Avoiding uncertainty over validity of arbitration clauses

Although there are certain differences across the world concerning the determination of the severability of arbitration clauses, a doctrine is widely accepted: while an arbitration clause forms part of the contract, it is separable from other terms of the contract, and must not be regarded as invalid because the contract is invalid. This doctrine is also included in PRC legislation. According to article 19 of the Arbitration Law, an arbitration clause must exist independently, and the amendment, rescission, termination or invalidity of a contract must not affect the validity of the arbitration clause. In foreign-related contract cases, the validity of a contract is determined on the basis of the law applicable to the contract, as agreed upon between the parties concerned.

So can we judge the validity of arbitration clauses that are separable from the contract on the basis of the law applicable to the contract?

PRC LAW AND PRACTICE

According to article 16 of the Supreme People’s Court (SPC) Interpretation concerning Some Issues on Application of the Arbitration Law, the examination of the validity of an arbitration clause that involves foreign interests must be governed by the laws agreed upon between the parties concerned. If the parties did not agree upon the applicable laws but have agreed upon the place of arbitration, the laws at the place of arbitration must apply. If they neither agreed upon the applicable laws nor upon the place of arbitration, or the place of arbitration is not clearly agreed upon, the laws at the locality of the court must apply.

Michael Wang is an associate at Martin Hu & Partners