arbitration Insights : with Jacob Mutevedzi
Most parties to commercial and investment disputes that are referred to arbitration have been known to argue that there is no agreement to arbitrate because the agreement containing the arbitration clause is void, has terminated due to effluxion of time or has been terminated by the parties. Those who make this contention assert that if an agreement is invalid or has terminated, the arbitration clause in such an agreement is equally invalid or has also terminated.
Consequently, such an arbitration clause cannot be relied on to institute arbitral proceedings. Counsel advancing this line of thinking frequently cite the dictum of Lord Denning in McFoy v. United Africa Company [1961] 3 All ER 1169 to the effect that “you cannot put something on nothing and expect it to stay there. It will collapse.”
In my experience, this argument is often advanced by governments or government agencies seeking to resile from bilateral investment treaties, concession agreements and joint ventures relating to, among other things, extraction of minerals. In one investment arbitration that I participated in, a government entity asserted that a mining joint venture was invalid because ministerial approval required by statute had not been granted prior to its conclusion. It was argued that since the joint venture agreement was invalid from inception, the tribunal to whom the dispute had been referred did not have jurisdiction.
If this line of argument were to be accepted, arbitration, as an alternative dispute resolution method, would be rendered ineffectual. To neutralise this mischief, the doctrine of separability was introduced and embraced in the practice of both domestic and international commercial arbitration. Separability essentially entails that although the arbitration clause forms part of the underlying contract, the agreement encapsulated in the arbitration clause is independent from the principal agreement. Stripped down to its bare bones, it essentially means that an arbitration agreement is separate from the principal agreement. It is not affected by the invalidity, resolution, termination or even non-existence of the principal agreement. This has been referred to variously as the “separability”, “severability” or “autonomy” of the arbitration clause. The autonomy of the arbitration clause from the principal agreement has been embraced in most jurisdictions as a principle which facilitates arbitration proceedings related to an agreement whose validity has been challenged.
SM Schwebel, in his article titled, “The Severability of the Arbitration Agreement in International Arbitration: Three Salient Problems, Cambridge, Grotius publications, (1987: 5) says:
“When the parties to an agreement containing an arbitration clause enter into an agreement, they conclude not one but two agreements, the arbitral twin of which survive any birth defects or acquired disability of the principal agreement.”
In Zimbabwe, separability of the arbitration clause has been codified in the Arbitration Act [Chapter 7:15]. Article 16 (1) of the Model Law, which is wholly incorporated in the Schedule to the Arbitration Act with slight modifications, states as follows:
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“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.” Emphasis added.
It is clear, therefore, that in terms of the applicable statute an arbitration clause is autonomous from the rest of the contract. Further, a finding that a contract is invalid by an arbitral tribunal shall not render the arbitration clause null and void. The fact that the underlying agreement is a nullity does not have any effect on the arbitration clause; similarly, the invalidity of the arbitration clause will not render the underlying agreement null and void. Properly considered the arbitration agreement and the principal agreement are two distinct contracts, the former exclusively speaks to the settlement of disputes between the parties while the latter spells out the rights and obligations of the parties.
The principle of Separability has been afforded frequent discussion in international commercial arbitration. In the case of Libyan American Oil Company (LIAMCO) v. Government of the Libyan Arab Republic, Award of 12 April 1977, Yearbook (1981: 89) the Tribunal held that:
“it is widely accepted in international law and practice that an arbitration clause survives the unilateral termination by the state of the contract in which it is inserted and continues in force even after the termination.”
In the case of Elf Aquitaine Iran (France) v. National Iranian Oil Company, YCA 1986: 97, the National Iranian Oil Company (NIOC) averred that the Exploration and Production Agreement concluded with Elf Aquitane was void from inception on account of a declaration by the Iranian government. Consequently, the Iranian government was not bound by the arbitration clause. The arbitral tribunal rejected this contention and held that:
“It is a generally recognised principle of the law of international arbitration that arbitration clauses continue to be operative, even though an objection is raised by one of the parties that the contract containing the arbitration clause is null and void.”
Any discussion on Separability is incomplete without mentioning the doctrine of Kompetenz Kompetenz. These principles work cheek in jowl. In his article, “Separability and Competence-competence in International Arbitration: American Review of international Arbitration, (2002) R. H. Smit describes Separability and Kompetenz Kompetenz as the “conceptual cornerstones” of international arbitration. Kompetenz Kompetenz and Separability are complementary doctrines.
Essentially, they both assist in answering the important question of who decides the jurisdiction of the arbitrator and seek to prevent premature judicial intervention in arbitral proceedings.
The principle of Separability enables a tribunal to continue with proceedings in the event that the validity of the main agreement is challenged. However, if it is the validity of the arbitration agreement itself that is directly challenged then the doctrine of Kompetenz Kompetenz is the one that enables the arbitral tribunal to proceed.
l Jacob Mutevedzi is a commercial lawyer and partner at Clairwood Chambers Attorneys and writes in his personal capacity. He can be contacted @ [email protected]
