Author: Tanya J. Monestier*
Published: May 2002
Agreement to Arbitrate
Description: The doctrine of “separability” or “severability,” is, in its basic form, a relatively straightforward and uncontroversial one. It is premised on the idea that an arbitration clause can be severed from the underlying contract in which it is embedded if no independent challenge is directed at the arbitration provision itself. The doctrine is designed to ensure that questions relating to the validity of the underlying contract do not call into doubt the parties’ intention to arbitrate disputes. With very few exceptions, the doctrine of severability has been applied in the United States only in cases where the underlying contract satisfies all the necessary elements of contract formation, but is subject to rescission on the basis, for example, of fraud, duress or unconscionability. Where it is contended that the contract containing the arbitration provision never came into existence due to some deficiency in contract formation, American courts have generally refused to apply the doctrine, reasoning that a valid arbitration provision cannot be severed from a “contract” that never came into legal existence. In other words, U.S. law has subscribed to the paraphrased Shakespearean adage, “Nothing comes of nothing.”
This article will argue that something can indeed “come of nothing” in that a valid and severable arbitration provision can be contained within a contract that never legally materialized. It posits that the current view of separability in American jurisprudence is overly narrow and incompatible with the fundamental purpose of the doctrine. The article commences with an overview of the leading case on separability in the United States and proceeds to document ensuing jurisprudential developments. It then examines common doctrinal misconceptions regarding separability and lays out the test to be applied in determining whether an arbitration provision should be severed from the contract in which it is contained. The article subsequently explores international views on separability, which are codified primarily in institutional arbitral rules.
*LL.B., 2002 (Osgoode Hall Law School); Current law clerk to the Honorable Justice Frank Iacobucci, Supreme Court of Canada. The author gratefully acknowledges the assistance of Robert H. Smit, litigation partner at Simpson Thacher & Bartlett, and Professor Janet Walker, Osgood Hall Law School, in the preparation of this article.