Validity & Separability of

Arbitration Agreement
International
Commercial Law II
Assaduzzaman
Taylors Law School

Lecture Outline
Arbitration Agreement
Writing requirement of Arb.
Agreement
Incorporation of Arb. Agreement
Separability of Arb. Agreement
Doctrine of competence-competence

What is an arbitration
agreement?
Malaysian Arbitration Act 2005.
S. 9 (1) In this Act, arbitration agreement
means an agreement by the parties to submit
to arbitration all or certain disputes which have
arisen or which may arise between them in
respect of a defined legal relationship, whether
contractual or not.
(2) An arbitration agreement may be in the
form of an arbitration clause in an agreement
or in the form of a separate agreement.

What is an arbitration
agreement?
Sec. 6 Arbitration Act 1996, (English Arb. Act.)
(1) In this Part an arbitration agreement means
an agreement to submit to arbitration present or
future disputes (whether they are contractual or
not).
Sec. 2 Federal Arbitration Act 1925
A written provision in any maritime transaction or
a contract evidencing a transaction involving
commerce to settle by arbitration a controversy
thereafter arising out of such contract or
transaction, .

Agreement in Writing
New York Convention, Art II
(1) Agreement in writing under which the parties
undertake to submit to arbitration all or any
differences which have arisen or which may arise
between them in respect of a defined legal
relationship, whether contractual or not,
concerning a subject matter capable of being
settled by arbitration.
(2) The term agreement in writing shall
include an arbitral clause in a contract or an
arbitration agreement, signed by the parties or
contained in an exchange or letters or telegrams.

Agreement in Writing
Art 7 of UNCITRAL Model Law, (Option I)
(2) The arbitration agreement shall be in writing.
(3) An arbitration agreement is in writing if its content is recorded in any
form, whether or not the arbitration agreement or contract has been
concluded orally, by conduct, or by other means.
(4) The requirement that an arbitration agreement be in writing is met by
an electronic communication if the information contained therein is
accessible so as to be useable for subsequent reference; electronic
communication means any communication that the parties make by
means of data messages; data message means information generated,
sent, received or stored by electronic, magnetic, optical or similar means,
including, but not limited to, electronic data interchange (EDI), electronic
mail, telegram, telex or telecopy.
(5) Furthermore, an arbitration agreement is in writing if it is contained in
an exchange of statements of claim and defence in which the existence of
an agreement is alleged by one party and not denied by the other.
(6) The reference in a contract to any document containing an arbitration
clause constitutes an arbitration agreement in writing, provided that the
reference is such as to make that clause part of the contract.

Agreement in Writing
Sec. 5(1) provisions of this part apply
only where the arbitration agreement
is in writing,.
Sec. 5(2) agreement is in writing if
a) is made in writing
b) communications in writing
c) evidenced in writing
d) reference to terms which are in writing
e) is recorded by one of the parties
f) an exchange of written submissions in arbitral
proceedings
g) its being recorded by any means.

Agreement in Writing
Malaysian Arbitration Act 2005.
S. 9 (3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing where it is contained
in
(a) a document signed by the parties;
(b) an exchange of letters, telex, facsimile or other means of
communication which provide a record of the agreement; or
(c) an exchange of statement of claim and defence in which the
existence of an agreement is alleged by one party and not
denied by the other.
(5) A reference in an agreement to a document containing an
arbitration clause shall constitute an arbitration agreement,
provided that the agreement is in writing and the reference is
such as to make that clause part of the agreement.

Recommends in New York

Convention 2006
1. Recommends in New York
Convention that article II, paragraph 2,
of the Convention on the Recognition
and Enforcement of Foreign Arbitral
Awards, done in New York, 10 June
1958, be applied recognising that the
circumstances described therein are
not exhaustive;
Adopted by UNCITRAL on 7 July 2006

Khan Lucas Lancaster, Inc v

Lark Intl Ltd 186 F3d 210
(2nd Cir 1999)

Two purchase orders by KL, buyer, NY children garment

manufacturer, to Lark, seller, HK purchasing agent.
Purchase orders signed by KL but not by Lark. Terms on
reverse side contained arbitration clause. Order stated that
it was conditional upon acceptance of terms on reverse
side.
The orders were accepted but issues arose as to defective
garments and KL refused to release funds and first sued
Lark then sought to compel arbitration. Lark argued that
arb clause was not in writing as not signed. Court held that
arb agreement must be signed by both parties. Arbitral
clause in a contract or arb agreement, signed by both
parties or contained in an exchange of letters or telegrams.

Judgment of 5 November
1985 XII YB Comm Arb 511
On December 6, 1980, Tracomin and Sudan Oil Seeds (SOS)
entered into a commodity sale contract. After disputes arose,
SOS asked Tracomin by a telex dated May 18, 1981, by a
subsequent letter dated July 4, and by a telex dated July 16 to
submit the dispute to arbitration before the Arbitration Board of
the Federation of Oils, Seeds and Fats Associations (FOSFA) in
London.
By a letter dated July 21, Tracomin appointed its arbitrator, with
express reference to SOS's most recent telex. The tribunal made
an award against Tracomin.
Tracomin refused to comply with the award, and SOS sought to
enforce it in Switzerland. Tracomin contended that the arbitration
agreement, pursuant to which the award was made, was invalid
under Articles II(1) and (2) of the New York Convention. The
Swiss Federal Supreme Tribunal rejected Tracomin's objections.

Incorporation of Arbitration
Agreement
UNCITRAL Model Law, Art 7, Option I
(6) The reference in a contract to any document
containing an arbitration clause constitutes an
arbitration agreement in writing, provided that the
reference is such as to make that clause part of
the contract.
UNCITRAL Model Law, Art 7, Option II
Arbitration agreement is an agreement by the
parties to submit to arbitration all or certain
disputes which have arisen or which may arise
between them in respect of a define legal
relationship whether contractual or not.

Incorporation of
Arbitration Agreement
Sec. 6 Arbitration Act 1996, (English
Arb. Act.)
(2) The reference in an agreement to a
written form of arbitration clause or to a
document containing an arbitration
clause constitutes an arbitration
agreement if the reference is such as to
make that clause part of the agreement.

Incorporation of
Arbitration Agreement
Malaysian Arbitration Act 2005.
S. 9 (3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing where it is contained in

(a) a document signed by the parties;

(b) an exchange of letters, telex, facsimile or other means of
communication which provide a record of the agreement; or
(c) an exchange of statement of claim and defence in which the
existence of an agreement is alleged by one party and not denied
by the other.
(5) A reference in an agreement to a document containing an
arbitration clause shall constitute an arbitration agreement,
provided that the agreement is in writing and the reference is
such as to make that clause part of the agreement.

Thomas v Portsea [1912]

AC 1
A bill of lading provided that the goods shipped
thereunder should be delivered to the shipper or
to his assigns, he or they paying freight for the
said goods, with other conditions as per charter
party, and in the margin was written, in ink,
Deck load at shipper's risk, and all other terms
and conditions and exceptions of charter to be as
per charter party, including negligence clause.
The charter party provided that Any dispute or
claim arising out of any of the conditions of this
charter shall be adjusted at port where it occurs,
and same shall be settled by arbitration:

Thomas v Portsea [1912]

AC 1
Held, that the arbitration clause was not incorporated
in the bill of lading.
Lord Atkinson: I think it would be a sound rule of
construction to adopt that when it is sought to
introduce into a document like a bill of ladinga
negotiable instrumenta clause such as this
arbitration clause, not relevant to the receipt, carriage,
or delivery of the cargo or the payment of freight,the
proper subject-matters with which the bill of lading is
conversant,this should be done by distinct and
specific words, and not by such general words as those
written in the margin of the bill of lading in this case.

Aughton v Kent [1991] 57

BLR 1, CA
In this case there was no specific reference to the arbitration
clause.
A were sub-subcontractors to R under six contracts for
instrumentation and electrical works. The sub-subcontracts
were made partly in writing and partly by conduct and
contained terms which had been discussed orally only. R was
sub-contractors to P who was main contractor to the Ministry of
Defence. P had based its sub-contractor conditions on
GC/Works/1 edition 2 as used in the main contract.
A started proceedings for sums allegedly due under each subsubcontract. R applied, pursuant to the s.4 of Arbitration Act
1950 for a stay in respect of two sub-subcontracts on the
grounds that the arbitration clause contained in R's subcontract with P had been incorporated into the second subsubcontract and that the fourth sub-subcontract was a
variation of the work under the second sub-subcontract.

Aughton v Kent [1991] 57

BLR 1, CA
There were two conflicting judgments in this case:
Ralph Gibson L.J., in making the second subsubcontract, A and R had expressly incorporated the
conditions of the sub-contract between R and P and on
its true construction those conditions included the
arbitration clause. According to him the fact of this case
general wordings were sufficient to incorporate the
arbitration clause.
However, Sir John Megaw, held the arbitration clause
had not been incorporated since the words of
incorporation were not sufficiently distinct and specific
to incorporate the arbitration clause as opposed to the
other provisions of the sub-contract.

The doctrine of
Separability
The concept of the separability of
arbitration
clause
refers
to
the
arbitration clause in a contract is
considered to be separate from the main
contract of which it forms part and as
such survives the termination of main
contract.

The Doctrine under Transnational

legislation

Sec. 7 Arbitration Act 1996

(Separability)
an arbitration agreement which forms
part of another agreement (whether
or not in writing) shall not be regarded
as invalid, because that other
agreement is invalid, and it shall be
treated as a distinct agreement.

 Section 2. Federal Arbitration Act

1925 (Separability)
A written provision in a contract
evidencing to settle by arbitration a
controversy thereafter arising out of
such contract, shall be valid,
irrevocable, and enforceable, for the
revocation of any contract.

 Sec. 21(2) of Singapore

Arbitration Act 2001
(Separability)
an arbitration clause which forms
part of a contract shall be treated
as an agreement independent of the
other terms of the contract.

Other Persuasive authority

Art 16(1) UNCITRAL Model Law,
(Separability)
an arbitration clause which forms part
of a contract shall be treated as an
agreement independent of the other
terms of the contract. A decision by the
arbitral tribunal that the contract is null
and void shall not entail ipso jure the
invalidity of the arbitration clause.

 Art. 23(1)LCIA Arbitration Rules (Separability)

arbitration clause shall be treated as an
independent agreement from main contract.
Art.21(2) UNCITRAL Rules: same as LCIA Rules
Art. 6(9) of ICC Rules (Separability)
Unless otherwise agreed, the arbitral tribunal shall
not cease to have jurisdiction by reason of any
allegation that the contract is non-existent or null
and void, provided that the arbitral tribunal upholds
the validity of the arbitration agreement

Heyman v Darwins Ltd

[1942] AC 356 at 374,
Lord Mac Millan, established the
doctrine of Separability where the
contract was voidable for
misrepresentation does not mean that
the contract was destroyed for all
purposes.
Instead: the arbitration clause survives for
determining the mode of their settlement.
The purpose of the contract have failed,
but the arbitration clause is not one of the
purpose of the contract.

Prima Paint Corp v Flood & Conklin

Manufacturing Co 388 US 395
(1967)
Facts: Prima Paint purchased F & C paint
business and made a consultancy agreement
with F & C for the following six years whereby
F & C would help Prima Paint develop the
business. Soon after the deal F & C filed for
bankruptcy.
Prima Paint claimed that F & C had
fraudulently induced Prima Paint to enter into
the consultancy agreement and issued court
proceedings seeking rescission of the contract.

Prima Paint Corp v Flood & Conklin

Manufacturing Co 388 US 395
(1967)
F & C filed for arbitration. F & C
applied for a stay of the court
proceedings brought by Prima Paint.
Prima Paint argued that it was for the
courts not for the arbitrators to
decide whether the contract had to
be rescinded because the rescission
of the contract entailed the rescission
of the arbitration agreement.

Prima Paint Corp v Flood &

Conklin Manufacturing Co 388
US 395 (1967)
US Supreme Court held that the
court is instructed under S.4 of
FAA to order arbitration to
proceed once it is satisfied that
the making of the agreement for
arbitration or the failure to
comply (with the arbitration
agreement) is not in issue.

Prima Paint Corp v Flood & Conklin

Manufacturing Co 388 US 395
(1967)
Accordingly, if the claim is fraud in the
inducement of the arbitration clause
itself an issue which goes to the
making of the agreement to arbitrate,
the federal court may proceed to
adjudicate it.But the statutory
language does not permit the federal
court to consider claims of fraud in the
inducement of the contract generally.

Fiona Trust & Holding Corpn v

Yuri Privalov [2008] 1 Lloyd's
Rep 254
Facts: The arbitration clause was in a
contract between Sovcomflot and eight
charters. Ship-owners alleged that the
charters were procured by the bribery of
senior officers of the Sovcomflot, by Mr
Nikitin, who controlled the charter
companies.
The owners appealed to rescind the
charters contract on the ground of bribery
including the arbitration agreement.

Fiona Trust & Holding Corpn v

Yuri Privalov [2008] 1 Lloyd's
Rep 254

HOL Held: allegations of that kind, if sound

may affect the validity of the main contract.
But they do not undermine the validity of
the arbitration agreement as it is a distinct
agreement from the main contract.
In the present case, it was alleged that
agent acting for the owners was bribed to
consent to it. But that did not show that he
was bribed to enter into the arbitration
agreement.

Award in Case No 109/1980 of 9 July

1984 (Moscow) v Joc Oil Ltd, XVIII YB
CommArb 92 (1993)

Facts: It was a contract for sale of oil by

SNE (a company incorporated under the
law of the former USSR) to JOC Oil Ltd, a
company incorporated in Bermuda. JOC
took delivery of oil but did not make any
payment. SNE commenced arbitration but
JOC argued that the contract was not
executed by two representatives of SNE as
required under USSR law and was,
therefore, void. And so was the arbitration
agreement.

Award in Case No 109/1980 of 9 July

1984 (Moscow) v Joc Oil Ltd, XVIII YB
CommArb 92 (1993)

ICC Tribunal held: The Rules of the

relevant Soviet arbitration institution did
not require arbitration agreements to be
subject to the same formalities as
contract with foreign parties. Arbitration
agreement has different content from the
main agreement and its invalidity differs
the effects from the invalidity of the main
contract. Tribunal did find the contract,
but not the arbitration clause, invalid.

exceptions
If there is any irregularities and illegality
found in relation to the formation of
arbitration agreement together with the main
contract then the arbitration agreement will
not survive.
Besides main contract if the claim is fraud
in the inducement of the arbitration clause
itself an issue which goes to the making of
the agreement to arbitrate, the federal court
may proceed to adjudicate it. (Case Prima
Paint)

Soleimany v Soleimany [1998] 3

WLR 811,
The claimant exported carpets illegally,
out of Iran to be sold by the defendant
in the United Kingdom or elsewhere.
Disputes arose between the parties over
the division of the proceeds of sale. The
parties made an agreement to arbitrate
their disputes before the Beth Din which
applied Jewish law. The tribunal made
an award, in favour of the claimant.

Soleimany v Soleimany
[1998] 3 WLR 811,
The claimant applied to the High
Court under section 26 of the
Arbitration Act 1950 to register the
award as a judgment. The
defendant applied to set aside the
order on the grounds that illegality
rendered the claimant's claim void
or unenforceable in an English
court;

Soleimany v Soleimany
[1998] 3 WLR 811,
it would be contrary to public
policy for an award founded on an
illegal agreement or transaction to be
enforced as a judgment.
Waller LJ: held an award can only be
valid if the arbitrator had jurisdiction
founded on a contract between the
parties. If that contract is itself invalid
the award will be unenforceable.

Soleimany v Soleimany
[1998] 3 WLR 811,
In this case we were referred to the
cases relating to the separability of an
arbitration clause. But, the fact that in
a contract alleged to be illegal the
arbitration
clause may not itself be infected by the
illegality, does not mean that it is
always so, and does not mean that an
arbitration agreement that is separate
may not be void for illegality.

Doctrine of competencecompetence
The doctrine of competencecompetence or the deciding
discretion of arbitration tribunal is a
principle which allows the arbitrators
to determine jurisdictional issues of
the tribunal itself.
It has been adopted in the Arbitration
Act 1996 followed by UNCITRAL Model
Laws.

Doctrine of competencecompetence
Article 16 .1 of the UNCITRAL Model Law
The arbitral tribunal may rule on its own
jurisdiction , including any objections with
respect to the existence or validity of the
arbitration agreement
which justifies that an arbitration clause
which forms part of a contract shall be
treated as an agreement independent of
the other terms of the contract .
Article 21 .2 of the UNCITRAL Arbitration
Rules (UNCITRAL , 1976 ).

Westinghouse case
Art 6 (2) of the 1998 ICC Rules of Arbitration
was referred in this case which states the
Court may decide , without prejudice to the
admissibility or merits of the plea or pleas,
that the arbitration shall proceed if it is
prima facie satisfied that an arbitration
agreement under the Rules may exist
A decision by the arbitral tribunal that the
contract is null and void shall not entail ipso
jure the invalidity of the arbitration clause.

Difference between separability and

competence-competence

Under the separability principle, the

arbitration agreement is treated as a
separate agreement for the purpose of
ascertaining its existence and validity.
Under the Kompetenz-Kompetenz
principle, the arbitrators are entitled to
determine their own jurisdiction if
there is a valid arbitration clause.