I. Introduction

An arbitration agreement has a life separate and distinct from the contract. The doctrine of separability1 in essence postulates the independence of an arbitration clause from the underlying contract. In other words, the seperability of the arbitration clause from the underlying agreement is accepted as a principle that allows for arbitration proceedings related to an agreement whose validity is put into question. Some prominent scholars of international arbitration deem the concept of separability in arbitration both interesting in theory and useful in practice2 while some underscore its need in situations, where a breach of contract or a claim that the contract was voidable would be sufficient to terminate the arbitration clause as the same could be entirely self defeating.3 Lew, Mistelis and Kröll emphasize the notion that the integrity of an agreement to arbitrate is protected by separability besides also upholding the parties intention to submit dispute to arbitration.4 In the words of Judge Stephen Schwebel of the International Court of Justice "The very concept and phrase 'arbitration agreement' itself imports the existence of a separate or at any rate separable agreement, which is or can be divorced from the body of the principal agreement if need be."5 The application of the separability doctrine also ensures that the arbitral tribunal can decide on merits apart from being empowered to decide on its own jurisdiction.

The first part of this short note on the significance of the principle of separability to the international arbitration process sheds light on the concept of separability in arbitration jurisprudence; the second part highlights the institutional and international rules of arbitration that endorse the doctrine of separability; the third part provides a thumbnail sketch of the judicial dicta on separability in different jurisdictions and the fourth part encapsulates the concluding remarks.

II. Doctrine of Separability- Reflections

Almost all major arbitral institutions and international rules of arbitration endorse the autonomy of the arbitration agreement from the contract in which it is contained. In fact, even the earliest arbitration legislation like the English Arbitration Act, 1698, treated the arbitration clause as separable.7 The doctrine of separability is also reflected in UNCITRAL Rules, Article 23(1), which states that an arbitration clause that forms part of an underlying contract shall be treated as independent of the other terms of the contract. The UNCITRAL Model Law also embodies the principle of separability in Article 16(1).8 A similar import can be seen in the LCIA Rules, Article 23(2) as well. It is noteworthy that the ICC recognized the principle of separability in its 1955 Arbitration Rules and under the ICC Rules amended in 2012, Article 6(8) provides for separability. The principle is also manifested in Section 7 of the English Arbitration Act, 1996 and Section 16 of the Indian Arbitration Act, 1996, Section 19 of the Arbitration Law of the People's Republic of China. Section 178(3) of Swiss PIL (Swiss Federal Statute on Private International Law) also provides that the validity of an arbitration agreement cannot be contested on the ground that the main contract may not be valid. Similar approach is adopted by arbitration legislations across the world today.

III. Judicial Dicta on Separability

In order to trace the development of the principle of separability in arbitration jurisprudence, a few leading cases are discussed below. A perusal of the early case law indicates that the arbitration clause and other provisions in a contract were regarded as an indivisible whole and the arbitration clause would not bind the parties if the contract was considered invalid.9 The House of Lords in Heyman vs. Darwins10 enunciated the doctrine of separability and Lord Macmillan approving the separability doctrine opined:

"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, 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 constitution.... It survives for the purpose of measuring the claims arising out of the breach, and the arbitration clause survives for determining, the mode of their settlement. The purposes of the contract have failed, but the arbitration clause is not one of the purposes of the contract."

This rule has been confirmed in many subsequent cases. Lord Diplock in Bremer Vulkan Schiffbau und Naschinefabrik vs. South India Shipping Corporation11 cited the ratio in Heyman as an authority for the assertion that the arbitration clause constitutes a self-contained contract collateral or ancillary to the shipbuilding agreement itself. Furthermore, the Court of Appeal in Harbour Assurance vs. Kansa General International Assurance Co. Ltd. and Others12 , held that the substantive contract and the arbitration agreement are two different and distinctive agreements. The non-existence or the invalidity of the substantive agreement does not necessarily affect the validity of the arbitration clause. In the United States, the concept of separability was recognised by the Supreme Court in Prima Paint13 case, in France in the Gosset14 case and in China the Supreme People's Court in the Yuyi case has recognized and established the doctrine.

More recently, the English position was approved and confirmed by the House of Lords hearing an appeal from the Court of Appeal's decision in Fiona Trust15. The court held that the arbitrators not the courts should decide the validity or illegality of the underlying contract, unless the illegality was directed at the arbitration clause in particular. Most jurisdictions, which were earlier perceived as hostile to arbitration, are also now applying the principle in accordance with the international practice. For instance, the Indian Supreme Court invoked the doctrine of separability and cited with approval the reasoning by the House of Lords in Fiona Trust case.16

However, despite the evolved international practice concerning the doctrine, there have been instances where the courts have refused to invoke separability. In Soleimany vs. Soleimany17 , the court declined to enforce an award relating to a dispute arising out of an illegal contract to smuggle carpet out of Iran holding that 'where the making of the contract will itself be an illegal act... the court would be driven nolens volens to hold that the arbitration was itself void'.

It is also fascinating to note that a much-criticized decision that earned Pakistan the reputation of an unstable jurisdiction in arbitration was the Pakistan Supreme Court's ruling in HUBCO Power Company v WAPDA18. The brief facts of the case were such that HUBCO Power Company, under a power purchase agreement was supplying electricity to WAPDA, a public sector utility. Dispute arose between the parties and HUBCO wished to refer the matter to arbitration pursuant to the arbitration clause, which provided for ICC arbitration in London. However, WAPDA opposed this on the ground that the issues raised contained very serious allegations of corruption, fraud and malafide, which were not arbitrable. A five-member apex court bench in Pakistan heard the matter and by a narrow majority of 3:2 ruled in favour of WAPDA, thereby refusing to invoke the doctrine of separability in instances of corruption and fraud.

IV. Concluding Remarks

One of the major arguments against the separability doctrine is that it contradicts the contractual approach to arbitration law. According to critics, it takes away the parties right of approaching the court. In fact, one of the major arguments before the House of Lords in Fiona Trust was that the approach to separability adopted by Court of Appeal infringed the owner's right to access to a court for the resolution of their civil disputes, which according to the owners was in contravention of Article 6 of the European Convention of Human Rights. The development in jurisdictions like Pakistan, limiting the scope and applicability of separability could be perceived as alarming and may lead to inconsistency and uncertainty in the arbitral process. However, the popularity of the doctrine worldwide as reflected in the institutional rules and in numerous arbitration legislations and judicial pronouncements lends credence to the effectiveness and stability of the doctrine in modern international dispute resolution.

Footnotes

1 Separability or Severability is also known in some systems of law as the 'doctrine of autonomy of arbitration agreement' pursuant to which arbitrator may decide disputes arising under arbitration agreement even where initial validity or subsequent validity of arbitration agreement is at issue.

2 Jan Paulsson, ' Separability demystified', in The Idea of Arbitration (Oxford University Press, 2013), ch.3, s.1(c).

3 Blackaby, Nigel, Constantine Partasides, Alan Redfern and Martin Hunter, Redfern and Hunter on International Arbitration, (Oxford University Press, 6th ed. 2015), pp.104

4 Lew, Julian D. M., Loukas A. Mistelis, and Stefan Kröll, Comparative International Commercial Arbitration, 102, The Hague, London: Kluwer Law International, 2003.

5 Schwebel Stephen, International Arbitration: Three Salient Problems, Grotius Publications Ltd, Cambridge (1987), pp.21-22.

6 Doctrine of Kompetenz-Kompetenz empowers the arbitral tribunal to rule on its own jurisdiction in the first instance; for a detailed comment on the related concepts of separability and Kompetenz-Kompetenz see, Janet A. Rosen, Arbitration under Private International Law: The Doctrines of Separability and Competence De La Competence, 17 Fordham Int'l L.J. 599 1993-1994.

7 The Act allowed arbitration clauses to be made rules of court upon parties' agreement.

8 "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."

9 See Smith Corey & Barrett vs. Becker Gray & Co., (1916) 2 Ch 86 (CA), the court held that the parties are bound by an arbitration clause because the contract was valid. The sequitur being that had the contract been invalid, arbitration clause would have no effect.

10 [1942] AC 356: (1942) 1 All ER 337 (HL)

11 (1981) 1 Lloyd's Rep 253 (HL): [1981] All ER 289, 297

12 (1992) 1 Lloyd's Rep 81

13 Prima Paint Co. v Flood Conklin Manufacturing Corporation, 388 US 395, 402 (1967).

14 Cass. Civ. 1 ere, 7 May 1963 (Dalloz, 1963), 545

15 Fiona Trust & Holding Corporation v Yuri Privalov [2007] UKHL 40.

16 World Sport Group (Mauritius) Ltd. v. MSM Satellite (Singapore) Pte. Ltd, Civil Appeal No.895 of 2014; also see, Enercon (India) Ltd. & Ors. vs. Enercon GMBH & Anr., Civil Appeal No. 2086/2014.

17 [1998] 3 WLR 811,823 (CA)

18 PLD 2000 SC 841

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