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Introduction Whether an arbitration clause survives the death of the contract, or the invalidity of a contract, is one of evolving law in England. Starting with the early days, arbitration clauses were considered just another contract term, therefore were not deemed to survive the death of a contract, let alone its invalidity…
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Eventually, through the enaction of the Arbitration Act 1996 and through several cases, the arbitration clause was held to survive even if the underlying contract was void or invalid. The details of the evolution of the arbitration clause, with relation to whether it survives the death or invalidity of the underlying contract, is the topic of this submission. Analysis Historically, courts have approached the issue of the separability of arbitration clauses in different ways. In England, the issue of arbitration clauses being separable was decided in such a way that the arbitration clause became another contract term, in the case of Kill v. Hollister in 1746.1 This decision was in accordance with another decision by France different around this same time that was decidedly anti-arbitration. France’s Napoleonic Code outlawed enforcing arbitration clauses. However, the notion of separability evolved in Europe, so that Germany, in the late 19th Century, decided that the law of the arbitration and the law of the contract could be ruled by separate jurisdictions. This is because Germany decided that arbitration clauses were procedural, therefore would be ruled by the law of the forum. The contract itself, being substantive, would be ruled by a different law. Hence, Germany decided that arbitration clauses were separate from the contracts themselves.2 In England, a landmark court decision was seemingly influenced by the German notion of contract and arbitration clause separability. Hamlyn v. Talisker was a House of Lords decision in 1894 that decided that arbitration clauses were governed by separate laws than the contract themselves, and this meant that the law of the arbitration clauses would be governed by the place of arbitration, even though the law of the contract might be a different law than that of the arbitration. Other countries have followed suit, to where “separability for conflicts of law purposes has been accepted amongst the key arbitration countries.” 3Although most countries are in accordance with the notion of contract and arbitration clause separability, they handle the issue in different ways. Some countries allow parties to choose the law of the arbitration clause and the law governing the contract separately, while others “simply apply by statute the law of the seat to all cases proceeding in their territory.”4 The principle of severability is perfectly illustrated in the case of Mastrobuono v. Shearson Lehman Hutton, Inc., et al., 514 U.S. 52. In that case, the parties entered into an agreement that had an arbitration provision and a choice of law provision. In that case, the arbitration provision stated that the law of Illinois, and the rules of the National Association of Securities Dealers, would govern arbitration, and the contract would be governed by the laws in New York. The parties arbitrated the disagreement in Illinois, and the plaintiffs were awarded punitive damages. The problem with this is that New York, which governed the contract, had passed a law that stated that arbitrators may not award punitive damages. Therefore, the defendants appealed the award of punitive damages, stating that, since New York precluded such an award. The United States Supreme Court granted certiorari on the matter because the lower courts were in conflict as to whether contractual choice of law pro ... Read More
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