Introduction

Contracts including arbitration provisions are a phenomenon that is based on fundamental principles of law. The effective operation of the international commercial arbitration system as a whole is ensured by the application and development of these principles. The concept or notion of separability of arbitration provisions is one of the fundamental foundations of international arbitration. Without this assumption, no law professors, judges, or attorneys will be able to distinguish between “agreement” and “disagreement” inside a contract or agreement between two parties. The whole development of arbitration will be endangered if this notion is not adopted. An attempt is made in this article to communicate the essence and relevance of this concept.

Background Information

Separability is a legal doctrine that is widely recognized in international commercial arbitration, where the assumption is that an arbitration clause in a main contract is separate and distinct from the rest of the contract. The degree to which the theory has progressed varies depending on whether the relevant jurisdiction has taken a legislative or judicial approach to the problem.

Arbitration is almost usually the outcome of a formal agreement to arbitrate between the parties. It indicates the parties’ agreement to arbitrate conflicts, as well as their consequent responsibility to arbitrate their disputes. When a court decides an issue, it does so on the authority of a legislation or a choice of court agreement between the parties. In contrast, arbitration tribunals and arbitrators are empowered and regulated by arbitration agreements, which are legally binding agreements. With the growing use of arbitration as a conflict settlement tool, arbitration has been able to broaden and enhance its capabilities.1 A fundamental premise of current international arbitration is the concept of separability.

As with every independent and autonomous agreement, an arbitration clause contained in a main or matrix contract is considered as if it were a separate and autonomous agreement on its own. The theory has been accepted in a number of countries as a method of increasing the use of arbitration in disputes.

Arbitration clauses are generally regarded as “separable” or “severable” from the principal contract that the parties have gone into with one another, unless the parties agree otherwise.2 Detachment and independence are frequently used in conjunction with the phrase “separable”. “Simply put, all of these wordings are intended to notify the audience that “arbitration is considered to be separate from the contract as a whole, and, as a result, will continue to be in effect even after the contract is terminated.”3 Severability is essential when a side argues that the contract is invalid. Every time the arbitration agreement is not enforced, the meaning and purpose of the agreement are jeopardized.

International Commercial Arbitration

The recognized theory of separability has been reflected in the majority of international publications, including the UNICTRAL Rules and the UNCITRAL Model Law on International Commercial Arbitration.

The Model Law Defines it as follows: “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.”

From it two issues are always in contention, the validity of the primary contract and of the arbitration clause. If the contract is null and invalid, the arbitration clause is still in effect. The arbitration clause logically serves as the legal foundation for the award in the case.

Despite this, several variables influencing the validity of the main contract may easily result in the invalidation of the arbitration clause. As a result, the parties must be able to enter into a contract. If one party is unable to enter into the contract, the deal is null and invalid. In accordance with Article V, section 1 (a) of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention on 1958), recognition and enforcement of an arbitral award cannot be granted when the parties were deemed incompetent under the applicable legislation. The 1958 New York Convention, on the other hand, contains no explicit mention of the concept of separability at all. In summary, when one party can demonstrate that the arbitration agreement “is not valid under the law to which the parties have subjected it or, in the absence of any indication thereon, under the law of the country where the award was made,” it may be difficult to obtain recognition and enforcement of the award.5 Because the arbitration agreement is not explicitly mentioned in the text, it is believed to be detachable from the remainder of the contract, as demonstrated by the quotation above. The New York Convention 1958 further states that courts must send disputes to arbitration unless they decide that an arbitration agreement is illegal, inoperative, or incapable of being performed (Article II, paragraph 3). To put it another way, the heart of this procedure and the correct technique is to acquire an arbitration agreement that is legal and binding.6 According to Article II (3), the verification of an arbitration agreement shall be carried out separately from the validation of the original contract in question. Even though the contract is void, the parties may still opt to submit their disagreement to arbitration if they agree to the severability principle, which allows them to do so.7

In summary, arbitration agreements are distinct agreements that the notion of separability is important to. These outcomes are entailed by this doctrine:

a) In the absence of an enforceable contract, their arbitration agreement remains valid.

b) An arbitral award can still be legitimate even if the contract it’s based on is declared void.

c) It does not necessarily follow that because the parties’ arbitration agreement is invalid, the primary contract is as well.

d) The rules and principles applied to regulate the arbitration agreement may be different from the primary contract’s legal rules and principles.

e) Even if the primary contract is terminated or expires, claims brought under the terms of the arbitration provision may still exist.

Justification of Doctrine of Separability

There are a variety of reasons why the theory of separability has been upheld over time. The concept on which this rule is based is that parties frequently assume that any disputes, including objections to the validity of the matrix contract, will be resolved by arbitration rather than litigation. Because of recent legal developments, this is now regarded an implied provision of the contract. According to some observers, the commercial contract may be divided into two distinct contracts: the first deals with business obligations, while the second includes an agreement between the parties to settle commercial commitment-related disputes through arbitration.8 Thus, even if the principal contract is declared illegal, the arbitration clause remains legitimate and enforceable due to its distinct and independent nature.

Nevertheless, when both agreements are incorporated in one document that has been signed by both parties, the separability doctrine has been characterized as a legal concept rather than a factual determination. Because the parties are not required to accede to the arbitration agreement on an individual basis, their approval is presumed when they sign the matrix contract, which is a legal document.9 Therefore, the parties agree to two separate agreements: the matrix agreement, which specifies their substantive duties, and the arbitration agreement, which controls the resolution of disputes arising out of the matrix contract.10 This legal illusion, that the parties are committing to two separate agreements, does not warrant treating an agreement to arbitrate disputes in the form of a provision in a different manner from an agreement to arbitrate disputes in the form of a provision. It has been established for some time in international arbitration law that courts will examine arbitral judgments but will not typically evaluate the merits of disputes intended to be arbitrated, because it is well known that the arbitration provision is separate from the matrix contract in question.

Arbitration agreements have been on the books for many years under arbitration statutes that were in force at the time. International arbitration law and international contract law, as well as international treaties on the freedom of contract, both represent the acknowledgment of party autonomy. These clauses preserve the notion of party autonomy and ensure the enforcement of contracts that identify arbitration as the principal way of resolving disputes. 11 If an arbitration clause is declared unlawful due to the illegality of another article in the agreement, it clearly violates the parties’ objective and justification for choosing arbitration.

The Intersection of Separability and Competence-Competence

Arbitral tribunals have the ability to arbitrate jurisdictional issues without recourse to a court of law or other forms of judicial review, based on the concept known as “Competence–Competence.” The arbitration provision is distinct from other contractual terms under the separability theory since it is separable from the contract. The Tribunal might decide a contract invalid, but the arbitration agreement would remain in place.

Separable and separate, expected purpose: Since the parties anticipated that the arbitrator should have authority to examine the validity or survival of the matrix contract, the parties recognize that the arbitrator has the ability to make such assessment. The arbitrator’s power may be diminished if this is not the case.13 Competence–competence is regarded by the parties to be more effective when it is expected that business parties want to submit all issues to arbitration. Deterring parties from evading arbitration procedures and simultaneously enhancing the process’s efficiency both apply in the case of these two principles. While also serving the same objective of ensuring a bad faith party does not impede or prolong the arbitration process, both principles serve the same purpose.

Despite the fact that their functions overlap and their goals are similar, they are two separate entities with their own identities. The concept of separability may be recognized regardless of whether or not the competence-competence conditions are met. It is true that these two concepts are physically linked. However, despite the fact that the two principles were meant to interact in order to improve the effectiveness of the arbitral process, their interaction has resulted in a disagreement regarding the arbitrators’ authority to rule on jurisdiction. Due to the arbitration clause’s separate and independent nature, it is not affected by any faults in the matrix contract, and therefore the arbitrator’s jurisdiction is preserved. Competence, on the other hand, permits the arbitrator to deal with issues such as alleged violations of the arbitration clause that would otherwise undermine the arbitration tribunal’s jurisdiction, such as an allegation of fraud. Arbitrators sitting over cases in their home jurisdiction must concentrate their efforts on the arbitration provision, rather than on the entire contract as a whole.14 Given that separability enables an arbitral tribunal to investigate difficulties related to its own jurisdiction, the competence–competence concept is overlapping with it in this context.

As a result, arbitrators can find that a matrix contract is unlawful if it contains a bribery clause, therefore declaring the contract illegitimate without limiting the arbitrators’ power to award under the arbitration clause. For this reason, if the individual who signed the matrix contract lacked the requisite power, under the separability principle, that individual’s signature on the bilateral arbitration agreement would be null and invalid. Competence—competence factors aid arbitrators in assessing the validity of contract signers, although this might be questioned in court when the contract is challenged. The arbitrator cannot establish that a matrix contract has been invalidated because of illegality, using the competence–competence principles in isolation, in the absence of the unique yet related theory of separability, arbitrators risk compromising their own jurisprudence in doing so.
Both competence-competence and separability theories contribute to the effectiveness of current arbitration as a dispute resolution method; nevertheless, without either theory, contemporary arbitration would be less effective as a conflict resolution mechanism. These principles are combined into a single provision in all three sets of rules, including the International Court of Justice Rules15, the London Court of International Arbitration Rules16, and the United Nations Convention on Contracts for the International Sale of Goods.

Conclusion

The separability criterion may be viewed as the outcome of a practical necessity that has had a substantial impact on how arbitration is currently conducted. The previous paragraph states that there is a widespread consensus as to the necessity to preserve the integrity of arbitration agreements which, whenever appropriate cases are considered in Court, are protected by pragmatic judicial realism. If the matrix agreement is not legally concluded or if the courts have set an exception or restriction on the idea, the reach of this wide concept will be reduced. According to the judges, the perspective was valid: the arbitration agreement was connected to whether the matrix contract was created according to the law. The concept of separability has been well recognized, due to its broad application and development since it was first established. The fact that many nations have embraced the notion indicates their confidence in the implementation of arbitration agreements covered by trade accords. While separability is essential for the arbitral process, it is still a matter for discussions in the academic and institutional fields. It is essential to have in mind that legal consultants must ask clients for vital instructions, give suitable advice and adjust agreements to meet the parties’ requirements and intents. Legal counsel should seek assistance, when necessary, from the courts.