Topic 4 Lecture 1 Arb. Agreement Separability

7/26/2019 Topic 4 Lecture 1 Arb. Agreement Separability

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Validity & Separability ofArbitration Agreement

InternationalCommercial Law II

Assaduzzaman

Taylors Law School


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Lecture utline

Arbitration Agreement

Writing requirement of Arb.Agreement

Incorporation of Arb. Agreement

Separability of Arb. AgreementDoctrine of competence-competence


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!hat is an arbitrationagreement"

#alaysian Arbitration Act $%%'

S. 9 (1) In this Act, arbitration agreement!means an agreement by the parties to submitto arbitration all or certain "isputes #hich ha$earisen or #hich may arise bet#een them inrespect of a "e%ne" legal relationship, #hether

contractual or not.(&) An arbitration agreement may be in theform of an arbitration clause in an agreementor in the form of a separate agreement.


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!hat is an arbitrationagreement"

Sec. ' Arbitration Act 199', (nglish Arb. Act.)

(1) In this art an arbitration agreement! meansan agreement to submit to arbitration present orfuture "isputes (#hether they are contractual ornot).

Sec' $ (ederal Arbitration Act )*$

A #ritten pro$ision in any maritime transaction ora contract e$i"encing a transaction in$ol$ingcommerce to settle by arbitration a contro$ersythereafter arising out of such contract ortransaction, *.


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Agreement in !riting

+ew ,or- Con.ention/ Art II (1) Agreement in #riting un"er #hich the parties

un"erta+e to submit to arbitration all or any"ierences #hich ha$e arisen or #hich may arisebet#een them in respect of a "e%ne" legalrelationship, #hether contractual or not,concerning a sub-ect matter capable of beingsettle" by arbitration.

(&) he term agreement in #riting! shallinclu"e an arbitral clause in a contract or anarbitration agreement, signe" by the parties orcontaine" in an e/change or letters or telegrams.


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Agreement in !ritingArt 0 of 1+CIT2AL #odel Law/ 3ption I4

(&) he arbitration agreement shall be in #riting.

(0) An arbitration agreement is in #riting if its content is recor"e" in anyform, #hether or not the arbitration agreement or contract has beenconclu"e" orally, by con"uct, or by other means.

() he requirement that an arbitration agreement be in #riting is met by

an electronic communication if the information containe" therein isaccessible so as to be useable for subsequent reference2 electroniccommunication! means any communication that the parties ma+e bymeans of "ata messages2 "ata message! means information generate",sent, recei$e" or store" by electronic, magnetic, optical or similar means,inclu"ing, but not limite" to, electronic "ata interchange (DI), electronic

mail, telegram, tele/ or telecopy.(3) 4urthermore, an arbitration agreement is in #riting if it is containe" inan e/change of statements of claim an" "efence in #hich the e/istence ofan agreement is allege" by one party an" not "enie" by the other.

(') he reference in a contract to any "ocument containing an arbitrationclause constitutes an arbitration agreement in #riting, pro$i"e" that the

reference is such as to ma+e that clause part of the contract.


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Sec. 3(1) pro$isions of this part applyonly #here the arbitration agreementis in #riting,*.

Sec. 3(&) agreement is in #riting if

a) is ma"e in #riting

b) communications in #riting

c) e$i"ence" in #riting

") reference to terms #hich are in #riting

e) is recor"e" by one of the parties

f) an e/change of #ritten submissions in arbitralprocee"ings

g) its being recor"e" by any means.


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S. 9 (0) An arbitration agreement shall be in #riting.

() An arbitration agreement is in #riting #here it is containe"in5

(a) a "ocument signe" by the parties2(b) an e/change of letters, tele/, facsimile or other means ofcommunication #hich pro$i"e a recor" of the agreement2 or

(c) an e/change of statement of claim an" "efence in #hich thee/istence of an agreement is allege" by one party an" not"enie" by the other.

(3) A reference in an agreement to a "ocument containing anarbitration clause shall constitute an arbitration agreement,pro$i"e" that the agreement is in #riting an" the reference issuch as to ma+e that clause part of the agreement.


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Recommends in +ew ,or-Con.ention $%%5

1. Recommends in 6e# 7or+8on$ention that article II, paragraph &,

of the 8on$ention on the ecognitionan" nforcement of 4oreign ArbitralA#ar"s, "one in 6e# 7or+, 1: ;une193


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Khan Lucas Lancaster, Inc vLark Intl Ltd)65 (7d $)%

3$nd

Cir )***4 #o purchase or"ers by @>, buyer, 67 chil"ren garmentmanufacturer, to >ar+, seller, @ purchasing agent.urchase or"ers signe" by @> but not by >ar+. erms on

re$erse si"e containe" arbitration clause. Br"er state" that

it #as con"itional upon acceptance of terms on re$ersesi"e.

he or"ers #ere accepte" but issues arose as to "efecti$egarments an" @> refuse" to release fun"s an" %rst sue"

>ar+ then sought to compel arbitration. >ar+ argue" thatarb clause #as not in #riting as not signe". 8ourt hel" thatarb agreement must be signe" by both parties. CArbitralclause in a contract or arb agreement, signe" by both

parties or containe" in an e/change of letters or telegrams.


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Judgment of 5 November19858II ,9 Comm Arb ))

Bn December ', 19


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Incorporation of ArbitrationAgreement

1+CIT2AL #odel Law/ Art 0/ ption I

(') he reference in a contract to any "ocumentcontaining an arbitration clause constitutes an

arbitration agreement in #riting, pro$i"e" that thereference is such as to ma+e that clause part ofthe contract.

1+CIT2AL #odel Law/ Art 0/ ption II

Arbitration agreement is an agreement by theparties to submit to arbitration all or certain"isputes #hich ha$e arisen or #hich may arisebet#een them in respect of a "e%ne legal

relationship #hether contractual or not.


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Incorporation ofArbitration Agreement

Sec. ' Arbitration Act 199', (nglishArb. Act.)

(&) he reference in an agreement to a#ritten form of arbitration clause or to a"ocument containing an arbitration

clause constitutes an arbitrationagreement if the reference is such as toma+e that clause part of the agreement.


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Incorporation ofArbitration Agreement


S. 9 (0) An arbitration agreement shall be in #riting.

() An arbitration agreement is in #riting #here it is containe" in5

(a) a "ocument signe" by the parties2(b) an e/change of letters, tele/, facsimile or other means ofcommunication #hich pro$i"e a recor" of the agreement2 or

(c) an e/change of statement of claim an" "efence in #hich thee/istence of an agreement is allege" by one party an" not "enie"

by the other.(3) A reference in an agreement to a "ocument containing anarbitration clause shall constitute an arbitration agreement,pro$i"e" that the agreement is in #riting an" the reference issuch as to ma+e that clause part of the agreement.


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homas v !ortsea:)*)$;AC )

A bill of la"ing pro$i"e" that the goo"s shippe"thereun"er shoul" be "eli$ere" to the shipper orto his assigns, he or they paying freight for thesai" goo"s, #ith other con"itions as per charter

party,! an" in the margin #as #ritten, in in+,Dec+ loa" at shipperGs ris+, an" all other termsan" con"itions an" e/ceptions of charter to be asper charter party, inclu"ing negligence clause.!

he charter party pro$i"e" that Any "ispute orclaim arising out of any of the con"itions of thischarter shall be a"-uste" at port #here it occurs,an" same shall be settle" by arbitration!J5


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homas v !ortsea:)*)$;AC )

el", that the arbitration clause #as not incorporate"in the bill of la"ing.

>or" At+insonJ CI thin+ it #oul" be a soun" rule ofconstruction to a"opt that #hen it is sought to

intro"uce into a "ocument li+e a bill of la"ing5anegotiable instrument5a clause such as thisarbitration clause, not rele$ant to the receipt, carriage,or "eli$ery of the cargo or the payment of freight,5theproper sub-ectKmatters #ith #hich the bill of la"ing is

con$ersant,5this shoul" be "one by "istinct an"speci%c #or"s, an" not by such general #or"s as those#ritten in the margin of the bill of la"ing in this case.


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"ughton v Kent #1991$ 5%&LR 1, '"

In this case there #as no speci%c reference to the arbitrationclause.

A#ere subKsubcontractors to 2un"er si/ contracts forinstrumentation an" electrical #or+s. he subKsubcontracts#ere ma"e partly in #riting an" partly by con"uct an"

containe" terms #hich ha" been "iscusse" orally only. 2#assubKcontractors to


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"ughton v Kent #1991$ 5%&LR 1, '"

There were two con?icting @udgments in this case

2alph =ibson L'B'/in ma+ing the secon" subKsubcontract, A an" ha" e/pressly incorporate" thecon"itions of the subKcontract bet#een an" an" on

its true construction those con"itions inclu"e" thearbitration clause. Accor"ing to him the fact of this casegeneral #or"ings #ere suLcient to incorporate thearbitration clause.

o#e$er, Sir Bohn #egaw, hel" the arbitration clause

ha" not been incorporate" since the #or"s ofincorporation #ere not suLciently "istinct an" speci%cto incorporate the arbitration clause as oppose" to the

other pro$isions of the subKcontract.


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The doctrine ofSeparability

he concept of the separability ofarbitration clause refers to thearbitration clause in a contract isconsi"ere" to be separate from the main

contract of #hich it forms part an" assuch sur$i$es the termination of maincontract.


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Sec' 0 Arbitration Act )**5

3Separability4*an arbitration agreement (h)ch forms*art of another agreement(#hether

or not in #riting) shall not be regar"e"as in$ali", because that otheragreement is in$ali", an" it shall betreate" as a "istinct agreement.!

The octrine under Transnationallegislation


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+ect)on - .ederal "rb)trat)on "ct195 3Separability4

A #ritten pro$ision )n a contracte$i"encing to settle by* arbitration acontro$ersy thereafter arising out of

such contract, shall be $ali",irre$ocable, an" enforceable, for there$ocation of any contract.!


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Sec' $)3$4 of SingaporeArbitration Act $%%)3Separability4

*an arbitration clause (h)ch forms*art of a contract shall be treate"as an agreement in"epen"ent of theother terms of the contract.!


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Bther ersuasi$e authority

Art )53)4 1+CIT2AL #odel Law/3Separability4

*an arbitration clause #hich forms partof a contract shall be treate" as anagreement in"epen"ent of the other

terms of the contract. A "ecision by thearbitral tribunal that the contract is nullan" $oi" shall not entail ipso jure thein$ali"ity of the arbitration clause.!


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Art' $73)4LCIA Arbitration 2ules 3Separability4

*arbitration clause shall be treate" as anin"epen"ent agreement from main contract.!

Art'$)3$4 1+CIT2AL 2ulesJ same as >8IA ules

Art' 53*4 of ICC 2ules 3Separability4

=nless other#ise agree", the arbitral tribunal shallnot cease to ha$e -uris"iction by reason of anyallegation that the contract is nonKe/istent or nullan" $oi", pro$i"e" that the arbitral tribunal uphol"sthe $ali"ity of the arbitration agreement*!


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/e0man v ar()ns Ltd:)*D$; AC 75 at 70D,

Lord #ac #illan/ establishe" the"octrine of Separability #here thecontract #as $oi"able for

misrepresentation "oes not mean thatthe contract #as "estroye" for allpurposes.

Instea"J the arbitration clause sur$i$es for"etermining the mo"e of their settlement.he purpose of the contract ha$e faile",but the arb)trat)on clause )s not one of the

*ur*ose of the contract.!


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!r)ma !a)nt 'or* v .lood 2 'onkl)n3anufactur)ng 'o766 1S 7*

3)*504(acts rima aint purchase" 4 M 8 paintbusiness an" ma"e a consultancy agreement#ith 4 M 8 for the follo#ing si/ years #hereby

4 M 8 #oul" help rima aint "e$elop thebusiness. Soon after the "eal 4 M 8 %le" forban+ruptcy.

rima aint claime" that 4 M 8 ha"

frau"ulently in"uce" rima aint to enter intothe consultancy agreement an" issue" courtprocee"ings see+ing rescission of the contract.


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3)*504

4 M 8 %le" for arbitration. 4 M 8applie" for a stay of the courtprocee"ings brought by rima aint.

rima aint argue" that it #as for thecourts not for the arbitrators to"eci"e #hether the contract ha" to

be rescin"e" because the rescissionof the contract entaile" the rescissionof the arbitration agreement.

! ) ! ) t ' .l d 2


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!r)ma !a)nt 'or* v .lood 2'onkl)n 3anufactur)ng 'o766

1S 7* 3)*504 =S Supreme 8ourt hel" that thecourt is instructe" un"er S. of

4AA to or"er arbitration toprocee" once it is satis%e" thatCthe ma+ing of the agreement for

arbitration or the failure tocomply (#ith the arbitrationagreement) is not in issue.

! ) ! ) ' .l d 2 ' kl)


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3)*504

Accor"ingly, if the claim is frau" in thein"ucement of the arbitration clauseitself an issue #hich goes to the

Cma+ing of the agreement to arbitrate,the fe"eral court may procee" toa"-u"icate it. Fut the statutory

language "oes not permit the fe"eralcourt to consi"er claims of frau" in thein"ucement of the contract generally.

.)ona rust 2 /old)ng 'or*n v


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.)ona rust 2 /old)ng 'or*n v4ur) !r)valov :$%%6; ) LloydEs

2ep $D(actshe arbitration clause #as in acontract bet#een So$comNot an" eight

charters. ShipKo#ners allege" that thecharters #ere procure" by the bribery ofsenior oLcers of the So$comNot, by Er6i+itin, #ho controlle" the charter

companies.he o#ners appeale" to rescin" thecharters contract on the groun" of briberyinclu"ing the arbitration agreement.

.)ona rust 2 /old)ng 'or*n v


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.)ona rust 2 /old)ng 'or*n v4ur) !r)valov :$%%6; ) LloydEs

2ep $DFL Feld allegations of that +in", if soun"may aect the $ali"ity of the main contract.Fut they "o not un"ermine the $ali"ity of

the arbitration agreement as it is a "istinctagreement from the main contract.

In the present case, it #as allege" thatagent acting for the o#ners #as bribe" to

consent to it. Fut that "i" not sho# that he#as bribe" to enter into the arbitrationagreement.


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"(ard )n 'ase No 196198 of 9 Jul01987 3osco( v Joc :)l Ltd,8VIII ,9

CommArb *$ 3)**74

(actsIt #as a contract for sale of oil byS6 (a company incorporate" un"er thela# of the former =SS) to ;B8 Bil >t", a

company incorporate" in Fermu"a. ;B8too+ "eli$ery of oil but "i" not ma+e anypayment. S6 commence" arbitration but;B8 argue" that the contract #as note/ecute" by t#o representati$es of S6 asrequire" un"er =SS la# an" #as,therefore, $oi". An" so #as the arbitrationagreement.


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"(ard )n 'ase No 196198 of 9 Jul01987 3osco( v Joc :)l Ltd,8VIII ,9

CommArb *$ 3)**74

ICC Tribunal heldJ he ules of therele$ant So$iet arbitration institution "i"not require arbitration agreements to be

sub-ect to the same formalities ascontract #ith foreign parties. Arbitrationagreement has "ierent content from themain agreement an" its in$ali"ity "iers

the eects from the in$ali"ity of the maincontract. ribunal "i" %n" the contract,but not the arbitration clause, in$ali".


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eGceptions

If there is any irregularities an" illegalityfoun" in relation to the formation ofarbitration agreement together #ith the main

contract then the arbitration agreement #illnot sur$i$e.

*Fesi"es main contract if the claim is frau"in the in"ucement of the arbitration clauseitself an issue #hich goes to the Cma+ing ofthe agreement to arbitrate, the fe"eral courtmay procee" to a"-u"icate it.! 3Case


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+ole)man0 v +ole)man0 :)**6; 7!L2 6))/

he claimant e/porte" carpets illegally,out of Iran to be sol" by the "efen"antin the =nite" @ing"om or else#here.

Disputes arose bet#een the parties o$erthe "i$ision of the procee"s of sale. heparties ma"e an agreement to arbitratetheir "isputes before the Feth Din #hichapplie" ;e#ish la#. he tribunal ma"ean a#ar", in fa$our of the claimant.


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+ole)man0 v +ole)man0:)**6; 7 !L2 6))/

he claimant applie" to the igh8ourt un"er section &' of the

Arbitration Act 193: to register thea#ar" as a -u"gment. he"efen"ant applie" to set asi"e theor"er on the groun"s that illegalityren"ere" the claimantGs claim $oi"or unenforceable in an nglishcourt2


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+ole)man0 v +ole)man0:)**6; 7 !L2 6))/

it #oul" be contrary to publicpolicyfor an a#ar" foun"e" on anillegal agreement or transaction to be

enforce" as a -u"gment. !aller LBJ hel" an a#ar" can only be

$ali" if the arbitrator ha" -uris"iction

foun"e" on a contract bet#een theparties. If that contract is itself in$ali"the a#ar" #ill be unenforceable.


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+ole)man0 v +ole)man0:)**6; 7 !L2 6))/

In this case #e #ere referre" to thecases relating to the separability of anarbitration clause. Fut, the fact that in

a contract allege" to be illegal thearbitration

clause may not itself be infecte" by the

illegality, "oes not mean that it isal#ays so, an" "oes not mean that anarbitration agreement that is separatemay not be $oi" for illegality.

i f


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octrine of com*etence;com*etence

he "octrine of competenceKcompetence or the "eci"ing

"iscretion of arbitration tribunal is aprinciple #hich allo#s the arbitratorsto "etermine -uris"ictional issues ofthe tribunal itself.

It has been a"opte" in the ArbitrationAct 199' follo#e" by =68IA> Eo"el>a#s.


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octrine of com*etence;com*etence

Article 1' .1 of the =68IA> Eo"el >a#

The arbitral tribunal may rule on its ownjurisdiction , including any objections with

respect to the existence or validity of thearbitration agreement

#hich -usti%es that an arbitration clause#hich forms part of a contract shall be

treate" as an agreement in"epen"ent ofthe other terms of the contract .

Article &1 .& of the =68IA> Arbitrationules (=68IA> , 19?' ).


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iHerence between separability andcompetencecompetence

=n"er the separability principle, thearbitration agreement is treate" as aseparate agreement for the purpose of

ascertaining its e/istence an" $ali"ity.

=n"er the Kompeten-Kompeten

principle, the arbitrators are entitle" to"etermine their o#n -uris"iction ifthere is a $ali" arbitration clause.

Documents

Topic 4 Lecture 1 Arb. Agreement Separability