Separability of arbitration agreements

Illegality of the underlying contract

The doctrine of separability was established in English law by Heyman v Darwins [1942] 1 All ER 337 and is enacted by s7 of the Arbitration Act 1996. By this doctrine, an arbitration agreement contained in a written contract may survive the termination of the contract, as the arbitration clause constitutes a separate and distinct agreement and must be considered independently from the main contract. Prior to the 1996 Act, the courts extended the doctrine so that the arbitration clause also survives the invalidity of the underlying contract ( Harbour Assurance Co v Kansa [1993] 1 Lloyd’s Rep 455). Accordingly, an attack on the validity of the contract, even if successful, will not of itself vitiate the jurisdiction of the tribunal if the arbitration agreement is not thereby impugned. By this method, a paradox is avoided: arbitrators can consider questions of legality and may find the underlying contract void for illegality without thereby removing their own jurisdiction so to find. In Continental Enterprises Ltd v Shandong Zhucheng Foreign Trade Group Co [2005] EWHC 92 (Comm) David Steel J considered the correctness of a GAFTA tribunal’s decision that it had no jurisdiction to entertain a claim where the respondent claimed that it had no capacity to enter into the contract by virtue of it lacking an appropriate licence under Chinese law. The case is discussed by Louis Flannery of Howes Percival.