Arbitration Clause Separability Re-visited In The Court Of Appeal

• Law Firm: HKA
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Contracts and Commercial Law, Arbitration & Dispute Resolution
• Author: Mark Dixon
• Published date: 21 April 2023

It has long been established in English law that an arbitration agreement may be separable from the principal contract of which it forms or formed part (Heyman v Darwins Ltd. [1942] AC 356).

The principle received statutory recognition over a quarter of a century ago. Section 7 of the Arbitration Act 1996 provides:

"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."

While the principle of separability is well established, disputes do still arise concerning the circumstances in which an arbitration agreement may survive an invalid, ineffective or otherwise non-existent principal contract.

The Court of Appeal has recently provided further guidance on the issue in DHL Project & Chartering Limited v Gemini Ocean Shipping Co Limited [2022] EWCA Civ 1555. In that case the Court of Appeal upheld the first instance judgment of Mr. Justice Jacobs in the Commercial Court, where DHL's application to set aside an arbitration award of approximately $283,000 plus interest and costs under section 67 of the Arbitration Act 1996 was accepted on the basis that the tribunal did not have substantive jurisdiction because there was no concluded arbitration agreement.

Background Facts

The parties were negotiating the terms of a charter of the bulk carrier 'Newcastle Express' for a voyage to China with a cargo of coal in August 2020.

On 25 August the broker circulated a "Main Terms recap". It is common ground that the recap accurately reflected the state of the negotiations thus far. It began as follows (with original bold text):

Clause 2 of the recap provided, amongst other things, that the vessel should be "RIGHTSHIP APPROVED" and that "prior to charterers lifting their subjects", Gemini would provide figures for bunker consumption and speed along with a detailed itinerary. Clause 17 contained an arbitration clause.

Gemini intended that the vessel would be inspected on 3 September by Rightship, a vetting system that is widely used for identifying vessels suitable for the carriage of coal and iron ore.

However, by 3 September, Rightship approval had not been obtained. DHL advised the same day that it was not accepting Newcastle Express and that it was...