, no one can unilaterally withdraw it.

2. It is the basic source of powers given to the arbitrators. In arbitration, an arbitrator can
only exercise his power if the parties confer upon it. basically, the parties are “master
of the arbitral process’4 The party has the power to decide the no. of arbitrators, how it
should be appointed, what powers should be posses and what procedure should be
followed. The agreement is the main source upon which an arbitrator works.

3. It establishes the jurisdiction of the arbitral tribunal. The jurisdiction of the arbitral
proceedings is only determined by the arbitration agreement

Arbitration is connected with disputes relating to legal relationship which is reflected in a

contract. Contract is the basis of arbitration, as the common intention of parties to arbitration
gives the power to the arbitrator to resolve the dispute. But the Arbitration clauses are generally
considered “separable” or “severable” from the main contract concluded by the parties 5

DOCTRINE OF SEPARABILITY

The Model Law defines the doctrine as:

"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.”
The main contract is considered as the prime contract and the arbitration agreement is
secondary to this.. If the main contract is void but the arbitration agreement is valid, the
arbitration clause is still legal ground for the award. It means that validity of each contract does

4
Alan Redfern and Martin Hunter, " Law and Practice of International Commercial Arbitration", 2nd
ed, (London: Sweet & Maxwell, 1991), 1, 6

5
. Born, p. 50
not depend on each other’s existence 6. The aim is to sustain the arbitration agreement. It is said
that the Arbitration agreement is autonomous with the main contract. therefore, the arbitration
agreement has the ability to survive the termination of the primary contract. hence, the
agreement is independent from the contract.

Advantages of the Doctrine of Separability

Arbitration agreement is governed by the principles of Contract Law. The doctrine of
separability and independence of the arbitration agreement destroys the fundamental
principle of Contract law, freedom of contract. It makes it difficult for the defendant to put
up the illegality of the contract as defence as arbitration clause is elevated above all other
clauses in arbitration agreement7. An arbitration is a contract in its own right. The parties
to arbitration conclude not one, but two agreements at a time. Independence of arbitration
agreement and separability are advantageous as it determines the intention of the parties to
an arbitration.
Ambiguities concerning the Separability Doctrine-
The one big question is whether the Doctrine of Separability applies to the contracts which
are potentially void, inoperative or incapable of being performed be sent to arbitration?
1. Null and void- Article II (3) of the New York Convention remains silent as to determine
whether an agreement is null and void. For this, fraud or fraudulent inducement,
illegality or mistake, incapacity or lack of power and unconscionability can be
considered as the grounds for proving an arbitration agreement as null and void.
2. Inoperative- it is an arbitration agreement “which was once valid but has stopped giving
an effect now.” Section 45 of the Arbitration Act, 1996 has been applied and it was
stated that agreements are inoperative because the parties have already submitted
numerus civil and criminal suits in the courts.
3. Incapable of being performed- all the proceedings which cannot be held due to some
legal or physical obstructions. It was held that an agreement must contain clear
language and terms so as to clarify the true intention of the parties to arbitration8. The
problem thus arises when the arbitration clause is badly drafted, and it creates a
difficulty in commencement of the arbitral proceedings.

Doctrine of Separability under Transnational Legislation

 Sec. 7 Arbitration Act 1996 (Separability) “…an arbitration agreement which forms
part of another agreement (whether or not in writing) shall not be regarded as invalid,
because that other agreement is invalid, and it shall be treated as a distinct agreement.”

6
Poudret and Besson Comparative Law 132.

7
Reuben 2003 SMU Law Review 845
8
ZAO UralEnergoGaz (Russia) v OOO ABB Electro engineering (Russia), Ninth Arbitrazh Court of Appeal, Russia,
24 June 2009, No. A40-27854/09-61-247
  Section 2. Federal Arbitration Act 1925 (Separability) “A written provision in a
contract evidencing to settle by… arbitration a controversy thereafter arising out of
such contract, shall be valid, irrevocable, and enforceable, for the revocation of any
contract.”

 Sec. 21(2) of Singapore Arbitration Act 2001 (Separability) “…an arbitration clause
which forms part of a contract shall be treated as an agreement independent of the
other terms of the contract.”

Today the principle of autonomy of the arbitration agreement is the basic principle in
the world of arbitration. The life of this principle can be determined through some
significant cases in which it was applied.

HEYMAN V DARWINS LTD 9

Facts: In this case, the defendants, steel manufacturers alleged that the plaintiffs, who
were their selling agents, had fraudulently involved them in some liability. They then
refused to pay commission to the plaintiffs. The plaintiffs alleged that the defendants
had repudiated the contract. The defendants accepted the existence of a contract but
denied that they had repudiated the contract. The plaintiffs directed a case against the
defendants to the court, but the defendants contended that the dispute shall be dealt
under the arbitration clause in the contract. The agreement contained an arbitration
clause which stated that10

If any dispute shall arise between the parties hereto in respect of this agreement or any
of the provisions herein contained or anything arising here out the same shall be
referred for arbitration in accordance with the provisions of the Arbitration Act of 1889
or any then subsiding statutory modification thereof

It was found by the House of Lords that the contract is valid and binding. The effect of the
statement of law, where the main contract has come to an end due to repudiation it does not
mean that the arbitration agreement becomes invalid or is rendered ineffective. 11Basically, this
means that the arbitration agreement survives in order to resolve disputes arising out of the
main contract. the important thing to remember is that for the arbitration agreement to survive,

9
(1942) 72 L 1 L Rep 65 (HL)
10
1942 AC 356,357

11
Indornigie The Legal Regime of International Commercial Arbitration 59.
the words used in the arbitration agreement have to be wide enough to ensure that the arbitration
agreement survives the termination of said main agreement.12

HARBOUR ASSURANCE CO. LTD. V, KANSA INSURANCE CO LTD.13

Facts: The plaintiff in the said case agreed to reinsure the defendant with respect to the risks
suffered in the years 1980, 1981, 1982. After the contract, the plaintiff alleged the defendant
of not having been registered to carry a insurance business as provided in Insurance Company
Acts,1974 and 1981. It was argued by the plaintiff that the agreement is void on the grounds of
illegality. The contract between the parties consisted of an arbitration clause, which is 14
“All disputes or differences arising out of this agreement shall be submitted to the decision of
two arbitrators one to be chosen by each party and in the event of the arbitrators failing to
agree, to the decision of an umpire to be chosen by the arbitrators before entering upon the
reference...”
The court had to decide whether the dispute arose is ‘dispute arising out of the agreement’. The
court held that that arbitration clause could still survive even though the contract is void on the
grounds of illegality. The illegality of the contract would not render the arbitration agreement
void.

SNE V JOC OIL LTD15

Facts: There was a contract of sale between the plaintiff and the defendant for the sale of oil
by the plaintiff to the defendant. The former is a company incorporated under the laws of the
former USSR and the later, JOC Oil Ltd. It is a company incorporated in Bermuda. The
defendant took the delivery of oil but failed to make the payment. The plaintiff commenced
arbitration, but the defendant argued that contract has not been executed by two employees of
the plaintiff as pet the USSR laws and hence the contract and the arbitration agreement, both,
must be declared to be void.
The ICC tribunal held that as per the rules of the relevant Soviet arbitration institution, the
arbitration agreements are not subject to the same formalities as contract with the foreign party
does. Arbitration agreements is constituted of different contents than a contract and it has
different ground for invalidity. So, the contract was found invalid and not the arbitration clause.

12
1942 AC 356, 364

13
1993 QB 701
14
1993 QB 701,707

15
XVII YB CommArb 92(1993)
SOLEIMANY V SOLEIMANY16
Facts: The claimant exported carpets illegally, out of Iran to be sold by the defendant in the
United Kingdom or elsewhere. Thus, disputes arose between the parties over the division of
the proceeds of sale. An agreement to arbitrate their dispute before the Beth Din where the
application of Jewish law is prominent. The tribunal made an award in favour of the claimant.
Further, the claimant applied under section 26 of the Arbitration Act 1950 to register the award
as a judgement. The defendant appealed to set aside the award on the grounds of illegality of
the claimant’s claim and the award is void and unenforceable.
It was held by Waller LJ that “an award can only be valid if the arbitrator had jurisdiction
founded on a contract between the parties. If the contract is itself invalid, the award will be
unenforceable.
In a contract that is illegal or alleged to be illegal, it is not always necessary that the arbitration
clause is itself not infected by the illegality. Thus, an arbitration clause that is separate can be
made void for illegality.

CONCLUSION:
The doctrine of Separability is well established in International Commercial Arbitration. The
international conventions, rules and cases, and the national always and arbitral decisions, all
support the principle of separability. It has been established that under English Law, the
doctrine of Separability focuses on the independence of an arbitration agreement from a
contract. At this stage, it is justifiable to separate both so as to promote the intention of the
contracting parties to arbitrate the dispute. Thus, the law clauses and the dispute resolution
clauses must be drafted with utmost care and sincerity.

16
[ 1998] 3 WLR 811