Doctrine of Separability in Arbitration agreements

The doctrine of separability is a legal theory according to which an arbitration agreement is considered entirely separate from the agreement or contract of which it is a part. It plays a significant role when the underlying agreement is being questioned about its enforceability. An arbitration agreement has a separate life, distinct from the contract in which it is mentioned. Hence, the doctrine of separability postulates the independence of an arbitration clause from the contract, i.e., when the validity of a contract is put into question, the arbitration clause’s exclusivity from the underlying agreement is accepted. This principle’s applicability is that if the underlying agreement or contract is deemed void, the arbitration clause stated in the agreement will remain well-grounded. Hence the arbitration clause is exclusive of the validity of the contract in question. According to prominent scholars of international arbitration, the concept of separability in arbitration is interesting in theory and useful. On the other hand, some arbitration scholars undermine the need for this doctrine by stating that when there is a breach of contract or a claim that the contract is voidable, the arbitration clause should be terminated as the same would be entirely self-defeating. Some Scholars like Lew, Mistelis, and Kröll press emphasize the notion that the integrity of an agreement to arbitrate should be protected by separability and upholding the party’s intention to submit a dispute to arbitration. As per Judge of International Court of Justice Stephen Schwebel, “The very phrase ‘arbitration agreement’ itself imports that a separate or at any rate separable agreement exists, which if need be, can be set apart from the body of the principal agreement.”

The separability doctrine application also states that the arbitral tribunal can hear on merits apart from being authorized to decide on its jurisdiction. It can be further stated that for the arbitration clause of an agreement to be unenforceable; the arbitration agreement must be directly impeached. There must be independent factors that expressly invalidate the arbitration or render the arbitration clause void. For example, in most countries, an arbitration agreement can be impeached directly on public policy grounds. The doctrine is needed when a tribunal faces a challenge concerning its jurisdiction; therefore, the doctrine becomes essential for arbitration to function. The doctrine protects the arbitration clause of the agreement when a party or parties to a contract wishes to evade its obligation to arbitrate by stating that as a result of the main agreement being void, the arbitration clause forming part of the main agreement is also void. The doctrine of separability has its limitation to the extent to which the validity of the arbitration agreement derived from the main agreement’s invalidity.  It is pertinent to establish whether the issue at hand is related to the validity of the main contract or is it related to the validity of the arbitration agreement within that main contract, or both, then only can the doctrine mentioned above be applied successfully. Therefore, as per the principle of separability, the arbitration clause survives the contract’s termination and provides the parameters as per which the disputes arising out of such contracts are to be resolved. Consequently, the main objective of the doctrine of separability is to safeguard an arbitral tribunal’s jurisdiction by enforcing and implementing the parties’ agreement to arbitrate and not to see the arbitration agreement distinct from the main agreement generally, including to determine the proper law of arbitration agreement. 

 

The doctrine of separability also states that the determination of the validity of the main contract (which has the arbitration clause) is within the jurisdiction of an arbitral tribunal. Importantly, the arbitration clause’s autonomy from the contract in which it is stated is endorsed by almost all arbitral institutions and international rules of arbitration. For instance, the following legislations from all around the world treat the arbitration clause as separable:

• The English Arbitration Act, 1698,
• Article 23 (1) UNCITRAL Rules,
• Article 23.1 present in DIFC-LCIA Arbitration Centre Rules
• Section 7 present in the English Arbitration Act, 1996
• Section 16 present in Indian Arbitration Act, 1996,
• Section 19 present in Arbitration Law of the People’s Republic of China.
• Section 178(3) present in Swiss PIL (Swiss Federal Statute on Private International Law)
• Article 6 of Federal Law number 6 of 2018 of United Arab Emirates (UAE Arbitration Law)

 

In the UAE, specific authority is required to make a valid arbitration agreement as per the UAE’s laws. It was commonly seen that the doctrine mentioned above was not being relied on by the courts when the claims of the contract being invalid were made, on the basis that the arbitration clause was treated as invalid for want of authority. Hence the principle of separability was recognized in the UAE through Federal law number 6 of 2018, also known as the Federal Arbitration Law (Federal Law No 6 of 2018), and is considered as the highlights of the said law. Article 6(1) present in the Federal Arbitration Law states that the arbitration clause in any contract will be considered an agreement independent and exclusive from the contract’s other terms and conditions. The voidability, nullity, or termination of the contract and its terms will not impact the arbitration clause if it is valid by itself unless the issue is concerning the parties‘ incapacity. Also, Article 23.1 of the DIFC-LCIA Arbitration Centre Rules mentions that the arbitral tribunal will be empowered to rule on its jurisdiction along with any objection concerning the validity or effectiveness of the arbitration agreement.

 

Clauses in DIAC rules:

Additionally, Articles 6.1 and 6.2 mentioned in DIAC Rules state that: 

 

Article 6.1. 

Arbitration Agreement that is intended to be a part of another agreement shall not be as invalid or ineffective because that other agreement is invalid, or did not come into existence, or has become void unless otherwise agreed by the parties. The Arbitration Clause shall be regarded as a separate agreement. 

 

Article 6.2

If any of the parties raise a plea regarding the validity of the arbitration agreement, it will be up to the Executive committee to decide without prejudice the merits of the pleas made and the arbitration clause’s validity. 

 

For instance, Company A and Company B become part of a contract in which they jot down that any disputes that arise out of the contract will be decided by arbitration. This arbitration clause is valid in the UAE. Company B breaches the contract, and Company A, because of that breach committed by company B, terminates the contract. Notwithstanding that A has terminated the contract, the arbitration clause survives, and the dispute over the breach that took place will be resolved by arbitration, according to the clause as mentioned in the contract. Interestingly, UAE has also adopted the legal doctrine of “Kompetenz-Kompetenz,” which is the principle by which the arbitral tribunal can decide for itself whether it is competent to resolve an issue before it or not. In other words, an arbitral tribunal is empowered to determine its jurisdiction. This doctrine is also referred to as legal fiction because it helps avoid a competent court’s involvement at an early stage of a dispute. The only notable jurisdiction between the doctrine of separability and the doctrine of Kompetenz-Kompetenz is that the latter permits the tribunal to decide its jurisdiction. The former affects the result of that decision. Without the doctrine of separability, a tribunal that has applied the principle of Kompetenz-Kompetenz may have to deny its jurisdiction as the arbitration clause might not be valid if the contract in question is invalid. The only aspect as per which the doctrine of separability is criticized and has not been adopted fully by some arbitration institutes is that it takes away the parties’ right to approach the court. Nevertheless, the popularity of the doctrine worldwide has been reflected in the institutional rules and numerous arbitration legislation, and judicial pronouncements are adopting it and prove that the principle is essential to enhance the effectiveness and stability of modern international dispute resolution.