Separability - the Indestructible Arbitration Clause

Abstract

IN IBM Australia Limited v. National Distribution Services Limited ,1 two members of the New South Wales Court of Appeal suggested that an arbitrator had no jurisdiction to determine whether a contract, pursuant to a provision of which the arbitrator was appointed, was void ab initio . Subsequently, in the Federal Court of Australia, in QH Tours Limited v. Ship Design & Management ( Australia ) Pty Limited ,2 Foster J declined to follow Clarke and Handley JJA in IBM . He favoured a more liberal approach to the scope of an arbitrator's jurisdiction. Recently, Young J in the New South Wales Supreme Court has adopted the more liberal approach, in Ferris v. Plaister .3 It is inimical to the proper working of the arbitral system that there should be doubt on this point. In the writers' opinion, the conclusions arrived at by Foster J and Young J are more consonant with modern principle. First, the statements in IBM are in conflict with the law of Australia with respect to international arbitration to which the International Arbitration Act 1974 (Cth) (‘the Commonwealth Act’) applies. Secondly, the law in other countries and the more recent approach in England suggest that in relation to domestic arbitration also, the statements in IBM are outdated. It is trite to say that an arbitrator's jurisdiction springs from a valid agreement to submit the dispute to arbitration. If the agreement incorporating the provision for arbitration is claimed to be void, does the arbitration clause survive to clothe the arbitrator with jurisdiction to decide the question? The statements in IBM ignore the concept of separability, also known as severability, or autonomy, of the arbitration clause. The arbitration clause is treated as a separate contract. It remains untouched by allegations of invalidity of the principal contract. The …