1/9/2019 DOCTRINE OF SEPARABILITY IN INDIA

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DOCTRINE OF SEPARABILITY
IN INDIA

Introduction

The concept of Separability of the arbitration clause is both

interesting in theory and useful in practice. It means that the
arbitration clause in a contract is considered to be separate from
the main contract of which it forms part and, as such, survives
the termination of the contract. Indeed, it would be entirely self-
defeating if a breach of contract or a claim that the contract was
voidable was sufficient to terminate the arbitration clause as
well; this is one of the situation in which the arbitration clause is
most needed[1].

In line with this approach, the UNCITRAL Model Law on

International Commercial Arbitration incorporates the doctrine
of Separability in Article- 16(1). The Indian law of Arbitration[2],
which is based on the UNCITRAL Model Law, also explicitly
adopts this approach in Section-16(1) (b)[3]. As per this doctrine,
an arbitration clause which forms the part of the contract shall be
treated as 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 entry of this doctrine to India was due to
the enactment of the new Act[4]. Modern laws on arbitration
confirm the concept. The United States Supreme Court in the
recent judgment in Buckeye Check Cashing, Inc. vs. Cardegna[5]
acknowledged that the Separability rule permits a court “to
enforce an arbitration agreement in a contract that the arbitrator
later finds to be void”.

Similarly, the English High Court in Beijing Jianlong Heavy

Industry Group vs. Golden Ocean Group Limited & Ors[6]
recently addressed the issue of the Separability of arbitration
agreements and the circumstances in which public policy factors
invalidating the underlying contract may also impeach an
arbitration clause. In its pro-arbitration conclusion, the court
reinforced the strength of “powerful commercial factors” which
weigh in favor of upholding an agreement to arbitrate.

The rule stems from the case of Harbour Assurance Co (UK) Ltd
vs. Kansa General International Assurance Co. Ltd. and Others
([1993] 3 All ER 897) and was subsequently enshrined in section
7 of Act[7]. The practical effect of the rule is that unenforceability
of the underlying agreement does not automatically render an
arbitration agreement contained within it unenforceable.

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Without the rule, an arbitral tribunal would always be precluded

from hearing any dispute which raised a question about the
validity or existence of the contract containing the arbitration
agreement. Beijing Jianlong illustrates the principle that whether
or not the agreement will be struck down depends on the nature
of the public policy rule that invalidates the underlying contract.

Case Laws

The Eleventh Circuit recently reiterated this application of the

“separability doctrine” in the construction context in John [8] B.
Goodman Limited Partnership v. THF Construction
The Goodman case involved a dispute between a property
owner and a construction contractor relating to contracts (each
of which contained an arbitration clause) for the construction of
two assisted living facilities. The Court, however found that,
this to be a challenge to “the performance of the contracts rather
than their existence.” Finding “no question” about the owner’s
assent to the contracts generally or the arbitration clauses
specifically, the Court held that an arbitration panel, and not a
court, should decide whether the construction contract was
unenforceable under state law during 1096. Georgia state courts
have adopted a view of the separability doctrine that is
consistent with that held by the Eleventh Circuit. In Stewart v.
Favors[9] , the Court held that where a party raises a clear and
specific challenge to the enforceability of the arbitration
provision in addition to challenging the underlying contract
generally, the issue is properly decided by the Court. Alabama
courts, however, have expressly limited the application of the
separability doctrine to “voidable” contracts only. Alabama
courts have held that contracts which are void ab initio are
“challenges to the very existence of the contract” as opposed to
“a empts to avoid or to rescind a contract” which are otherwise
subject to arbitration[10].

Argument against the Separability Doctrine: One of the major

arguments against Separability Doctrine is that it is incompatible
[11]
with the contractual approach to arbitration law. The
separability doctrine should be repealed because no dispute
should be sent to arbitration unless the parties have formed an
enforceable contract requiring arbitration of that dispute. Prior
to contracting, parties start with a right to litigate, rather than
arbitrate, their disputes. The right to litigate, access to a court of
law generally exists in the international, as well as the domestic,
context but may be of less practical value internationally
depending on the reliability of the court system(s) with
jurisdiction over the parties. The separability doctrine makes the
right to litigate alienable under a lower standard of consent than
is found in contract law. It does so by removing from the right to
litigate the protection provided by contract law’s defenses to
enforcement. By contrast to the contractual approach, the
separability doctrine holds that a party alienates its right to
litigate when that party forms a contract containing an
arbitration clause even if that contract is unenforceable. The
separability doctrine separates arbitration law from an
important part of contract law—the defenses to enforcement and
thus fails to provide the right to litigate with the protection of
those defenses.

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Arguments for the Separability Doctrine: The fundamental

principle of arbitration law is that arbitrators have the power to
rule on their own jurisdiction. That principle is often presented
as direct result of the separability doctrine. It is because of the
autonomy of the arbitration agreement that any claim that the
main contract is in some way void will have no direct impact on
the arbitration agreement. The separability doctrine allows the
examination by the arbitrators of jurisdictional challenges based
on the alleged ineffectiveness of the dispute contract.

Conclusion

International commercial arbitration has met widespread

success as a method of international dispute resolution. The
multitude of changes that are occurring in the international
plane testify to that fact. The popularity of the doctrine with the
institutional rules suggests that in due course most national
arbitration statutes will adopt the same approach. In general it is
believed that the increased independence of international
arbitration from the intervention of the national courts is a move
in the right direction.

Author: Deban Satyadarshi

You can direct your queries to author at deban.satyadarshi@gmail.com

Image from here (h p://www.common-law-separation-

canada.com/images/separation.jpg)

[1] Law and Practice of International Arbitration, Alan Redfern

and Martin Hunter, Fourth Edition, pp- 3-60

[2] Indian Arbitration and Conciliation Act, 1996

[3] P Manohar Reddy & Bros. v. Maharastra Krishna Valley

Development Corporation, AIR 2009 SC 1776

[4] Supra Note 2

[5] 546 US 460

[6] [2013]EWHC 1063(Comm)

[7] Supra Note 2

[8] Inc., 321 F.3d 1094 (11th Cir. 2003)

[9] 590 S.E.2d 186 (Ga. App. 2003)

[10]
[10] See Camaro Trading Co. v. Nissei Sangyo America, Ltd. ,
(holding that a foreign corporation could not compel arbitration
pursuant to an arbitration clause in a contract because the entire
contract was unenforceable and invalid as a result of the foreign
corporation’s failure to qualify to do business[10]in
Alabama); Alabama Catalog Sales v. Harris , (finding that the
trial court, rather than an arbitrator, was to decide whether
contracts containing arbitration clauses were void and
unenforceable under the Alabama Small Loans Act)

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[11] ARBITRATION LAW’S SEPARABILITY DOCTRINE AFTER

BUCKEYE CHECK CASHING, INC. V. CARDEGNA-Stephen J.
Ware

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FEBRUARY 26, 2015 VIVEK KUMAR VERMA
ARBITRATION LAW

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