A blog post by Luis Evangelista, Senior Associate
An arbitration clause is a clause or a separate agreement to resolve disputes stemming for a contract via arbitration.[1] Even though the arbitration clause is most often contained within the contract between the parties, under most laws and rules its nonetheless considered a separate agreement.[2] This is called the doctrine of separability. This means that the arbitration clause may continue to be valid even if the main contract is found to be invalid.[3] Because the arbitration clause survives after its container agreement has died, it can be called a zombie clause.
An example of this can be seen in the English Court of Appeals case of Harbour Assurance Co. v. Kansa.[4] The plaintiff in this case was an insurance and reinsurance company, while defendants were six (6) Finnish insurance and reinsurance companies who had pooled their resources to secure reinsurance business to extend their portfolio to reinsurance business originating in London. The parties went into business together for the years 1980-1984, signing a contract that contained an arbitration clause referring all disputes or differences arising out of the agreement to arbitration. Plaintiff alleged that the contract was void ab initio because the Defendants were not authorized by the United Kingdom’s Department of Trade and Industry to carry on the business of insurance or reinsurance in Great Britain. As such, any contract to engage in insurance or reinsurance work would be illegal.
The English Court of Appeals ruled that “an arbitrator [could] determine a dispute over the initial validity or invalidity of the written contract provided that the arbitration clause itself was not directly impeached.”[5]The Court essentially held that while the contract might be illegal from the start, the arbitration clause survives and would be enforced. Thus, the arbitration clause rose from the grave of a contract that was dead from the start and bound the parties to arbitration.
[1] Margaret L. Moses, The Principles and Practice of International Commercial Arbitration, 20 (2017).
[2] Id. at 21.
[3] Id.
[4] Harbour Assurance Co. Ltd. V. Kansa General International Insurance Co. Ltd. [1993] UKQB (Civil Division) 1 Lloyd’s Rep. 455 (1993)
[5] Id.