Latest News
Separability and severability in arbitration
One of the most important principles in arbitration is the doctrine of severability or separability, which states that an arbitration clause or agreement is independent and autonomous from the main contract that contains it. This means that the validity and enforceability of the arbitration clause are not affected by the main contract's termination, breach, or invalidity. In this article, we will discuss the origin, rationale, rules, laws, and judicial pronouncements related to this doctrine in India and abroad.
Origin and Rationale of the Doctrine
The doctrine of severability originated in France, where the court in Gosset v. Carapelli (1963) [1] held that an arbitration clause was a separate agreement from the main contract and could not be annulled by the invalidity of the latter. Later, the US Supreme Court also recognized the doctrine in Prima Paint Corp. v. Flood & Conklin Mfg. Co. (1967), [2], where it held that the issue of fraud in the inducement of the main contract was for the arbitrator to decide, not the court.
The main rationale behind this doctrine is to preserve the parties' intention to submit their disputes to arbitration, even if the main contract is challenged or terminated for any reason. The doctrine also ensures that the arbitrator has the jurisdiction and competence to decide on his or her jurisdiction (the principle of kompetenz-kompetenz) and the validity of the main contract.
Rules and Laws on Severability
The doctrine of severability is widely accepted and codified in various international and national instruments on arbitration. For example, Article 16(1) of the UNCITRAL Model Law on International Commercial Arbitration states:
"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 that 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."
Similarly, Article II (3) of the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards states:
"The court of a contracting state, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative, or incapable of being performed."
In India, Section 16(1)(a) of the Arbitration and Conciliation Act 1996 (based on the UNCITRAL Model Law) states:
"The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,
(a) An arbitration clause that forms part of a contract shall be treated as an agreement independent of the other terms of the contract: and
(b) A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration agreement."
Judicial Pronouncements on Severability
The doctrine of severability has been applied and interpreted by various courts worldwide. Some notable cases are:
Smith Corey & Barrett v. Becker Gray & Co. (1916): [3] The English Court of Appeal held that an arbitration clause was not affected by a repudiation or rescission of the main contract.
Heyman v. Darwins (1942): [4] The House of Lords held that an arbitration clause was not extinguished by frustration or discharge of the main contract.
Harbour Assurance v. Kansa General International Insurance (1993): [5] The House of Lords held that an arbitration clause was not invalidated by a misrepresentation or mistake affecting the main contract.
National Agricultural Co-op Marketing Federation v. Gains Trading (2007): [6] The Supreme Court of India held that an arbitration clause was not rendered ineffective by a termination or cancellation of the main contract.
M/s Magma Leasing & Finance Ltd. v. Potluri Madhavilata (2009): [7] The Supreme Court of India held that an arbitration clause was not nullified by a novation or substitution of the main contract.
Mulheim pipecoatings GmbH v. Welspun Fintrade Ltd. (2013): [8] The Bombay High Court held that an arbitration clause was not vitiated by illegality or fraud affecting the main contract.
Differences between Severability and Separability
While often used interchangeably, the terms severability and separability carry subtle yet significant distinctions. Severability implies a surgical detachment of an arbitration clause from the main contract, treating it as a standalone, enforceable agreement. Conversely, separability conveys a broader notion—that the arbitration clause, from its inception, stands separate and distinct from the main contract, possessing an inherent validity and existence of its own.
The difference between severability and separability can be illustrated by two scenarios:
If a party claims that there was no valid consent to enter into a contract (for example, due to fraud or duress), then both severability and separability apply. The arbitration clause can be severed from the main contract and treated as a separate agreement that is valid and enforceable.
If a party claims that there was valid consent to enter into a contract but that it was later terminated or cancelled (for example, due to breach or frustration), then only separability applies. The arbitration clause cannot be severed from the main contract because it was part of it, but it can be treated as a separate agreement that survives and remains enforceable.
Conclusion
The doctrine of severability is a fundamental principle in arbitration that ensures the independence and enforceability of the arbitration clause within an agreement. It recognizes that the validity and enforceability of an arbitration clause are distinct from the underlying contract in which it is contained. The doctrine is widely accepted and codified in various international and national instruments on arbitration. Various courts in India and abroad have also applied and interpreted the doctrine.
References
[1] A Third-Party, One Arbitration Agreement, Two Approaches: The French Courts’ Views on the Law Applicable to the Arbitration Agreement in Kabab-Ji v. Kout Food Group, Kluwer Arbitration Blog
[2] Prima Paint Corp. v. Flood & Conklin Mfg. Co. :: 388 U.S. 395 (1967): Justia US Supreme Court Center
[3] Doctrine of separability in arbitration : an overview—iPleaders
[4] The Principle of Separability (lawteacher.net)
[5] Harbour Assurance Company (U.K.) Ltd v Kansa General International Insurance Company Ltd., Case Law: VLEX 803480809
[6] National Agricultural Coop. Marketing Federation India Ltd. v. Gains Trading Ltd. . | Supreme Court Of India | Judgment | Law | CaseMine
[7] Branch Manager, Magma Leasing And Finance Limited And Another v. Potluri Madhavilata And Another | Supreme Court Of India | Judgment | Law | CaseMine
[8] Mulheim Pipecoatings Gmbh vs Welspun Fintrade Limited & Anr on August 16, 2013 (indiankanoon.org)
- Severability or separability means arbitration clause is independent from main contract and remains valid even if contract is terminated, breached or invalid.
- The doctrine originated in France and was later recognized by the US Supreme Court and various courts, legislatures and institutional arbitration centers around the world.
- Doctrine is essential for international arbitration and allows arbitral tribunal to decide its own jurisdiction (kompetenz-kompetenz) as per Section 16 of the Arbitration and Conciliation Act 1996.
