Arbitration clause separability is a legal concept that permits an arbitration agreement to be treated separately from the contract in which it is written. If the underlying agreement is invalid, the arbitration clause will still be in place. Unless the arbitration clause itself is found to be invalid because it isn’t related to the invalidity of the underlying agreement, the arbitration clause will still be in place.
Since the UAE requires the specific authority to create a valid arbitration agreement, it is common to see this principle relied on to bring claims to Court. On this basis that the arbitration clause is unlawful because of a lack of power, but that the remainder of the agreement is sound and may be used to establish claims.
Legal Provision relating to Separability of Arbitration Clause under UAE’s Law
The notion of Separability is recognized in the UAE’s Federal Arbitration Law (Federal Law No 6 of 2018), and its inclusion was deemed one of the law’s highlights.
The Arbitration Law specifies that:
- An arbitration provision must be recognized as an agreement distinct from the other conditions mentioned in a contract.
- Termination or nullification of a contract in which an arbitration provision is contained does not affect the legality of the arbitration clause.
According to Article 6(1) of the Federal Arbitration Law:
Arbitration clauses should be viewed as separate agreements from the other contract provisions. The contract’s nullity, revocation, or termination should not affect the arbitration provision if it is legal per se unless the problem concerns a party’s incapacity.
You may want to know: Arbitration Services in Dubai To Settle Your Loans
Court of Cassation on Doctrine of Separability
In this decision, the Court of Cassation acknowledged the idea of separability (the Doctrine) and held that an arbitration provision in a contract is distinct from the main contract, except when the judgment violates public order.
Before Dubai’s Court of Cassation (Appeal number 164 of 2008, dated 12 October 2008), a 23 December 2004 subcontracting agreement called for Arbitration in Dubai.
Clause 13 of the abovementioned agreement stated that if a dispute or difference arises between the parties, they shall attempt to settle it amicably; if this is not feasible, the dispute or difference should be brought to Arbitration.
In this case, the Court had to determine the arbitration clause’s legality by deciding whether the managing director of a limited liability company can bind the firm to Arbitration. To summarize, the Court confirmed that a corporation’s management could undertake the company to Arbitration.
Held: The Court held that “if the company’s constitutive documents specifically, the memorandum and articles of association vest broad powers and authorities in the manager of the company. The manager has the legal authority to take any action and perform any act he deems expedient or in the best interests of the company.” Due to the considerable authority conferred on the managing director by the company’s fundamental articles, the formal necessity of obtaining a specific power of attorney to commence arbitration proceedings is waived.
You may need to know: Arbitration procedures and practice in UAE
Latest Judgement on the Separability of an arbitration clause by Sharjah Court of Appeal
Facts of the Case:
A commercial agreement between a foreign company (the plaintiff) and a Sharjah-based UAE company (the defendant) was at the heart of the dispute before the Sharjah Courts (the defendant). The plaintiff filed a lawsuit in the Sharjah Court of First Instance, claiming that the agreement was the basis for several contractual claims. As a result of an arbitration clause, the defendant contended that the Sharjah Court had no jurisdiction over the case.
The argument made by Plaintiff and Defendant
The plaintiff claimed that the person who signed the agreement on its behalf lacked the authority to agree to Arbitration. The plaintiff attempted to advance this argument by referring to UAE law standards for establishing the authority to agree to Arbitration (or, in this case, the lack thereof). The defendant argued that the issue of authority to agree to Arbitration should be resolved using the law applicable to the plaintiff (i.e., the law applied in the plaintiff’s country of incorporation) rather than UAE law.
The Sharjah Court of First Instance dismissed the plaintiff’s complaint about lack of jurisdiction, even though the issue of authority was the focus of the parties’ arguments. Plaintiffs cannot simultaneously argue that the arbitration provision in the agreement is invalid while also relying on the agreement as to the foundation of their claims.
Appeal to Sharjah Court of Appeal
Afterwards, the plaintiff filed an appeal to the Sharjah Court of Appeal, and its main claim was that the arbitration provision constituted a separate agreement. Due to the plaintiff/view appellant’s that the agreement is binding in claiming its rights, and since there was no evidence that the agreement itself was faulty or unlawful, the arbitration clause cannot be severed from the rest of it. In other words, the Court of Appeal ruled against the plaintiff. An arbitration provision in a contract cannot be invalidated by a party relying on the arbitration clause to enforce its claims.
This informative article contains general information. It is not intended to be used as legal advice and should not be relied upon as such. Before taking any legal action, it is always advisable to obtain legal counsel from a knowledgeable lawyers in Dubai on the legal concerns impacting you. HHS lawyers and legal consultants specialized in dealing with issues relating to Arbitration. Should you want to know more about the Doctrine of Separability and the procedure for filing an arbitration request before the Court or at the Arbitration center, don’t hesitate to contact us.