On the Termination of the Agreement, the Arbitration Clause Subsists?

Abstract

An arbitration clause in a commercial contract is an agreement inside an agreement; the parties while making their commercial bargain in addition agree on a private tribunal to resolve any issues that may arise between them. Doctrine of separability states that the arbitration agreement has a separate life from the contract for which it provides the means of resolving disputes; this enables the arbitration agreement to survive breach of the contract of which it is a clause. According to the doctrine of separability an arbitration clause constitutes a self-contained contract collateral or ancillary to the main contract. However, according to the doctrine of implied terms, an arbitration agreement can continue to be implied as one of the terms of the relationship between the parties after the formal expiry of an agreement between them containing an arbitration clause; typically, this is found in leases and partnership deeds. With regard to termination of a contract by breach or frustration it was held in the matter of: Heyman V/s Darwins Ltd, (1942) A.C. 356, that termination of a contract by breach of performance obligations does not bring the contract’s dispute resolution procedure to an end, and is entirely within the scope of the arbitration agreement. Further, in the matter of: Astro Vencedor Compania Naviera SA V/s Mabanaft GmbH, (1970) 2 Lloyd’s Rep. 267, it was observed that, the court should if the circumstances allow lean in favour of giving effect to the arbitration clause to which the parties have agreed.