Rule of Severability
Rule of Severability (or Separability)
What is the Rule of Severability?
The Rule of Severability means that the arbitration clause or agreement is treated as a separate and independent contract from the main contract in which it is embedded.
In simpler terms: Even if the main contract is alleged to be void, invalid, or terminated, the arbitration agreement within it still remains valid and enforceable.
Why is Severability Important?
Prevents the entire contract from being invalidated simply because the arbitration clause is questioned.
Ensures that disputes about the main contract can still be resolved by arbitration.
Protects the integrity and autonomy of the arbitration process.
Supports efficiency in dispute resolution by avoiding the need to litigate whether arbitration can even happen.
How Does It Work?
When a dispute arises, if one party claims the entire contract is void (e.g., due to fraud, misrepresentation), the court or tribunal first determines whether the arbitration agreement is valid independently.
If the arbitration clause is valid, the dispute is referred to arbitration, including the dispute about the contract’s validity.
Legal Basis and Recognition
The rule is widely recognized under international arbitration laws, including the UNCITRAL Model Law and Arbitration and Conciliation Act, 1996 (India).
Courts and tribunals apply it to ensure separate treatment of the arbitration clause.
Landmark Case Law on Rule of Severability
1. Fiona Trust & Holding Corporation v. Privalov (2007) UKHL 40
Facts: A dispute arose over the main contract, and there was a question about the validity of the arbitration clause.
Held: The UK House of Lords held that arbitration clauses are severable from the main contract.
This means even if the main contract is alleged to be invalid, the arbitration clause remains effective unless specifically challenged.
Significance: This case firmly established severability as a principle in English law and influenced international arbitration practice globally.
2. Centrotrade Minerals & Metals Inc. v. Hindustan Copper Ltd. (2017) 14 SCC 511 (India)
Facts: A challenge was raised against the validity of the main contract.
Held: The Supreme Court of India reiterated the separability doctrine, stating that the arbitration clause is a distinct contract and disputes relating to the validity of the main contract are to be decided by the arbitral tribunal.
Significance: Reinforced the principle of severability in Indian arbitration law.
Illustration
Suppose a contract for the sale of goods contains an arbitration clause. Later, one party claims the contract was induced by fraud and is therefore void.
Without severability, the arbitration clause would also fail with the contract.
With severability, the arbitration clause stands independently, so arbitration can proceed to resolve the fraud allegation.
Summary
| Feature | Explanation |
|---|---|
| Definition | Arbitration agreement is treated as separate from the main contract |
| Purpose | Protect arbitration agreement even if main contract is invalid |
| Effect | Arbitration proceeds to resolve disputes, including contract validity |
| Legal Recognition | Widely recognized internationally and domestically |
| Key Case Examples | Fiona Trust v. Privalov (UK), Centrotrade v. Hindustan Copper (India) |
Conclusion
The Rule of Severability is crucial because it preserves the effectiveness of arbitration agreements regardless of the status of the underlying contract. This promotes the smooth functioning of arbitration by ensuring parties cannot avoid arbitration simply by challenging the entire contract’s validity.
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