KB-2025-001929 - [2025] EWHC 2966 (KB)

It is beyond controversy that the principle of separability in section 7 of the Act entails that the invalidity of the main contract does not necessitate the invalidity of the arbitration agreement. Section 7 provides:

“7 Separability of arbitration agreement.

Unless otherwise agreed by the parties, an arbitration agreement which forms or was intended to form part of another agreement (whether or not in writing) shall not be regarded as invalid, non-existent or ineffective because that other agreement is invalid, or did not come into existence or has become ineffective, and it shall for that purpose be treated as a distinct agreement.”

Therefore, an arbitration agreement is to be treated as a distinct agreement which is void or voidable only on grounds which relate directly to the arbitration agreement. Where a party to a contract containing an arbitration agreement claims that the person who purported to sign it on its behalf had no authority to conclude any agreement, such a claim constitutes an attack on the validity of the arbitration agreement. Authority is provided by the House of Lords in Fiona Trust and Holding Corporation v Privalov [2007] Bus LR 1725 (“Fiona Trust”). At paras 17-18, the court said:

“17.

The principle of separability enacted in section 7 means that the invalidity or rescission of the main contract does not necessarily entail the invalidity or rescission of the arbitration agreement. The arbitration agreement must be treated as a “distinct agreement” and can be void or voidable only on grounds which relate directly to the arbitration agreement. Of course there may be cases in which the ground upon which the main agreement is invalid is identical with the ground upon which the arbitration agreement is invalid. For example, if the main agreement and the arbitration agreement are contained in the same document and one of the parties claims that he never agreed to anything in the document and that his signature was forged, that will be an attack on the validity of the arbitration agreement. But the ground of attack is not that the main agreement was invalid. It is that the signature to the arbitration agreement, as a “distinct agreement”, was forged. Similarly, if a party alleges that someone who purported to sign as agent on his behalf had no authority whatever to conclude any agreement on his behalf, that is an attack on both the main agreement and the arbitration agreement.

18.

On the other hand, if (as in this case) the allegation is that the agent exceeded his authority by entering into a main agreement in terms which were not authorised or for improper reasons, that is not necessarily an attack on the arbitration agreement. It would have to be shown that whatever the terms of the main agreement or the reasons for which the agent concluded it, he would have had no authority to enter into an arbitration agreement. Even if the allegation is that there was no concluded agreement (for example, that terms of the main agreement remained to be agreed) that is not necessarily an attack on the arbitration agreement. If the arbitration clause has been agreed, the parties will be presumed to have intended the question of whether there was a concluded main agreement to be decided by arbitration.”

Under section 30 of the Act, the arbitral tribunal may rule on its own substantive jurisdiction. The power of the arbitrator to make such a decision not being in doubt, the question is whether this court should decide the question first or should refer it to the arbitrator. This is because the mere existence of the arbitrator’s power does not mean this court should always refer the dispute about the arbitrator’s substantive jurisdiction to the arbitral tribunal. It is an acutely fact-sensitive evaluation. It depends on factors such as the state of the evidence and the progress of proceedings in the respective forums. Where there is challenge to the validity of the arbitration agreement, and thus a challenge to the jurisdiction of arbitral proceedings, the court may take one of several courses, as confirmed in Al-Naimi. In short, they include:

The burden rests squarely on the party seeking to establish the existence and validity of an arbitration agreement that covers the claims brought in the High Court (Aeroflot – Russian Airlines v Berezovsky [2013] 2 C.L.C. 206 at para 73, per Aikens LJ, with whom Laws LJ and Mann J agreed). It repays setting out the relevant passage in Al-Naimi. Waller LJ at 651 agreed in principle with the first instance judgment of Judge Humphrey Lloyd QC in Birse Construction Ltd v St David Ltd [1999] BLR 194 (“Birse”). Waller LJ said at 649:

“I find that what he had to say about the approach to a s. 9 application very helpful, and both counsel before us suggested that it provided useful guidance. [Quoting then from 196 of the first instance judgment in Birse.]

“Mr Darling for the plaintiff contended that there should be no stay of the proceedings unless the court was satisfied that there was clearly an arbitration agreement. I do not consider that the position is that clear cut. The circumstances of the application must be taken into account. I accept that if it is clear on the evidence that a contract did or did not exist then the court should so decide for it cannot be right either to direct an issue pursuant to O. 73, r. 6(2) or to leave the “dispute” to be determined by an arbitral tribunal. The dominant factors must be the interests of the parties and the avoidance of unnecessary delay or expense. Where the rights and obligations of the parties are clear the court should enforce them. Unless the parties otherwise agree s. 30 of the Arbitration Act 1996 now permits an arbitral tribunal to decide questions of jurisdiction where it might not previously have been competent to do so. It is not mandatory and, contrary to a suggestion made by Mr Palmer, the existence of the power does not mean that a court must always refer a dispute about whether or not an arbitration agreement exists to the tribunal whose competence to do so is itself disputed. The Act does not require a party who maintains that there is no arbitration agreement to have that question decided by an arbitral tribunal. Indeed RSC, O.73, r. 6 in making express provision for a decision as to whether there is an arbitration agreement suggests that normally a court would first have to be satisfied that there is an arbitration agreement before acting under s. 9 (and that a dispute about such a matter falls outside s. 9 ). There will however be cases where it would be right to defer the decision, particularly, for example, if the determination of whether or not a contract was made also embraces the determination of the scope of the contract and its ingredients. In some cases it would be better for the court to act under O. 73, r. 6 ; in other cases it may be appropriate to leave the matter to be decided by an arbitrator. The latter course is likely to be adopted only where the court considers that it is virtually certain that there is an arbitration agreement or if there is only a dispute about the ambit or scope of the arbitration agreement …”

I would entirely support the above approach in relation to an application under O. 73, r. 6(2) subject only to the point ultimately made by the Court of Appeal. If the court decides that it is the court which should determine whether the matters the subject of the action are the subject of an arbitration clause, unless the parties were agreed that the matter should be resolved on affidavit, then, if there is a triable issue, directions should be given for trying that issue. It may be helpful to add that the equivalent of O. 72, r. 6(2) now appears in the CPR, Pt. 49G Practice Direction, para. 6.2 in almost identical terms, and it would seem that the approach should thus be the same. It is right to point out that under the CPR the court has a wider discretion to rule what evidence it needs to decide any particular point (see Pt. 32.1 ). However, it seems unlikely, in the absence of agreement that issues should be tried on witness statements alone, that a court which (a) formed the view that there were triable issues relating to facts material to the jurisdiction question; (b) had an application before it to cross-examine the makers of those statements; and (c) had decided that the court should resolve the matter as opposed to an arbitrator, would do other than direct a trial of the issue.

The only other point I would make so far as the above approach is concerned is that it must not be overlooked that the court has an inherent power to stay proceedings. I would in fact accept that on a proper construction of s. 9 it can be said with force that a court should be satisfied (a) that there is an arbitration clause and (b) that the subject of the action is within that clause, before the court can grant a stay under that section. But a stay under the inherent jurisdiction may in fact be sensible in a situation where the court cannot be sure of those matters but can see that good sense and litigation management makes it desirable for an arbitrator to consider the whole matter first. If, for example, the court thinks that it would take a trial with oral evidence to decide whether matters the subject of the action were actually within the scope of an arbitration clause, but that it was likely that on detailed inquiry the subject matter of the action will be found to be covered by the arbitration clause; and particularly if an arbitration was bound to take place in relation to some issues between the parties, and where having explored the details necessary to found jurisdiction, it would only be a short step to deciding the real issues, it will often be sensible for the court not to try and resolve that question itself but leave it to the arbitrator.

It is true that since the matter goes to jurisdiction there is a risk that the matter might come back to the court under s. 67, but since costs and time are, in the example given, going to be expended on matters that relate to jurisdiction and once the tribunal who hears that evidence will be in a strong position to move quickly on to resolve the main issues — the risk will often be worth taking. This seems to me in accordance with the spirit of the 1996 Act and in particular s. 30, and 32(2).”

I am bound by the Court of Appeal. I have found this clear approach of great value and have followed it. The question of choice of way forward turns on the state of the evidence now before me. It is to that I turn.