The Principle of Separability and the Modern Approach to Arbitration Clauses
📂 Case Details
Case Title: Fiona Trust & Holding Corporation and others v Privalov and others
Citation: [2007] UKHL 40; [2007] 4 All ER 951
Court: House of Lords (England and Wales)
Judges: Lord Hoffmann, Lord Hope of Craighead, Lord Scott of Foscote, Lord Walker of Gestingthorpe, Lord Brown of Eaton-under-Heywood
Date: 17 October 2007
Legal Area: Arbitration – Construction of arbitration clauses – Separability under the Arbitration Act 1996 s 7
Parties:
Owners (Appellants): Fiona Trust & Holding Corporation and others, part of the Russian state-owned Sovcomflot Group
Charterers (Respondents): Premium Nafta Products Ltd and others
Background of the Dispute
The owners of several vessels entered into charterparties with companies controlled by businessman Mr Nikitin. Alleging that the charters were procured through bribery of their senior officials, the owners sought to rescind the contracts and sued in the English courts for a declaration that the charters were void.
The charterers applied for a stay of proceedings under section 9 of the Arbitration Act 1996, arguing that the dispute—being “a dispute arising under the charterparty”—fell within the arbitration clause contained in clause 41 of the Shelltime 4 form.
The Legal Questions
Did the arbitration clause cover disputes over whether the contract was procured by fraud or bribery?
Could the arbitration clause itself be rescinded along with the main contract, or was it a separate agreement under section 7 of the Arbitration Act 1996?
The House of Lords’ Decision
The House of Lords dismissed the appeal, holding that:
(1) Broad construction of arbitration clauses:
Arbitration clauses should be interpreted liberally. Rational businesspeople are presumed to intend that any dispute arising out of their relationship, including disputes over contract validity or fraud, should be resolved by the same tribunal.(2) Separability of arbitration agreements:
Under section 7 of the Arbitration Act 1996, the arbitration clause is independent from the main contract. Even if the main contract is invalid or rescinded, the arbitration agreement remains effective unless it is directly impeached (for example, by forgery or total lack of authority).The court emphasised a “fresh start” in interpreting arbitration agreements, moving away from older technical distinctions such as “arising under” vs “arising out of” a contract.
Significance of the Decision
This case is a cornerstone of modern English arbitration law. It established two enduring principles:
Presumption of one-stop adjudication: Parties intend a single tribunal to decide all disputes—whether about performance, validity, or fraud.
Doctrine of separability: The arbitration clause survives even if the underlying contract is rescinded or found void.
The Fiona Trust decision harmonised English law with international commercial practice, promoting arbitration as a reliable, autonomous mechanism for resolving complex global disputes.
What Businesses Should Know
Always draft arbitration clauses clearly and comprehensively, ensuring they cover disputes about validity and enforceability.
Remember that an arbitration agreement can survive even if the main contract is challenged.
The English courts strongly support arbitration as the parties’ chosen forum, limiting judicial interference.