Stretching separability to its yield point

Abstract

The 80-year doctrine of separability, considered today to be a ‘part of the very alphabet of arbitration law’, continues to generate debate about the extent of its application. Originating as a doctrine to preserve the jurisdiction of the tribunal to determine disputes where contracts had been terminated or unilaterally declared invalid, the doctrine has been robustly applied under English law to further the cause of arbitration. The doctrine has not only been accepted in other common law jurisdictions but has also been incorporated under arbitral statutes around the world to ward off novel challenges to the commencement of arbitration. However useful the doctrine might be, its elasticity has limits. While English law recognizes that the doctrine is not limitless and Singapore law follows suit, a recent judgment by seven judges of the Indian Supreme Court appears to have pushed the envelope by holding that the doctrine of separability entails ‘the general rule on the substantive independence of an arbitration agreement’ without restrictions. The article undertakes a comprehensive analysis of all three approaches and critically analyses various decisions which have been instrumental in keeping jurisprudence around the doctrine abuzz.

Introduction

…The contract is not put out of existence, though all further performance of the obligations undertaken by each party in favour of the other may cease. It survives for the purpose of measuring the claims arising out of the breach, and the arbitration clause survives for determining the mode of their settlement. The purposes of the contract have failed, but the arbitration clause is not one of the purposes of the contract.

-Lord Macmillan, Heyman v. Darwin [1942] AC 356, at 374.

Writing the above passage in 1942, Lord Macmillan had presumably not appreciated that the distinction he drew between the purpose of a contract and that of the arbitration clause would cut across time and transcend geographical boundaries into the development of the doctrine of separability. This doctrine, as it stands today, is recognized as a ‘part of the very alphabet of arbitration law’¹ and has been instrumental in not only shaping judicial inclinations that are pro-arbitration across the common law, but has also occupied centre stage for the arbitration community at large, capturing the imagination of lawmakers, scholars, arbitral institutions and students of the law.

Despite having been in existence for close to a century, the doctrine of separability continues to evolve and adapt, and is applied in a wide variety of contexts to achieve one singular objective—the enforcement of an arbitration agreement. While originally recognized as a means to protect the arbitration clause from the discharge of the main contract, it has now found its way into judicial deliberations on issues of applicable law, contract formation, and jurisdiction. Such dynamic application has invariably entailed a stretching of the doctrine beyond the form that it was originally envisaged to take. This has not been uniform and while English and Singapore law have applied the doctrine within its conceptual limits, a recent decision under Indian law has stretched the doctrine beyond its ‘yield point’.²

How far the doctrine has been stretched can be analyzed in four broad parts:

• Part I traces the history of the doctrine, going back five centuries to 1648, and demonstrates that the doctrine has not been applied in a formalistic manner, and has constantly evolved with time.

• Part II examines the English position as it stands today and argues that English law has certainly pushed the envelope in its application of the doctrine of separability. However, it has been successful in not stretching the conceptual limits of the doctrine beyond its yield point to one of disformation.

• Part III looks at the position under Singapore law and shows that the doctrine in Singapore has taken a trajectory similar to England but with wiggle room for the doctrine to be applied in a more robust manner until it reaches its yield point.

• Part IV looks at Indian law and its application of the doctrine of separability. It reasons that Indian law falls short of being ideal by having pushed the envelope way too far and is, at the moment, in danger of having exceeded the conceptual limits of the doctrine, therefore pushing the doctrine beyond its yield point.

The Pre-Heyman position: strong beginnings but no formal recognition of the doctrine of separability

The origins of the doctrine of separability are disputed. The prevailing view appears to be that the doctrine of separability was first laid down by the House of Lords in Heyman v. Darwin.³ However, there are authors who argue that the doctrine of separability had always existed under English law and was recognized almost two centuries before Heyman v. Darwin by the English Arbitration Act 1698 (the ‘1698 Arbitration Act’).⁴

The 1698 Arbitration Act, described as ‘one of the first arbitration statutes in the world’,⁵ was conceptualized to improve the enforceability of arbitration agreements.⁶ Before the enactment of the 1698 Arbitration Act, arbitration agreements were enforced by executing an ‘arbitration bond’ which gave a party the right to file an action in court if the arbitration agreement was revoked. Upon exercise of that right, the party going to court was also required to bear all of the costs associated with the litigation.⁷ This practice came under threat in 1697 with the enactment of the Administration of Justice Act which prohibited the recovery of penalties for any action on a bond executed for securing the performance of an agreement.⁸ As a result, a party seeking to enforce an arbitration agreement through an arbitration bond was only entitled to recover actual damages for non-performance which ‘were difficult to prove’ and were, therefore, ‘very limited in amount’.⁹ This weakened the enforceability of an arbitration agreement and made commercial parties resist the idea of submitting their disputes to arbitration.

It was against this backdrop that the 1698 Arbitration Act was enacted by Parliament, marking the first time that England brought into force an arbitration statute. It was drafted by John Locke who was tasked to ‘draw up a scheme of some method of determining differences between merchants by referees, that might be decisive without appeal’.¹⁰ Locke was of the view that traders and merchants would only use arbitration if there were effective legal structures in place to enforce arbitration agreements. Accordingly, there was a provision in the 1698 Arbitration Act for parties to register their arbitration agreement as a rule of court. Once this was done, any breach of the arbitration clause was punishable by contempt of court.¹¹ Registration of arbitration agreements also provided another advantage; it provided a framework for the enforcement of an award ‘as a rule of court’.¹² Due to the inclusion of these provisions, the 1698 Arbitration Act led to an increase in arbitration as parties increasingly registered their arbitration agreements as a rule of court.

Although the 1698 Arbitration Act provided a mechanism to make arbitration agreements enforceable, it may not be correct to say that it embodied the doctrine of separability. The 1698 Arbitration Act did not formally recognize the arbitration agreement as separable. At best, the 1698 Arbitration Act can be described as a statutory framework that sought to achieve the same end as the doctrine of separability but by using different means. Instead of treating arbitration clauses as separable, the 1698 Arbitration Act held parties to their bargain to arbitrate by making the consequence of non-compliance severe. This divergence in means is presumably because the 1698 Arbitration Act and the doctrine of separability address two different but equally real problems that obstruct the enforcement of arbitration agreements. The 1698 Arbitration Act addressed challenges to arbitration agreements arising from the recalcitrant conduct of a party which was a problem that was external to the contract between the parties. On the other hand, and as discussed below, the doctrine of separability shields the arbitration clause from attacks that emanate from within the main contract such as its repudiation, frustration, or because it is void ab initio.

Following the 1698 Arbitration Act and before the formal recognition of the doctrine of separability, there were occasions where English courts had to deal with challenges to the validity of arbitration agreements from within the main contract. One such case was Hamlyn v. Talisker [1894] AC 202 (‘Hamlyn’).

The House of Lords in that case was considering a plea that the matter had to be referred to arbitration on the basis of an arbitration clause that stated that any dispute would be settled by arbitration in London. This plea was opposed on the basis that the arbitration clause, much like the rest of the contract, was governed by Scottish law. Under Scottish law, the arbitration clause was invalid, ‘being a submission to unnamed arbitrators’.¹³

The House of Lords concluded that the arbitration clause, unlike the rest of the contract which was governed by Scottish law, was governed by English law. In arriving at this finding, the House of Lords recognized that it was not necessary for ‘all the rights of the parties under the contract’ to be governed by ‘the lex loci solutionis of the main portion of the contract’.¹⁴ On a textual interpretation of the arbitration clause, the House of Lords concluded that ‘the language of the arbitration clause’ indicated ‘very clearly that the parties intended that the rights under that clause should be determined according to the law of England’.¹⁵ Apart from the language of the arbitration clause, what weighed in the mind of the Court was the fact that the arbitration clause would be ‘absolutely null and void’ if governed by the law of Scotland.¹⁶

By recognizing that the law governing the arbitration clause could potentially be different from the law governing the main contract, Hamlyn unknowingly marked the beginning of the long-standing issue of whether it should be the law of the seat or the law of the main contract that governs the arbitration agreement in the absence of any indication from the parties. More importantly, Hamlyn demonstrates that even as early as 1894, English courts were inclined to take contractual interpretations favouring the enforcement of arbitration clauses. However, the lack of an objective doctrinal basis for the commencement of arbitration meant that a lot was left to the peculiar facts and circumstances that each case presented. An arbitration could only proceed without challenge if no party sought to have the arbitration clause invalidated. If a party did so, a reference to arbitration would depend on the manner in which the clause was framed, leading to a position of uncertainty. Such uncertainty was particularly exemplified in cases where the very existence of the main contract was under challenge. This is evident from the ‘trilogy of difficult decisions’ that are discussed below.¹⁷

The trilogy of difficult decisions in Johannesburg Municipal Council, Jureidini and Hirji Mulji: a period of uncertainty

During the period when ‘the trilogy of difficult decisions’ held the field, a party was effectively able to render an arbitration clause nugatory by challenging the existence of the main contract.

Part one of the trilogy was Johannesburg Municipal Council v. D. Stewart and Co. 1909 S.C. (H.L.) 53 (‘Johannesburg Municipal Council’) where the House of Lords was considering a contract under which a firm in Scotland was to supply an engineering plant to the Johannesburg Municipal Council. The contract provided that it was ‘enforceable in and subject to the jurisdiction of the English Courts’. The contract also contained a sufficiently broad arbitration clause stating that ‘any dispute or difference’ shall be referred to arbitration ‘within the meaning of the Arbitration Act of 1889 (England)’. The parties also executed an ancillary contract which contained a different arbitration clause.¹⁸

The Johannesburg Municipal Council brought an action for damages in the Scottish courts against the contractor.¹⁹ Apart from asserting that the contractor had breached the contract, the Municipal Council averred that the entirety of the contract had been repudiated by the contractor.²⁰ On the other hand, the contractor asserted that Scottish courts had no jurisdiction and the matter was to be disposed of by arbitration in England.²¹

Lord Loreburn, as he then was, held that a reference to arbitration was not sustainable on the basis that the arbitration clause would not survive if it was established that the contract was repudiated:

If the course of action which is established be that there has been repudiation or a breaking of contract in the sense that the contract has been frustrated by the breach, then it would not be within the arbitration clauses in either of these contracts. If it be established merely that a particular machine, or a particular part of the contract, has not been executed as it should be, but that the fault is such in degree and character that it can be compensated by damages without frustrating the contract, then it would normally be a question for arbitration within the clauses…. (Emphasis Supplied)²²

The impact of a repudiation of the main contract on the arbitration clause is more clearly articulated in the judgment of Lord Shaw, who held that this was ‘a case of total repudiation upon the averments’ and as these averments stood, the contract was ‘wholly repudiated’.²³ On this basis, Lord Shaw concluded that it was not ‘sound law’ to permit parties ‘to repudiate a contract and thereupon specifically to found upon a term’ in the same contract.²⁴

The sequel to Johannesburg Municipal Council was the decision in Jureidini v. National British and Irish Millers Insurance Company Limited [1915] A.C. 499 (‘Jureidini’). In that case, a claim was raised under an insurance policy which contained an arbitration clause.²⁵ This arbitration clause was relatively narrow as compared to the arbitration clause in Johannesburg Municipal Council and provided for arbitration where there were disputes ‘as to the amount of any loss or damage’.²⁶ The insurance policy also provided that all benefits under the policy would be forfeited if the claim was found to be fraudulent.²⁷

The insured company raised the claim after its goods were destroyed by fire.²⁸ The insurer rejected the claim because the representatives of the insured company had been tried for arson in respect of the fire.²⁹ The insured company accordingly commenced court proceedings against the insurer and prevailed in the first round of litigation.³⁰ However, on appeal, the Court of Appeal held the action could not have been maintained as there had been no arbitration to assess the quantum of damages.³¹

Notwithstanding the widely different framing of the arbitration clause, the House of Lords applied Johannesburg Municipal Council to hold that the arbitration clause, being ‘a subordinate term of the contract’, could not be enforced where the contract in its entirety stood repudiated.³²

The final instalment of the trilogy was Hirji Mulji v. Cheong Yue Steamship Company Limited [1926] A.C. 497 (‘Hirji Mulji’). On this occasion, the Privy Council was considering a charterparty that contained a broad arbitration clause providing for ‘any dispute under the charter’ to be referred to arbitration in Hong Kong.³³ Once again, relying on Johannesburg Municipal Council and despite the broad ambit of the arbitration clause, the Privy Council concluded that no reference to arbitration could be made. In arriving at this finding, the Privy Council held that an arbitration clause was ‘not a phoenix’ that could be raised by one of the parties ‘from the dead ashes of its former self’, and had come to an end once the charterparty had been frustrated.³⁴

The English position as it stood after Hirji Mulji was alarming to commercial parties who were keen to settle their disputes by arbitration. No matter how broad or narrow an arbitration clause was, no reference to arbitration was granted once a challenge was made to the main contract. In fact, a party was only required to aver that the main contract had come to an end without any further proof of its assertions. A mere averment was sufficient to render the arbitration nugatory. Consequentially, English law at the time did not permit the issue of whether a repudiation was valid or not to be determined in an arbitration.

There was a dire need for certainty to invite any confidence from a commercial party in arbitrating in England. That certainty could only have been ushered in by way of doctrine that fundamentally re-invented the conception of an arbitration clause, which until then was viewed as an indivisible part of a contract, whose survival hinged on that of the contract, irrespective of whether that was what the parties wanted. This is precisely what the House of Lords did in Heyman v. Darwin which is dissected in the next section.

The decision of the House of Lords in Heyman v. Darwin: ushering in a new era

The ‘trilogy of difficult decisions’ came to be overruled by the House of Lords in Heyman v. Darwins Limited [1942] H.L. (E) 356 (‘Heyman’). In Heyman, the House of Lords was considering a service contract which contained an arbitration clause that referred any dispute that arose between the parties ‘in respect of’ their agreement to arbitration under the Arbitration Act 1889 or ‘any then subsisting statutory modification thereof’.³⁵

The controversy between the parties was whether a reference to arbitration could be made once a party had repudiated and evinced an intention not to perform the contract.³⁶

The House of Lords chose not to follow the trilogy. Four concurring judgments were written with different reasons on offer for why the arbitration clause remained unaffected by a repudiation of the contract.

The least radical judgment was that of Lord Viscount Simon LC who examined the language of the arbitration clause in the contract and held that it was ‘as broad as can well be imagined’.³⁷ He proceeded to state that such an arbitration clause embraced any dispute ‘in respect of the agreement’ including disputes ‘as to their respective rights’ in the event of a repudiation, including the damage resulting from such repudiation and whether the repudiation goes to the root He proceeded to state that such an arbitration clause embraced any dispute between the parties ‘in respect of the agreement’ including disputes in relation to repudiation and the damage resulting from such repudiation as well as whether the repudiation goes to the root of the contract, discharging parties from further performance.³⁸ On the facts of the case, he concluded that the parties did not deny the very existence of the agreement but argued about whether the agreement had, in fact, been repudiated.³⁹ That was a dispute arising out of the agreement which was sufficient to confer jurisdiction on an arbitrator. Therefore, even if the arbitrator found that the contract had come to an end, that finding did not oust the arbitrator’s jurisdiction.⁴⁰

Lord Viscount Simon’s decision falls under the umbrella of the approach taken in Hamlyn. Much like the House of Lords in Hamlyn, he also proceeded strictly on the basis of the language of the arbitration clause, and it was for this reason that he referred the parties to arbitration. This was a view that was rooted in the subjective intention of the parties. It was rather fortuitous that he did not write the only judgment in the case as that would have left English law in only a marginally better position. It would take English law to a position where the validity of arbitration clauses would be upheld under particular facts and circumstances with a significant amount of weight accorded to the manner in which parties framed their arbitration clauses.

Despite taking a safe approach to arrive at a positive finding, Lord Viscount Simon categorically opted not to follow Johannesburg Municipal Council, finding that Lord Loreburn’s observations were ‘obscure’.⁴¹ He also did not find Lord Shaw’s finding to be compelling, very rightly observing that the language of an arbitration clause could not be construed with reference to the actions of the parties and ought to have been construed only in accordance with its terms.⁴² In any case, Lord Viscount Simon L.C. found that Johannesburg Municipal Council turned on the proposition that English law did not compel reference to arbitration, even if the arbitration clause was applicable, which was not the issue in Heyman.⁴³

On Jureidini, Lord Viscount Simon L.C. held that the majority in that case had refused reference to arbitration on the basis that the arbitration clause was restricted in scope and only applied ‘to differences as to amount of loss’.⁴⁴ Similarly, with respect to Hirji Mulji, he held that the finding of the Privy Council on the ‘effect of frustration of contract on an arbitration clause…must not be taken as having established a general rule’, finding that there was no reason why ‘a widely drawn arbitration clause should not embrace a dispute whether a party is discharged from future performance by frustration, whether the time for performance has arrived or not’.⁴⁵

On the other hand, Lord Wright and Lord Porter emphasized the special nature of an arbitration clause, stating that an arbitration clause ‘is collateral to the substantial stipulations of the contract’ and ‘is merely procedural and ancillary’, being a mode of settling disputes.⁴⁶ Accordingly, any reference to arbitration depended ‘on the construction of the collateral agreement contained in the arbitration clause’.⁴⁷ Bearing this broader principle in mind, according to Lord Wright, if there was a repudiation of the contract where one party without denying the existence of the contract denied that the contract was binding on account of breach, that did not invalidate the arbitration clause and the parties could be referred to arbitration.⁴⁸ Even in cases of anticipatory breach, Lord Wright recognized that the contract ‘remains alive for the awarding of damages either for previous breaches or for the breach which constitutes the repudiation’.⁴⁹

Lord Macmillan (who delivered his opinion for himself and Lord Russell) came to the same conclusion as Lord Wright and Lord Porter, but characterized the arbitration clause in a different manner. Rather than finding that it was a collateral contract, he found that the arbitration clause, unlike other clauses in the contract, did ‘not impose on one of the parties an obligation in favour of the other’.⁵⁰ He also stated that an arbitration clause unlike other clauses in the contract could ‘be specifically enforced by the machinery of the Arbitration Acts’.⁵¹ It was on account of this difference that the arbitration clause survived the repudiation of a contract ‘whether acquiesced in by the other party or not’ which at best led to the failure of the purposes of the contract and the arbitration clause was not one such purpose.⁵²

Although it is Lord Macmillan’s judgment that is most often cited as representing the doctrine of separability,⁵³ it is Lord Wright and Lord Porter’s articulation that was adopted in the decisions following Heyman. This is most evident in Lord Diplock’s judgment in Bremer Vulcan as well as Lord Ralph Gibson’s judgment in Harbour Assurance, both of which are discussed in greater detail in the next section.

Arguably it is, in fact, Lord Wright and Lord Porter’s articulation which also subsequently received statutory imprimatur in Section 7 of the English Arbitration Act 1996. This is evident from the language of Section 7 which speaks of ‘an arbitration agreement which forms or was intended to form part of another agreement’, indicating an emphasis on the collateral nature of an arbitration agreement. Article 16 of the UNCITRAL Model Law 1985 expresses this articulation in stronger terms by providing that ‘an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract’.

Despite the differing reasons offered by each of the judges, there is one common aspect that ties all of the four views together. All of the judges (except arguably, Lord Porter) took the view that an arbitration clause could not be said to be in existence if there was a dispute as to whether there ever was a contract ‘in the sense of an actual consensus ad idem’ or if the contract was void ab initio. This is best expressed in Lord Viscount Simon’s judgment:

An arbitration clause is a written submission agreed to by the parties to the contract and like other written submissions to arbitration, must be construed according to its language and in the light of the circumstances in which it is made. If the dispute is whether the contract which contains the clause has ever been entered into at all, that issue cannot go to arbitration under the clause, for the party who denies that he has ever entered into the contract is thereby denying that he has ever joined in the submission. Similarly, if one party to the alleged contract is contending that it is void ab initio (because, for example, the making of such a contract is illegal), the arbitration clause cannot operate…. (Emphasis Supplied)⁵⁴

Lord Macmillan and Lord Wright concurred with the above view.⁵⁵

It is surprising that Lord Viscount Simon took the view set out above given his emphasis on the language of the arbitration clause and the intention of the parties. It is difficult to reconcile his view that parties could agree to a broad arbitration clause which ‘embraces any dispute between the parties’ but not take the benefit of such a broad arbitration clause when it came to disputes about whether the contract was ever entered into. As will be seen below, this contradiction was recognized and addressed by Lord Ralph Gibson J. in Harbour Assurance Co. (U.K.) Limited v. Kansa General International Insurance Co. Ltd [1993] WLR 42.

Lord Porter’s position was slightly more ambiguous. While he was in broad agreement with the above view, he was not as categorical. In fact, he held that it was possible to refer disputes relating to the initial invalidity of a contract where the language of the arbitration clause was broad enough to encompass such disputes:

Where the contract in itself is repudiated in the sense that its original existence or binding force is challenged, e.g., where it is said that the contract is voidable ab initio…the parties are not bound by any contract and escape the obligation to perform any of its terms including the arbitration clause unless the provisions of that clause are wide enough to include the question of jurisdiction.⁵⁶

Therefore, although Heyman brought in a wider range of disputes within the scope of arbitration, it continued to follow a guarded approach; while an arbitrator could now go into the validity of a repudiation, the arbitrator could still not consider disputes relating to the initial invalidity of a contract. The guarded approach taken by Heyman was subsequently expanded by the Court of Appeal in Harbour Assurance Co. (U.K.) Limited v. Kansa General International Insurance Co. Ltd [1993] WLR 42 (‘Harbour Assurance’) which is discussed later in this article. However, based on the discussion of the facts in Heyman, it appears that there was no need for the House of Lords to go into whether or not an arbitration clause survived an agreement which was invalid to begin with. Therefore, the observations of the House of Lords on initial invalidity of the contract appear to have been obiter dicta and ought not to have been followed in subsequent cases, a point aptly recognized by Lord Leggat in Harbour Assurance.

It is also clear that Heyman recognized the arbitration clause as a separate agreement for the limited purpose of protecting the arbitration clause from the discharge of the main contract. As the following sections will demonstrate, English courts have been steadfast in applying this limited recognition of separability, culminating in its statutory recognition by the English Arbitration Act 1996.

The position under English law after Heyman

The initial application of Heyman: robust and fastpaced

Heyman was followed by a period of five decades where English courts put the doctrine of separability to use in a number of contexts to achieve pro-arbitration outcomes. These included cases in which English courts refused to apply the doctrine in a formulaic manner. One such case was in David Taylor and Sons v. Barnett Trading Co [1953] 1 W.L.R 562 (‘David Taylor’), in which the Court of Appeal was considering an application to set aside an award.⁵⁷ The facts involved a contract for the sale of Irish stewed steak at a price which was admittedly in excess of what was permitted under the applicable law. A claim was raised for damages which was granted by the umpire. This award was challenged on the ground that the umpire was guilty of misconduct because he had enforced a contract that was illegal.⁵⁸

Lord Denning L.J. held that the contract was indeed illegal. Although the case did not involve a challenge to the jurisdiction of the arbitrator, Lord Denning L.J. dealt with the submission that an arbitrator could not award damages for a breach of a contract that he knew to be illegal by observing that ‘[i]f a contract is illegal, then arbitrators must decline to award upon it just as the court would do’.⁵⁹ What Lord Denning L.J. was effectively saying was that there was no embargo on such a matter to proceed to arbitration as long as the arbitrator held that no damages were payable in such cases.

This observation is significant because it marked a departure from the guarded approach taken by the House of Lords in Heyman where, as set out above, the House of Lords held that disputes relating to the initial invalidity of the contract could not be referred to arbitration. Although these observations were obiter given that Lord Denning was not considering whether the arbitrator had jurisdiction to entertain the claim, it is nonetheless significant that he said nothing about an arbitrator’s lack of jurisdiction to go into an illegal contract. The silence in this regard in Denning L.J.’s judgment was subsequently read by the Court of Appeal in Harbour Assurance as suggestive of the fact that Denning L.J. was of the view that an arbitrator had jurisdiction to determine whether or not a contract is illegal, thereby aiding in comprehensively nullifying the impact of the limitation to the doctrine of separability set out in Heyman.

This was followed by two significant decisions handed down by the House of Lords. Although the House of Lords was not considering the validity of the arbitration clause in these cases, the House of Lords employed the doctrine of separability in the context of whether an arbitration ought to be injuncted for non-prosecution of a claim. The first of these two decisions was Bremer Vulkan v. South India Shipping Corporation [1981] AC 909 (‘Bremer Vulkan’) where the House of Lords was considering whether an anti-arbitration injunction ought to be granted for non-prosecution of a claim. Although much of the discussion in Bremer Vulkan was around whether an arbitrator has the power to dismiss claims for want of prosecution, the Court made observations on the nature of an arbitration clause that seems to echo the approach taken in Heyman.

Much like in Heyman, the Court conceived the arbitration clause as separate only in the context of repudiation of the main agreement. When divorced from such context, the arbitration clause, much like any other term of the contract giving rise to primary obligations, was capable of breach and provided the innocent party a claim for damages.

This is evident from Lord Roskill’s judgment where he held that an arbitration clause, much like any other term of the contract giving rise to primary obligations, was capable of being ‘broken’ or becoming ‘incapable of performance’.⁶⁰ Where the breach ‘took the form of repudiatory conduct’, there was no principled difference ‘between conduct evincing an intention not to perform an agreement to arbitrate and such conduct evincing an intention not perform any other type of contract’.⁶¹ Such conduct when accepted by the innocent party would give the innocent party the right to pursue appropriate remedies including damages as well as an injunction. Similarly, Lord Roskill also stated that there was no reason why ‘contracts to refer disputes to arbitration’ should not be treated as part of the general law of contract so as to read an implied term into the arbitration agreement.⁶²

Lord Diplock J. agreed with this view and stated that ‘the unperformed primary obligations of the parties under an arbitration agreement’ could be brought to an end by frustration or repudiatory breach.⁶³ According to Lord Diplock, if accepted, this gave the innocent party the right to bring the ‘unperformed primary obligations’ of both parties to an end by applying to the High Court for an injunction of the arbitration.⁶⁴

Therefore, both Lord Roskill and Lord Diplock upheld the limited context in which the doctrine of separability was laid down, to conclude that an arbitration agreement is like any other primary obligation of the parties when divorced from the larger context of repudiation of the main contract.

The second significant decision was Paal Wilson v. Partenreederei Hannah Blumenthal [1983] AC 854 where the House of Lords through Brandon J. reiterated that an agreement to refer a dispute to arbitration can ‘like any other contract’ be discharged by frustration.⁶⁵ Lord Diplock, who was once again part of the bench, accepted that an arbitration clause also creates primary obligations which come into operation upon the following future events:

…(1)the coming into existence of a dispute between the parties as to their primary or secondary obligations under the main contract; and (2) the invoking of the arbitration clause by a party to the contract….⁶⁶

However, when coupled with the larger context of repudiation of the main contract, Lord Diplock once again stated that an arbitration clause survived the termination of a main contract:

An arbitration clause is collateral to the main contract in which it is incorporated and it gives rise to collateral primary and secondary obligations of its own. Those collateral obligations survive the termination (whether by fundamental breach, breach of condition or frustration) of all primary obligations assumed by the parties under the other clauses in the main contract. (Emphasis Supplied)⁶⁷

Therefore, questions of separability arose in circumstances which were not initially contemplated by Heyman. Although Heyman was decided in the context of validity, the doctrine was invoked to achieve pro-arbitration outcomes in Bremer Vulcan and Paal Wilson where the House of Lords concluded that an arbitration had to be concluded in an expedient manner. The final frontier that was to be conquered by the doctrine of separability was in cases involving the initial invalidity of the main contract which, in terms of the dictum laid down in Heyman, could not proceed to arbitration. However, during this period, English courts overcame this position by distinguishing Heyman in order to preserve the jurisdiction of arbitral tribunals to consider issues relating to the initial invalidity of the main contract.

For instance, Heyman was distinguished by the Court of Appeal in Ashville Investments v. Elmer Limited [1989] Q.B. 488 (‘Ashville Investments’). In that case, the Court of Appeal was considering whether an arbitrator had jurisdiction to entertain a claim for rectification of the contract on the basis that the contract had been entered into as a result of a mistake as well as a claim for damages for innocent misrepresentation. Although Lord May LJ recognized that the law as it stood then was ‘that an arbitrator does not have jurisdiction’ to rule upon the initial existence of the contract, he held that the dispute on the facts of the case was ‘not whether the contract was ever entered into at all; nor whether it was void ab initio’.⁶⁸ However, a second and more crucial basis that he offered for his decision was that the dictum laid down in Heyman on the existence of an arbitration clause where there was a dispute around the initial validity of the contract was obiter.⁶⁹

Therefore, with the decisions in David Taylor and Ashville Investments, the stage had been set for a more robust reading of the doctrine of separability as laid down in Heyman. That is precisely what the Court of Appeal did in Harbour Assurance Co. (U.K.) Limited v. Kansa General International Insurance Co. Ltd [1993] WLR 42 (‘Harbour Assurance’), thereby strengthening the enforceability of an arbitration clause.

The strengthening of the doctrine of separability in Harbour Assurance

The final frontier that had been stunting the growth of the doctrine of separability was conquered in Harbour Assurance. In that case, there was a reinsurance contract containing an arbitration clause which provided that ‘all disputes or differences’ arising out of the agreement would be referred to arbitration seated in London. The plaintiffs in the case asserted that the contract in its entirety was void because the defendants were not registered or approved to effect or carry on the insurance business in Great Britain. The defendants applied for a reference to arbitration.

In the earlier round of litigation, Steyn J. dismissed the application for a stay of court proceedings on the basis that ‘he was compelled by authority to hold that the principle of separability could not extend so as to enable the arbitrator to determine whether or not the contract….is in fact void ab initio for illegality’.⁷⁰ In arriving at such a finding, Steyn J. relied on the observations of Lord Denning in David  Taylor set out above.⁷¹

On appeal, the Court of Appeal disagreed with Steyn J.’s conclusion on the limits of David  Taylor and set aside his decision. Although three separate judgments were authored, it was on the same basis that the judges in appeal overcame the limitation set out in Heyman where a contract was alleged to be invalid to begin with. It was unanimously held that there was no need for the House of Lords in Heyman to have gone into whether the doctrine of separability would be applicable in cases where the contract was invalid.⁷² As set out above, the facts of the case in Heyman involved a discharge by repudiation and, therefore, any observation which was not relevant to those set of facts was obiter. This was a simple yet effective manner to overcome the limitations of Heyman and could not have come at a better time when, in the words of Leggat J., ‘[t]he tide was flowing’ in favour of the arbitrator determining the issue of initial illegality of the contract.⁷³

All the appellate judges came to a landing on the application of the doctrine of separability. They were unanimously of the view that any alleged invalidity of the contract should impeach the arbitration clause in particular and if that was not shown, the arbitration clause survived. This conclusion flowed from the understanding that an arbitration clause was a self-contained contract collateral to the containing contract. Much like Lord Diplock in Bremer  Vulcan, the appellate judges relied on Lord Wright and Lord Porter’s conception of separability in Heyman.

Harbour  Assurance was adopted by the English Arbitration Act 1996 without too much modification. However, it has not been adopted as is into the Model Law. While it was recognized in Harbour  Assurance by Hoffman J. that ‘[t]here will obviously be cases in which a claim that no contract came into existence necessarily entails a denial that there was any agreement to arbitrate’, Article 16 of the Model Law states that the arbitral tribunal may rule on any objections ‘with respect to the existence or validity of the arbitration agreement’.⁷⁴

As discussed in the previous sub-section, the Court and Ralph Gibson J. in particular also negatived the view taken in Heyman that an arbitration clause cannot exist in a void contract because ‘nothing can come from nothing’. What is interesting is that Ralph Gibson J overcame this view using the same principles of ordinary contract interpretation and party intent which formed the basis for Lord Viscount Simon J’s judgment in Heyman. Ralph Gibson J. stated that the view taken that ‘nothing can come from nothing’ was a view that ‘does not depend upon the terms or construction of the arbitration clause’ and therefore following such a view would thwart the intention of the parties where the clause in question ‘was intended to survive the validity of the contract’.⁷⁵

The effect of Denning L.J.’s judgment in David Taylor was also dealt with by all of the judges. Although the judges characterized Denning L.J.’s observations as obiter, stating that David  Taylor was not on point on whether an arbitrator ‘did or did not have jurisdiction’ to determine whether an arbitration clause was unlawful, Denning L.J.’s observations were enhanced to suggest that Denning L.J. had taken the view that an arbitrator had the jurisdiction to determine whether a contract was illegal:

If Denning L.J. had in mind the point now in issue…… he would have said, ‘If it is alleged that a contract is illegal, he must decline to consider whether it is’ and he would not have said, ‘just as the court would do’ because the court would not decline to give judgment but would decide whether it was illegal and give judgment accordingly.⁷⁶

Therefore, although Denning L.J. did not expressly deal with Heyman or the doctrine of separability, his judgment curiously played a significant role in the incremental development of the doctrine of separability.

Crucially, Hoffman J. recognized that the doctrine of separability was not unlimited, stating that the arbitration clause could only be recognized as separable ‘for some purposes’.⁷⁷ Therefore, although the doctrine of separability was robustly applied, lending itself to a variety of contexts right from Heyman up until Harbour Assurance, English courts spoke with one voice when it came to this aspect of the doctrine of separability.

The decision in Harbour Assurance undoubtedly strengthened the doctrine of separability as set out in Heyman. When it came to attacks on the validity of the arbitration clause based on the initial validity of the main contract, Harbour Assurance laid down the following two-pronged test to determine whether or not a dispute could be referred to arbitration:

• (1) The first step was to ascertain the basis for why the main contract was alleged to be invalid;

• (2) The second step was to determine whether the arbitration clause also suffered from the same defect as the main contract, leading to its invalidity.

Therefore, post Harbour Assurance, English law took two different approaches to ascertaining whether a dispute could be referred to arbitration where there was a challenge to the existence of the main contract. If the existence of the main contract was in question on account of discharge by repudiation or frustration, that did not, in any manner, affect the reference to arbitration. Due to the separability of the arbitration clause, no further enquiry into the impact of the discharge on the arbitration clause was required and a reference to arbitration would be directed. On the other hand, if the main contract was alleged to be invalid on account of illegality or any other reason which led to it being void ab initio, a far more exacting test was adopted to test the validity of the arbitration clause. In such cases, it was required to be additionally determined whether the arbitration clause suffered from the same defect as the main contract.

Legislative developments following Harbour Assurance: recognition of the doctrine of separability in the English Arbitration Act 1996

The doctrine of separability came to be statutorily incorporated in Section 7 of the English Arbitration Act, 1996 (‘1996 Act’). However, before delving into a discussion of Section 7 of the 1996 Act, it is important to note the justification provided by the Departmental Advisory Committee on Arbitration (‘DAC’) in its report of June 1989 for the inclusion of such a provision.

The DAC recognized that the principle of separability was already a part of English law. However, a statutory provision was considered to be desirable because of the principle of separability set out in Article 16(1) of the Model Law. While taking such a view, the DAC opted to keep the provision separate from the provision on jurisdiction of the arbitral tribunal on the basis that ‘the doctrine of separability is quite distinct from the question of the degree to which the tribunal is entitled to rule on its own jurisdiction.’ ⁷⁸ When it came to the text of the provision, the DAC opted not to deviate from the Model Law and recommended following‘the relevant part of article 16 of the Model Law more closely’.⁷⁹ Crucially, the DAC clarified that while drafting Section 7 they intended ‘to make clear that the doctrine of separability is confined to the effect of invalidity etc of the main contract on the arbitration agreement’ rather than ‘a free-standing principle’.⁸⁰

The DAC did not provide any justification for its view that separability is not a question relating to the jurisdiction of the tribunal. That also does not appear to be the approach taken by English courts leading up to the DAC report. In fact, the House of Lords in Heyman recognized that the doctrine of separability is inherently linked to the question of the Tribunal’s jurisdiction. The DAC’s view also does not seem too convincing when one sees Section 30 of the 1996 Act which is said to contain the relevant rule defining the jurisdiction of the arbitral tribunal. Section 30 states that the arbitral tribunal may ‘rule on its own substantive jurisdiction’ including on questions relating to whether ‘there is a valid arbitration agreement’.⁸¹ The doctrine of separability is inextricably interlinked to the question of whether there is a valid arbitration agreement in any given case. The DAC could have very well taken the route taken by the Model Law when statutorily recognizing the doctrine of separability.

The DAC was also called upon to lay down rules relating to a live issue under English law at the time on whether an arbitration clause would also stand assigned in an assignment of rights under the substantive agreement.⁸² However, the DAC refused to lay down such a rule, stating that such an assignment could potentially be governed by a system of foreign law governing the contract.⁸³ Any such rule would necessarily have to state that the arbitration clause would also stand assigned in an assignment of rights. A position to the contrary would be inconsistent with the limited purpose for which English law recognized the arbitration agreement as separate. The DAC would have a difficult time explaining why an arbitration clause would be separate for the purposes of an assignment where the validity of an arbitration clause was not in question, in view of the express language of Section 7 of the 1996 Act.

The recommendation of the DAC was carried into Section 7 of the 1996 Act which states as follows:

Separability of arbitration agreement.

Unless otherwise agreed by the parties, an arbitration agreement which forms or was intended to form part of another agreement (whether or not in writing) shall not be regarded as invalid, non-existent or ineffective because that other agreement is invalid, or did not come into existence or has become ineffective, and it shall for that purpose be treated as a distinct agreement.

The text of Section 7 makes it clear that the doctrine of separability under English law is limited only to saving the validity of the arbitration clause where the existence of the main contract is in question. To that extent, Section 7 has codified the jurisprudence laid down by English courts, including in Heyman and Harbour  Assurance. This is evident from the use of the phrase ‘for that purpose’. Therefore, the position under English law that an arbitration clause is a distinct agreement for the purpose of a challenge to its validity came to be transcended into a statutory rule under the 1996 Act.⁸⁴

Application of the doctrine of separability after the 1996 act

English courts had occasion to deal with the doctrine of separability in a number of contexts after the passage of the 1996 Act. This section of the article deals with English case law arising in three different contexts: traditional cases where the contract was alleged to be illegal, cases about the determination of applicable law to the arbitration agreement, and cases about contract formation.

The traditional use cases: invalidity of the main contract

In Premium Nafta Products Limited v. Fili Shipping Co Limited and Ors [2007] UKHL 40, the House of Lords was considering the scope and effect of arbitration clauses in eight charterparties between eight companies (forming part of a Russian state corporation) and eight charterers.⁸⁵ All eight charters were rescinded on the ground that they had been procured by fraud. The issue before the House of Lords was whether this could be referred to arbitration.⁸⁶

Lord Hoffman’s adjudication of the issue has added additional armour to protect the body of arbitration law. His analysis on the enforceability of the arbitration clause, based on the presumption that a rational businessman would not have intended that ‘questions of validity or enforceability [be] decided by one tribunal’ and questions about its performance decided by another, marked the first application of what is known today as the ‘one-stop shop’ principle.⁸⁷

While considering the submission of the owners that the arbitration clause was not binding on them in view of the allegation of bribery, Lord Hoffman began by reiterating the doctrine of separability enacted in Section 7 of the 1996 Act:

The principle of separability enacted in section 7 means that the invalidity or rescission of the main contract does not necessarily entail the invalidity or rescission of the arbitration agreement. The arbitration agreement must be treated as a ‘distinct agreement’ and can be void or voidable only on grounds which relate directly to the arbitration agreement. Of course there may be cases in which the ground upon which the main agreement is invalid is identical with the ground upon which the arbitration agreement is invalid. For example, if the main agreement and the arbitration agreement are contained in the same document and one of the parties claims that he never agreed to anything in the document and that his signature was forged, that will be an attack on the validity of the arbitration agreement. But the ground of attack is not that the main agreement was invalid. It is that the signature to the arbitration agreement, as a ‘distinct agreement’, was forged. Similarly, if a party alleges that someone who purported to sign as agent on his behalf had no authority whatever to conclude any agreement on his behalf, that is an attack on both the main agreement and the arbitration agreement. (Emphasis Supplied)⁸⁸

However, Lord Hoffman was of the view that on the facts of the case, the arbitration agreement could not be considered to be invalid even if the main agreement had been procured by bribery. That was because the owners were unable to show that the arbitration agreement in particular had been procured by bribery:

In the present case, it is alleged that the main agreement was in uncommercial terms which, together with other surrounding circumstances, give rise to the inference that an agent acting for the owners was bribed to consent to it. But that does not show that he was bribed to enter into the arbitration agreement. It would have been remarkable for him to enter into any charter without an arbitration agreement, whatever its other terms had been. Mr Butcher QC, who appeared for the owners, said that but for the bribery, the owners would not have entered into any charter with the charterers and therefore would not have entered into an arbitration agreement. But that is in my opinion exactly the kind of argument which section 7 was intended to prevent. It amounts to saying that because the main agreement and the arbitration agreement were bound up with each other, the invalidity of the main agreement should result in the invalidity of the arbitration agreement. The one should fall with the other because they would never have been separately concluded. But section 7 in my opinion means that they must be treated as having been separately concluded and the arbitration agreement can be invalidated only on a ground which relates to the arbitration agreement and is not merely a consequence of the invalidity of the main agreement. (Emphasis Supplied)⁸⁹

Therefore, in traditional cases where the validity of the arbitration clause was impeached on the basis of the invalidity of the main contract, English courts have applied the doctrine of separability in the same manner as Harbour Assurance and have applied a two-tier test to determine whether the arbitration agreement is also hit by the alleged invalidity of the main contract.

Contract formation

English courts have been hesitant to apply the doctrine of separability when it comes to questions of whether there was an arbitration agreement in the first place.

In JSC Zestafoni G Nikoladze Ferroalloy Plant v. Ronly Holdings Limited [2004] EWHC 245 (Comm) (‘JSC Zestafoni’), the Commercial Court was considering a challenge to a partial award. One of the grounds of challenge to the partial award was that the arbitrator did not have jurisdiction.⁹⁰ In order to better understand the basis for the challenge, it is necessary to appreciate the factual matrix of the case.

The dispute between the parties arose from an agreement between Ronly Holdings (‘Ronly’) and Fapet International Commercial Trading Inc. on one hand, and Zestafoni Plant and Redwater Overseas Limited on the other.⁹¹ The agreement consisted of a ‘Law and Jurisdiction’ clause which provided for arbitration seated in London with one arbitrator to be appointed by each party and a third arbitrator by the two appointees.⁹² However, instead of following this procedure, Ronly and Zestafoni Plant agreed to ignore the arbitration clause in the agreement and proceeded to refer the claims to a sole arbitrator.⁹³

A ground for challenge was that under the terms of the agreement, Ronly and Zestafoni Plant could not create a ‘binding sole arbitrator agreement’, particularly because the agreement provided that any variation to the contract could only be agreed to in writing.⁹⁴ In response, it was asserted that the variation clause in the agreement did not apply to the arbitration clause as it was a separate agreement.⁹⁵

The Commercial Court re-affirmed that an arbitration agreement was separate for a limited purpose and this was a case where the doctrine of separability could not be applied:

The argument that the doctrine of separability of agreements to arbitrate gives rise to a free-standing agreement capable of conferring rights and imposing obligations in circumstances where the underlying agreement may be said to be voidable, illegal or no longer of continuing effect does not, in my judgment, necessarily prevent all terms of the underlying agreement having any effect on the arbitration agreement which is included in the overall contract document. In the present case, the question arises whether on the proper construction of clause 18 the mutual intention of the parties was that the words ‘any Clause of this Agreement’ should include the Law and Jurisdiction clause.

There is nothing in the intrinsic character of an arbitration agreement as having an attribute of separability which prevents it from being included in that phrase. The fact that in substance it may have that attribute does not prevent it being aptly described as a ‘Clause of this Agreement’. The phrase simply refers to any one of the clauses collected together in the document which all the parties have signed. The function of clause 18 in regulating the means of waiver or variation of the terms in that document is in no sense inconsistent with the separability principle: it is simply a term which on its proper construction is overtly directed to all the clauses in the document, including the clause containing the agreement to arbitrate.⁹⁶

The application of separability to questions of contract formation was also considered by the Court of Appeal recently in DHL Project and Chartering Limited v. Gemini Ocean Shipping Co Limited [2022] EWCA Civ 1555. The Court of Appeal concluded that the doctrine of separability does not play a role in determining issues of contract formation, holding that separability does not apply where ‘the issue is whether agreement to a legally binding arbitration agreement has been reached in the first place’.⁹⁷

Therefore, English courts have upheld the limited scope of the doctrine in cases involving issues of contract formation.

The application of the doctrine in both traditional cases and cases of contract formation have been consistent and therefore, relatively straightforward. As discussed below, this is not the case when it comes to the use of the doctrine in cases involving the determination of applicable law.

Applicable law

The doctrine of separability was initially kept away from the issue of the law applicable to an arbitration agreement.

In Sulamerica Cia Nacional de Seguros SA and Ors v. Enesa Engenharia SA and Ors. [2012] EWCA Civ 638 (‘Sulamerica’), the Court of Appeal was considering an appeal against an order continuing an anti-suit injunction restraining the appellants from continuing proceedings against the respondents in Brazilian courts. The dispute between the parties arose from two insurance policies covering a hydroelectric plant in Brazil. The insured parties raised a claim under the policies which was denied by the insurers. The policy contained a ‘London arbitration clause’ and also stipulated that Brazilian law was the law governing the contract with an exclusive jurisdiction clause in favour of the courts in Brazil.

The insurers initiated arbitration. In parallel, the insured party commenced court proceedings in Brazil. In response, the insurers sought an anti-suit injunction before English courts.

Before the Court of Appeal, the insured party asserted that they were not bound by the arbitration clause because the arbitration clause was governed by the law of Brazil and therefore, could only be invoked with their consent.

Lord Moore-Bick L.J. reiterated the test to determine the proper law of the contract and observed that an arbitration agreement was separable ‘in the sense that it has an existence separate from that of the contract in which it is found’ and noted that the doctrine of separability reflected ‘the presumption that the parties intended that even disputes about matters which, if established, would undermine the intrinsic validity of the substantive contract…should be determined by their chosen procedure’.⁹⁸ However, Lord Moore-Bick L.J. held that an arbitration clause could not be considered to be separate for all purposes and in particular, for the purpose of determining applicable law:

It has long been recognised that in principle the proper law of an arbitration agreement which itself forms part of a substantive contract may differ from that of the contract as a whole, but it is probably fair to start from the assumption that, in the absence of any indication to the contrary, the parties intended the whole of their relationship to be governed by the same system of law. It is common for parties to make an express choice of law to govern their contract, but unusual for them to make an express choice of the law to govern any arbitration agreement contained within it; and where they have not done so, the natural inference is that they intended the proper law chosen to govern the substantive contract also to govern the agreement to arbitrate. (Emphasis Supplied)⁹⁹

Lord Moore-Bick LJ was not persuaded by the submission made by the insured party that the arbitration clause was separable from the substantive contract and therefore, had the closest and most real connection with the law of the seat which was English law:

The insurers initially placed considerable emphasis on the fact that an arbitration agreement is separable from the substantive contract in order to argue that its closest and most real connection was with the law of the place of the seat, here English law. However, as the cases demonstrate, both the concept of separability and the principles for determining the proper law of the arbitration agreement are well established and have been for some time. It is not possible, therefore, to dismiss observations made before the decision in Fiona Trust v Privalov as being ‘old law’ which has been superseded by that decision, as the insurers suggested. That being so, I do not think that separability provides an easy answer to the question that arises in this case, which turns primarily on the relative importance to be attached to the parties’ express choice of proper law and their choice of London as the seat of the arbitration. (Emphasis Supplied)¹⁰⁰

He categorically held that the concept of separability had a limited purpose, recognizing that arbitration clauses were separable but not separate:

The concept of separability itself, however, simply reflects the parties’ presumed intention that their agreed procedure for resolving disputes should remain effective in circumstances that would render the substantive contract ineffective. Its purpose is to give legal effect to that intention, not to insulate the arbitration agreement from the substantive contract for all purposes.¹⁰¹

On this basis, he held that in the absence of any indication to the contrary, an express choice of the law governing the substantive contract would be ‘a strong indication of the parties’ intention in relation to the agreement to arbitrate’.¹⁰² Any search for an implied choice of law would likely ‘lead to the conclusion that the parties intended the arbitration agreement to be governed by the same system of law as the substantive contract’.¹⁰³

In arriving at the above conclusion, Moore-Bick J. moved away from the decisions in XL Insurance Limited v. Owens Corning [2001] 1 All ER (Comm) 530 (‘XL Insurance Limited’) as well as C v. D [2007] EWCA Civ 1282 (‘C v. D’).

In XL Insurance Limited, the Commercial Court through Toulson J. held that parties had chosen English law to govern the arbitration agreement by stipulating that the seat of arbitration was London.¹⁰⁴ In C v. D, the Court of Appeal through Longmore LJ. reached the same conclusion but on the basis of the law with which the arbitration agreement was most closely connected, finding that it was the law of the seat rather than the law of the contract that had the closest connection to the arbitration agreement.¹⁰⁵

Sulamerica was accepted as expressing the correct position under English law by the Commercial Court in Arsanovia Limited v. Cruz City I [2012] EWHC 3702 (Comm) as well as by the Court of Appeal in Kebab-Ji v. Kout Food Group [2020] EWCA Civ. 6 (‘Kebab-Ji’). Kebab-Ji also accepted Moore-Bick J’s finding on the doctrine of separability and held that the doctrine of separability could not be invoked to decide applicable law:

The concept of the separability of an arbitration agreement now enshrined in section 7 of the Arbitration Act 1996 does not assist Mr Tse in this context. The rationale of separability is that it ensures that the dispute resolution procedure chosen by the parties survives the main agreement becoming unenforceable for example because of fraud or misrepresentation. As Moore-Bick LJ said in Sulamerica at [26]: ‘Its purpose is to give legal effect to that intention, not to insulate the arbitration agreement from the substantive contract for all purposes.’ In other words it does not preclude the arbitration agreement being construed with the remainder of the main agreement as a whole, a fortiori where the clear intention is that the main agreement should be construed as a whole and where, as here, there is nothing in the wording of the arbitration agreement which suggests that it is intended to be construed in isolation from the remainder of the main agreement; quite the contrary, as the first sentence of Article 14.3 demonstrates for the reasons I have given.¹⁰⁶

There are two takeaways from Sulamerica and Kebab Ji with respect to how they apply the doctrine of separability: (i) both decisions recognized that the doctrine of separability was limited in scope and (ii) both decisions kept separability away from the determination of the law governing the arbitration agreement. The premise for this view appears to be that the determination of the law governing the arbitration agreement does not involve issues relating to the validity of the arbitration agreement.

Given this state of play under English Law, when the UK Supreme Court in Enka v. Chubb [2020] EWCA Civ 574 (‘Enka’) endorsed the view taken in Sulamerica that the intent of the parties on the law governing the arbitration agreement would presumably flow from their choice of the law governing the contract, it caveated that analysis by setting out that such a presumption could not be displaced merely if the arbitration agreement would be rendered ineffective. It then proposed that it would be the law of the seat which would be relevant for determining the law of the arbitration agreement.

In doing that Enka took a slightly different position in relation to whether the doctrine of separability could be entirely separated from the question of applicable law. Hamblen and Leggat J. took the view that the doctrine of separability may have a role to play in the determination of applicable law:

As counsel for Chubb Russia emphasised, the principle of separability is not a principle that an arbitration agreement is to be treated as a distinct agreement for all purposes….[n]evertheless, the principle is relevant to the conflict of laws analysis because it alleviates the difficulty identified by Dicey, Morris & Collins in the passage quoted at para 39 above in treating different parts of a contract as governed by different laws. Where the separability principle is recognised by the putative applicable law of the arbitration agreement, no inconsistency will arise from treating issues such as whether the contract is discharged by frustration, or whether the innocent party may terminate or withhold performance on account of the other party’s breach, or whether the contract has been rescinded for misrepresentation, as governed by a different law from the law of the arbitration agreement, as the resolution of those issues will not affect the validity or enforceability of the arbitration agreement. (Emphasis Supplied)¹⁰⁷

For reasons given earlier, the requirement of an arbitration clause is to be treated as a distinct agreement for the purpose of determining its validity, existence and effectiveness makes it more amenable than other parts of a contract to the application of a different law. (Emphasis Supplied)¹⁰⁸

Where the clause in question is an arbitration clause, because of its severable character its putative invalidity may support an inference that it was intended to be governed by a different law from other provisions of the contract—or may at least negate an inference that the law generally applicable to the contract was intended to apply to the arbitration clause. (Emphasis Supplied)¹⁰⁹

However, despite this, the doctrine of separability did not play any role in the Court’s articulation of the relevant principles underlying the determination of the applicable law. Instead, the Court used the validation principle as the exception to the presumption that it is the law governing the main contract that applies to the arbitration agreement.

This approach has been criticized as being unsatisfactory and rather aptly because it leaves too much to be determined on a case-by-case basis and leads to a situation which is almost reminiscent of the state of English law post Hamlyn. Such a position may have not arisen had the Court laid down in objective terms that in every situation where the arbitration agreement may be invalidated on account of the application of the law of the main contract, the law of the seat necessarily ought to be applied. Instead, Enka states in broad terms as follows:

Additional factors which may, however, negate such an inference and may in some cases imply  that the arbitration agreement was intended to be governed by the law of the seat are: (a) any provision of the law of the seat which indicates that, where an arbitration is subject to that law, the arbitration agreement will also be treated as governed by that country’s law; or (b) the existence of a serious risk that, if governed by the same law as the main contract, the arbitration agreement would be ineffective. Either factor may be reinforced by circumstances indicating that the seat was deliberately chosen as a neutral forum for the arbitration. (Emphasis Supplied)¹¹⁰

This leaves room for the arbitration agreement to possibly be invalidated on the basis that the facts and circumstances warrant such a conclusion, although it is not likely to happen in England, where in a recent decision, UniCredit Bank GmbH v. RusChemAlliance LLC [2024] UKSC 30 (‘UniCredit’) the Supreme Court rejected the submission to revisit Enka.¹¹¹ Indeed, and as the Court noted in UniCredit, recognizing this, the UK Law Commission has now recommended a statutory insertion of a default rule in favour of the law of the seat unless the parties have made an express choice.¹¹² The UK Law Commission provided the following justification for the recommendation of this amendment:

We suggested that the effect of Enka v. Chubb would be that many arbitration agreements would be governed by foreign law, even where the seat of the arbitration is specified as England and Wales. This is because arbitration agreements do not always specify a governing law, but matrix contracts do often specify a foreign governing law.¹¹³

The law of England and Wales is supportive of arbitration. Foreign law might not be as supportive, particularly on questions of:….separability (whether the arbitration clause survives any invalidity of the matrix contract, enabling arbitration to resolve disputes about such invalidity)….¹¹⁴

We reiterate that a default rule in favour of the law of the seat would see more arbitration agreements governed by the law of England and Wales, when those arbitration agreements are also seated here. This would ensure the applicability of the doctrine of separability, along with its practical utility…. (Emphasis Supplied)¹¹⁵

Interestingly, while the UK Law Commission recommends a different approach to be taken for the determination of applicable law, it has not differed from the position taken in Enka on the doctrine of separability. The UK Law Commission, much like Enka, has also recognized that separability is relevant to the issue of applicable law.

The inclusion of the default rule accords with the purpose for which the doctrine of separability was recognized in Heyman, which is to usher in an objective doctrinal basis that would leave no room for uncertainty. The Law Commission’s Report would ensure the application of English law as the law applicable to the arbitration agreement to arbitrations seated in England. Such an approach does not leave the validity of the arbitration clause to chance.

The use of the doctrine of separability to lay down a statutory rule with respect to applicable law certainly pushes the envelope. At the same time, such use does not appear to be inconsistent with the scope of the doctrine set out in Section 7 of the 1996 Act.

In sum, it is observed that English law has from time to time stretched the application of the doctrine of separability to a number of contexts to achieve pro-arbitration outcomes. What this has resulted in is a robust application of the doctrine of separability. Despite stretching the doctrine, English law has found a way to apply the doctrine within its conceptual limits without allowing for its distortion. This is evident from the fact that right from Heyman up until Enka, English courts have primarily applied the doctrine only as a means to preserve the validity of the arbitration clause.

The next section will examine how Singapore law has applied the doctrine of separability.

The position in Singapore

It was initially the position in Singapore that the doctrine of separability can only be applied to preserve the validity of the arbitration clause. However, the decision of Coomaraswamy J. in BNA v. BNB and Anr. [2019] SGHC 142 (‘BNA’) changed this position. In that case, Coomaraswamy J. suggested that the doctrine of separability in Singapore, unlike England, has a broader application and would apply even in circumstances where the main contract was valid but ‘an operation of the substantive agreement’ would nullify the arbitration clause.¹¹⁶  BNA was however subsequently overruled, albeit on a different point. Following BNA came the decision of the Court of Appeal in Anupam Mittal v. Westbridge Ventures [2023] SGCA 1 where Lord Moore-Bick J’s enunciation of the limited application of separability in Sulamerica was endorsed by the Court of Appeal. While this could suggest an acceptance of the limited scope of the doctrine, the view taken by Coomaraswamy J. on the doctrine of separability is yet to be definitively overruled.

The Singapore position differs from English law in one other respect. Singapore courts, by keeping the doctrine of separability away from questions of applicable law, have been reluctant to stretch the doctrine of separability as far as English law.

Statutory provisions enshrining the doctrine of separability

There is not much discussion around the position in Singapore on the doctrine of separability before the introduction of the International Arbitration Act 1994. That is presumably because Singapore courts did not in express terms recognize the doctrine of separability before it attained statutory recognition.¹¹⁷ The doctrine of separability came to first be statutorily recognized by the International Arbitration Act 1994 which incorporates the UNCITRAL Model Law, followed by Section 21 of the Singapore Arbitration Act 2001.

However, unlike its English counterpart, the doctrine of separability is adopted as part of the provision relating to the jurisdiction of the arbitral tribunal. As set out above, while this changes where the doctrine has been placed in the legislation, there does not appear to be much of a difference as far as the manner in which the doctrine of separability has been substantively set out under both legislations.

Section 21(1) of the Singapore Arbitration Act 2001 states that the arbitral tribunal may rule on its own jurisdiction ‘including any objections to the existence or validity of the arbitration agreement’.¹¹⁸ Section 21(2) is important because it embodies the limited purpose for which an arbitration agreement is recognized to be separable. It states that for the purpose of Section 21(1), ‘an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract’.¹¹⁹ Section 21(3) is also important because it reinforces that even if the tribunal were to conclude that the main contract was ‘null and void’, that would not necessarily mean that the arbitration clause is also invalid.

Therefore, Section 21 appears to embody all aspects of the doctrine of separability as recognized by English law. These include the following facets:

The arbitration clause is separate only for the purpose of ascertaining the arbitral tribunal’s jurisdiction where there is an objection as to the ‘existence or validity’ of the arbitration agreement. The use of the phrase ‘for the purpose’ in Section 21(2) is indicative of the limited circumstances in which the arbitration clause is separate, in line with the decisions in Heyman, Harbour Assurance as well as Sulamerica.

The arbitration clause cannot be considered to be ‘null and void’ only because the arbitral tribunal concludes that the main contract is null and void. This is in line with the law laid down in Harbour Assurance where it was held that the tribunal/court, in cases where the main contract was alleged to be void, was required to examine whether the arbitration clause also suffers from the same defects.

Singapore courts have dealt with both the above facets of the doctrine of separability. However, the first facet set out above has generated more controversy as Singapore courts have taken divergent views which are discussed below.

Divergent views taken in BCY and BNA: narrow v. broad conception of the doctrine of separability

In BCY v. BCZ [2016] SGHC 249 (‘BCY’), the Singapore High Court was considering a novel issue of whether an arbitration agreement had been entered into before the execution of the underlying contract but after its negotiation. The arbitral tribunal had considered this issue and concluded that it had jurisdiction to consider the disputes arising from the underlying contract. While undertaking a de novo review of the matter, the Singapore High Court considered the law governing the arbitration agreement to determine whether it had been concluded before the execution of the main contract. Against this backdrop, Steven Chong J., while considering a submission that the arbitration agreement could have been concluded prior to the underlying contract because it was separable, held that an arbitration agreement cannot be considered to be separate from the main contract for all purposes:

The suggestion that the arbitration agreement is a distinct agreement with a governing law distinct from that of the main contract is often justified by the doctrine of separability. However, the doctrine of separability serves to give effect to the parties’ expectation that their arbitration clause—embodying their chosen method of dispute resolution—remains effective even if the main contract is alleged or found to be invalid. It does not mean that the arbitration clause forms a distinct agreement from the time the main contract is formed. Resort need only be had to the doctrine of separability when the validity of the arbitration agreement itself is challenged. (Emphasis Supplied)¹²⁰

Accepting that the English position was also the position in Singapore, he stated that:

Separability serves the narrow though vital purpose of ensuring that any challenge that the main contract is invalid does not, in itself, affect the validity of the arbitration agreement. This is necessary because the challenge to the validity of the arbitration agreement often takes the form of a challenge to the validity of the main contract. However, as Moore-Bick LJ noted in Sulamérica, separability does not ‘insulate the arbitration agreement from the substantive contract for all purposes’ (at [26]). It is one thing to say that under the doctrine of separability, a party cannot avoid the obligation to submit a dispute to arbitration by merely denying the existence of the underlying contract; it is quite different to say that because of this doctrine, parties intended to enter into an arbitration agreement independent of the underlying contract.¹²¹

Not only did this accord with the position under common law which had prevailed for more than 6 decades, it was also entirely consistent with the text of the Arbitration Act in Singapore. More importantly, it was a decision that aligned with commercial reality. Commercial parties while negotiating contracts are unlikely to negotiate an arbitration clause before the substantive terms of the contract and are also unlikely to consider arbitration clauses to be separate from the substantive contract for that purpose.

The sound position taken in BCY was subsequently left under threat in BNA. In that case, Justice Vinodh Coomaraswamy J. was considering an application under Section 10(3) of the International Arbitration Act seeking a declaration from the High Court that an arbitral tribunal appointed by the Singapore International Arbitration Centre lacked jurisdiction. The basis for that assertion was that the arbitration agreement was governed by PRC law which prohibited foreign arbitral institutions from administering a domestic arbitration. Relying on the decision in BCY, it was also submitted that the doctrine of separability ought not to be applied because the main contract was valid.

In dealing with this submission, Justice Vinodh Coomarasamy J. held that the decision in Sulamerica could not be applied because it had been made in the context of Section 7 of the 1996 Arbitration Act. That section was a ‘statutory statement of the doctrine of separability in English arbitration law’ and expressly made ‘the invalidity or ineffectiveness of the substantive contract a condition precedent to s 7 applying’.¹²² There was no ‘equivalent statutory constraint’ in Singapore law.¹²³ On this basis, he held that ‘the only limit on the doctrine of separability is that it should go no further than is reasonable to give effect to the parties’ intention to arbitrate their disputes’.¹²⁴ This observation does not appear to be sound. In arriving at this view, a vital part of Section 21/ Article 16 appears to have been disregarded. That is sub-clause 2 which states that it is for the purpose of determining the validity/existence of the arbitration agreement that an arbitration agreement is considered to be independent. Therefore, given the clear language of sub-clause 2, it may not have been correct to conclude that there is no ‘statutory constraint’ under Singapore law.

Justice Vinodh Coomaraswamy J. distinguished BCY on the following basis:

I do not read these passages as an attempt by Chong J to define the limits of the doctrine of separability. I read them instead as describing the situation in which the doctrine is most commonly invoked. It is simply the case that the doctrine of separability is most commonly invoked where the parties’ substantive contract is invalid, in order to avoid that invalidity nullifying the arbitration agreement. But there is no reason in principle why the doctrine of separability cannot have a broader scope, consistent with the ut res magis principle, operating to give effect to the parties’ manifest intention to arbitrate their disputes when a provision of the parties’ substantive contract might operate to defeat that intention. Indeed, Chong J in BCY accepts that the doctrine of separability can operate in tandem with the three-stage inquiry to allow the court to select a proper law for the parties’ arbitration agreement which is not the proper law of the parties’ governing contract precisely because the proper law of the substantive contract would operate to render the arbitration agreement invalid. (Emphasis Supplied)¹²⁵

The above observation also does not appear to be correct. The Court seems to have conflated the principle of separability with the principle of validation. Neither Sulamerica nor BCY used the doctrine of separability to resolve issues of applicable law. In fact, they very expressly suggested that the doctrine of separability has nothing to do with the determination of the law applicable to the arbitration agreement. Rather, they laid down a presumption that it is ordinarily the law governing the main contract that should also govern the arbitration agreement absent indications to the contrary. One such indication to the contrary was that the parties would have not chosen a law that would render the arbitration agreement invalid. The enunciation of this principle therefore is not rooted in the doctrine of the separability but is premised on an interpretation of the intention of the parties.

Justice Vinodh Coomaraswamy J. finally concluded that the doctrine of separability ‘is broad enough in itself’ to ‘uphold an arbitration agreement’ even where the substantive agreement is valid but operates ‘to nullify the parties’ manifest intention to arbitrate their disputes’.¹²⁶ This view is discordant with the commercial reality underlying the limited recognition of the doctrine of separability that was correctly identified in Sulamerica; that commercial parties do not ordinarily distinguish between the main contract and the arbitration agreement. It was not on the basis of the doctrine of separability that Sulamerica held that the law of the seat was the law applicable to the arbitration agreement but on the basis of an interpretation of the intention of the parties.

Therefore, Singapore law was initially aligned with English law in recognizing that the doctrine of separability had conceptual limits and could only be applied to preserve the validity of the arbitration clauses in circumstances where the existence of the main contract was under threat. This position changed with the decision in BNA which held that the doctrine of separability could be applied even where the main contract was valid.

The post-BNA position: the ghost of BNA lives on

The position taken by BNA was short-lived as it was overturned by the Court of Appeal in BNA v. BNB and Anr. [2020] 1 SLR 456. The Court of Appeal, however, did not express any views on Coomaraswamy J’s application of the doctrine of separability as it proceeded on the basis that Shanghai was the seat of the arbitration which in turn meant that PRC law was the proper law of the arbitration agreement.¹²⁷

In any case, the Court of Appeal in its recent decision, Anupam Mittal v. Westbridge Ventures [2023] SGCA 1 (‘Anupam Mittal’), endorsed the view taken in Sulamerica, including on the limited nature of the doctrine of separability that is set out above. In Anupam Mittal, the Court of Appeal was considering an application to set aside an anti-suit injunction granted by the High Court restraining the appellant from continuing oppression/mismanagement proceedings before the Indian company law tribunal. The appellant asserted that the High Court was incorrect to set aside the appeal because disputes relating to oppression/mismanagement were non-arbitrable under the law governing the arbitration agreement, which in this case was Indian law.

Although the Court of Appeal concluded that the law governing the arbitration agreement was Singapore law (the law of the seat), the Court of Appeal applied the test laid down in Sulamerica and appears to have accepted the view taken in Sulamerica on the limited scope of the doctrine of separability.¹²⁸ However, this endorsement may arguably only be obiter. The Court of Appeal was not considering the scope of the doctrine of separability nor was it an issue before it. Therefore, the views taken by Coomaraswamy J. in BNA on the scope of the doctrine of separability are yet to be expressly overruled.

Anupam Mittal’s endorsement of Sulamerica also means that Singapore law has not gone as far as English law in the application of the doctrine of separability. Separability remains outside the realm of applicable law.

The next section explores Indian law, which unlike Singapore, has gone above and beyond the English position.

The Indian position

Unlike in England where there were incremental additions to the doctrine of separability even before the doctrine of separability was included in a statute, Indian law took a restrictive position on separability until the statutory recognition of the doctrine of separability by the (Indian) Arbitration and Conciliation Act 1996 (the ‘Indian Arbitration Act’). Following the introduction of the Indian Arbitration Act, Indian law did not stretch the doctrine but continued to apply the doctrine within its conceptual limits. It is only recently that the Indian Supreme Court in Re: Interplay expanded the doctrine of separability. This expansion has stretched the doctrine far beyond its conceptual limits, making the arbitration clause a separate agreement for all purposes rather than just for the purpose of its validity.

The doctrine of separability before the Indian Arbitration Act: a restrictive phase

Early applications of the doctrine by Indian courts were restricted. Interestingly, the decisions during this period adverted to and relied on Heyman to derive guidance on the doctrine of separability but continued to apply the doctrine more restrictively than the House of Lords in Heyman. Indian courts also applied the observations in Heyman pertaining to the initial invalidity of the contract as if they formed the ratio of the decision.

In Union of India v. Kishorilal Gupta and Bros 1959 SCC OnLine SC 6 (‘Kishorilal Gupta’), the issue was whether the arbitration clause survived the mutual rescission of a contract where the parties had substituted the contract with a new agreement. Despite noting that the arbitration clause was framed in broad terms, the Indian Supreme Court found that the arbitration clause had come to an end, finding that the arbitration clause was ‘an integral part of the contract’ which had ‘no existence de hors the contract’.¹²⁹ The Indian Supreme Court also distinguished Heyman, finding on facts the parties had put an end to the original contract and substituted it with the new contract.¹³⁰ The basis for this decision is problematic. It applied the findings in Heyman on initial invalidity as if they were the ratio in Heyman. Even if the Indian Supreme Court’s reading of Heyman was correct in this case, it is not clear how a mutual rescission of a contract can be equated to the contract being invalid to start with.

This was followed by Damodar Valley v. K.K. Kar (1974) 1 SCC 141 where the Indian Supreme Court held that an arbitration would be invalidated by ‘a plea that a contract is void, illegal, or fraudulent’.¹³¹ Much like in Kishorilal Gupta, the Indian Supreme Court once again applied the observations in Heyman as if they were binding law.

Application of the doctrine of separability after the Indian Arbitration Act: sound but limited

The Indian Arbitration Act, like Singapore, adopted the doctrine of separability in the same manner as the Model Law. Section 16 of the Indian Arbitration Act is identical to Section 21 of the Singapore Arbitration Act 2001.

Indian courts began applying the doctrine of separability a lot less restrictively after the Indian Arbitration Act.

In National Agricultural Co-operation Marketing Federation India Limited v. Gains Trading Limited (2007) 5 SCC 692 (‘Gains Trading’), the Indian Supreme Court, while considering a petition for the appointment of an arbitrator, dismissed a contention that the arbitration clause was extinguished because the main contract had come to an end. The basis for this conclusion is set out below:

The respondent contends that the contract was abrogated by mutual agreement; and when the contract came to an end, the arbitration agreement which forms part of the contract, also came to an end. Such a contention has never been accepted in law. An arbitration clause is a collateral term in the contract, which relates to resolution disputes, and not performance. Even if the performance of the contract comes to an end on account of repudiation, frustration or breach of contract, the arbitration agreement would survive for the purpose of resolution of disputes arising under or in connection with the contract….[t]his position is now statutorily recognised. Sub-section (1) of Section 16 of the Act makes it clear that while considering any objection with respect to the existence or validity of the arbitration agreement, an arbitration clause which forms part of the contract, has to be treated as an agreement independent of the other terms of the contract; and a decision that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.¹³²

Similarly, in Magma Leasing v. Potluri Madhavilata and Anr. (2009) 10 SCC 103 (‘Magma Leasing’), the Indian Supreme Court did not accept a submission that an arbitration clause came to an end with the termination of a hire purchase agreement, holding that:

[m]erely because the contract has come to an end by its termination due to breach, the arbitration clause does not get perished nor is rendered inoperative; rather it survives for resolution of disputes arising ‘in respect of’ or ‘with regard to’ or ‘under’ the contract.¹³³

Therefore, both Gains Trading and Magma Leasing applied the doctrine in a sound manner and within its conceptual limits.

Recent applications of the doctrine of separability: stretched beyond its yield point

The doctrine of separability was recently applied by a seven-judge bench in Re: Interplay 2023 SCC OnLine SCC 166 (‘Re: Interplay’). In this case, the Indian Supreme Court was considering whether an arbitration clause contained in a contract on which the parties had failed to pay stamp duty would be enforceable. The Indian Supreme Court concluded that unstamped agreements are not void but only inadmissible as evidence as the failure to pay stamp duty was a curable defect. On this basis, it was held that an arbitral tribunal had the jurisdiction to consider objections relating to the stamping of the agreement. This article does not seek to comment on the correctness of that view. What, however, is of interest to this article is the Supreme Court’s observation on the doctrine of separability:

First, the separability presumption contained in Section 16 is applicable not only for the purpose of determining the jurisdiction of the arbitral tribunal. It encapsulates the general rule on the substantive independence of an arbitration agreement. Second, parties to an arbitration agreement mutually intend to confer jurisdiction on the arbitral tribunal to determine questions as to jurisdiction as well as substantive contractual disputes between them. The separability presumption gives effect to this by ensuring the validity of an arbitration agreement contained in an substantive contract, notwithstanding the invalidity, illegality, or termination of such contract. Third, when the parties append their signatures to a contract containing an arbitration agreement, they are regarded in effect as independently appending their signatures to the arbitration agreement. The reason is that the parties intend to treat an arbitration agreement contained in an substantive contract as distinct from the other terms of the contract; and Fourth, the validity of an arbitration agreement, in the face of the invalidity of the substantive contract, allows the arbitral tribunal to assume jurisdiction and decide on its own jurisdiction by determining the existence and validity of the arbitration agreement. ¹³⁴ (Emphasis Supplied)

The Indian Supreme Court could have very well not gone into the doctrine of separability in this case in view of its conclusion that an unstamped contract is not void. Given that the decision takes the position that the main contract is not void to begin with on account of the failure to pay stamp duty, it is unclear why the doctrine of separability was relevant for the purposes of the decision. Therefore, there are issues not only with the Indian Supreme Court’s articulation of the scope of the doctrine but also its application in the first place. By applying the doctrine of separability where it should not have, Re-Interplay could potentially lead to an increased use of the doctrine of separability on facts where the existence of the main contract is not necessarily under threat.

Further, the observation of the Indian Supreme Court that ‘the separability presumption contained in Section 16 is applicable not only for the purpose of determining the jurisdiction of the arbitral tribunal’ but ‘encapsulates the general rule on the substantive independence of an arbitration agreement’ is a view that is inconsistent with Section 16 of the Indian Arbitration Act, which, time and again, has been held to stand for the principle that the doctrine of separability is limited in scope. Subsequently in the decision, the Indian Supreme Court has correctly noted that legislation ought to be plainly interpreted unless two meanings are available as a matter of Indian law.¹³⁵ However, the Indian Supreme Court has not applied this principle to its own observations on the doctrine of separability; it has deviated from the plain text of the statute. It has not offered any reasons for doing so.

The above observation also adds uncertainty to the Indian position. Despite stating that separability can go beyond jurisdiction, in the very next sentence, the Indian Supreme Court goes on to state that the separability presumption ‘ensures the validity of an arbitration agreement contained in a substantive contract, notwithstanding the invalidity, illegality, or termination of such contract’. This part of the observation, in a contradictory manner, eschews the limited notion of the doctrine of separability. The illustration relating to the signature of an arbitration clause provided in the very next sentence is also indicative of a limited application; in fact, it goes to show that an arbitration agreement cannot be formed without a contract in the first place, reinforcing the limited application of the doctrine of separability. Therefore, the paragraph extracted above seems to advocate both a broad as well as a limited conception of the doctrine of separability.

Assuming that it is the broad notion of the doctrine that would apply going forward, such a conception pushes the doctrine of separability beyond its conceptual limits under common law. As set out above, the doctrine of separability, albeit applicable in a number of different contexts, is limited in scope. Therefore, in stark contrast to Singapore, the doctrine of separability has been applied in an overbroad manner. Given the dynamic nature of the doctrine and how it can potentially lend itself to be applied in a number of contexts, such a view may have a cascading impact on how the doctrine is applied in those contexts. That is not ideal because the issue before the Indian Supreme Court was limited to considering the validity of an arbitration clause in an unstamped agreement. The issues arising from the application of the doctrine of separability in any other context were not before the Indian Supreme Court.

The view expressed by the Indian Supreme Court is also one that has never been taken before by courts in either England, Singapore or India. That is not to suggest that the Indian Supreme Court was precluded from taking such a view. However, such a broad observation would require engagement with the law as it stands and reasons for why the statute was incorrect or ought not to have been followed. No such reasons seem to have been provided save and except the intent of parties, which appears to be an overstretch given the limited contours of Section 16 of the Indian Arbitration Act.

It may be argued that the above is a stray observation that is unlikely to be construed as a binding declaration of the law. However, this position does not account for the fact that under Indian law, any observation made by the Supreme Court even ‘if it cannot be strictly called the ratio decidendi’ would ‘certainly be binding on the High Court’.¹³⁶ Therefore, this observation may have a cascading effect on a number of issues including issues of contract formation, potentially leading to a situation where high courts may take conflicting positions on such issues resulting in uncertainty.

In sum, the doctrine of separability in Indian law has taken a shape that is radically different from the doctrine under English or Singapore law. Arbitration clauses are no longer ‘separable’ only from the perspective of determining jurisdiction but now move into a broad untrammelled region, allowing for novel arguments extending beyond the statutory scope of separability.

Conclusion

The position taken on the doctrine of separability in England, Singapore, and India show that there are differing positions on the application of the doctrine within these common law jurisdictions.

English law has been able to stretch the doctrine of separability until its yield point, entailing a robust application of the doctrine without going beyond the conceptual limits laid down by statute. This position further strengthens the enforceability of arbitration clauses in England and ensures certainty for commercial parties, a hallmark of English arbitration law. On the other hand, Singapore has applied the doctrine on the basis of statutory law with BNA remaining the outlier. However, it has not stretched the doctrine to its yield point. Whether and how that happens remains to be seen.

It is the Indian position that is concerning. By recognizing the ‘substantive independence’ of the arbitration clause in a case which did not require the application of the doctrine in the first place, Indian law has stretched the doctrine of separability beyond its yield point and has virtually changed the character of the doctrine. The arbitration clause is no longer separable from the main contract only for the purpose of preserving a bargain to arbitrate. It is now a wholly separate agreement. This position is an expansion beyond the statutory limit for which little reason has been provided.

Footnotes

Author notes