explain doctrine of separability.
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explain doctrine of separability.
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Explanation:
enunciates that an arbitration agreement is independent of the main contract.
The doctrine of separability is one of the conceptual and practical cornerstones of international arbitration. 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, breach and invalidity of that contract.
The doctrine became essential for arbitration to function when a tribunal faced a challenge concerning its jurisdiction. A party wishing to evade its obligation to arbitrate could argue that as a result of the main agreement being invalid, the arbitration clause forming part of the main agreement is also invalid. Further, parties argued that the arbitral tribunal set up pursuant to it has no jurisdiction to render an award.
Such an argument, if accepted, could lead the arbitration to a fatal end. As a result, the parties will be left with no choice but to litigate, which is against the express intention of the parties to resolve their dispute through arbitration. The doctrine was needed to act as a shield against this argument.
Despite the doctrine’s limited scope, various authorities have given it a broader purpose by arguing that the reason why the arbitration agreement is not governed by the proper law of the matrix contract is that it is a distinct agreement generally. According to Born, “the separability presumption means that an arbitration agreement can be governed by a different national law from that (or those) applicable to the parties’ underlying contract. The leading explanation for this result is the separability presumption, which postulates two separable agreements of differing characters, which can readily be governed by two different national (or other) legal regimes.” This view is supported by a few other authorities.
First, the Model Law recognises the doctrine only for the limited purpose as stated above. The doctrine is enshrined in Article 16, which provides that “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.”
Second, the author’s view is also supported by the observations made in the Sulamérica case. It was observed that the only purpose of the doctrine of separability is to give legal effect to the parties’ intention of resolving disputes through arbitration and not to insulate the arbitration agreement from the substantive contract for all purposes. Accordingly, it was held that an express choice of law governing the substantive contract is a strong indication of the parties' intention in relation to the agreement to arbitrate.
Third, the view of the author is also supported by the fact that the arbitration agreement is not always distinct from the main agreement for all purposes, which was ruled in Ronly Holdings. The main agreement provided that no variation to ‘any clause of this Agreement’ would take effect unless reduced to writing. It was argued that the parties can amend the arbitration agreement orally as it is a ‘distinct agreement’ and the ‘no variation’ clause does not apply to it.
Fourth, applying the separability principle to determine the proper law of arbitration agreement goes against the foundation of arbitration i.e., party autonomy. The parties, while drafting the main agreement, may agree upon a particular national law to govern the contractual obligations and as well as the arbitration. For instance, parties choose the governing law of the main agreement as New York law, whereas the arbitration clause included in the main agreement does not express the choice of law, but the seat of arbitration was London.
Unfortunately, the impact of this doctrine is so deep that the practitioners fail to apply it in its limited context. Arbitration practitioners and scholars often venture out from its limited context and apply it to generally separate the arbitration agreement from the carrier agreement. This has opened a Pandora’s box for habitual litigants to stall/delay the resolution of disputes. As a result of this, parties are burdened with mounting expenses, and the courts are also burdened with frivolous cases.
The author is an LL.M. Candidate in International Commercial Arbitration Law (ICAL), Stockholm University.