If The Contract Is Unenforceable, Are Its Arbitration Provisions Also Unenforceable?

​Not necessarily and not on the facts of Beijing Jianlong Heavy Industry Group v Golden Ocean Group Ltd, [2013] EWHC 1063 (Comm). Beijing Jianlong provided guarantees to Golden Ocean in relation to the performance of Hong Xiang Shipping (HXS) as charterer of a vessel. HXS allegedly repudiated its obligations, and Golden Ocean turned to Beijing Jianlong as guarantor. The response was that the guarantees were not legal under Chinese law, which requires a Chinese legal person to obtain government authorisation for guarantees in favour of foreign entities, as a matter of control over foreign exchange -- and Beijing Jianlong contended that the parties not only knew this to be the case from the outset but also that the required permission had not been obtained. As a result, Beijing Jianlong argued, the guarantees were unenforceable in the English courts as a matter of public policy. It also argued that the arbitration provisions in the guarantees, which would have seen any dispute resolved by arbitrators in London rather than the Chinese courts, were also unenforceable given the illegality of the underlying guarantee.

Golden Ocean conceded that the guarantees themselves could not be enforced, but what about the arbitration provisions? The general principle is that an arbitration clause is a separate agreement from the contract of which it otherwise forms part, and this doctrine of separability may preserve the arbitration clause even where the underlying contract is voidable or even void from the start. Beijing Jianlong argued that the arbitration provisions were impeachable on grounds which related to...