Court of Appeal clarifies when disputes re formation/validity of contract containing arbitration clause may fall to be determined by the courts

A recent Court of Appeal decision provides useful guidance on disputes about the validity of the underlying contract where that contract contains an arbitration clause. The decision clarifies the important principle of separability, under which an arbitration agreement is treated as a contract which is separate from the main contract of which it forms part:  DHL Project & Chartering Ltd v Gemini Ocean Shipping Co Ltd [2022] EWCA 1555.

The Court of Appeal held that, as a matter of English law, where it is found that the parties have not entered into a binding agreement in the first place, the arbitration agreement will generally not be binding either. Accordingly, where a party argues that an arbitration clause is not binding because there is no contract, it may fall to the courts to determine the issue - unless the parties can reach an ad hoc agreement to submit that issue to arbitration, without prejudice to whether that agreement is necessary.

The position is different where the validity of the contract is disputed, as opposed to whether there had been a valid offer and acceptance and intention to create legal relations. In the former case, the parties assented to the terms of the contract containing an arbitration clause, but their agreement is invalidated on some legal ground which renders the contract void or voidable. Arguments of invalidity will not necessarily impeach the arbitration agreement, and indeed will be presumed not to do so unless they relate directly to the arbitration agreement. But where the argument goes to contract formation, so that no binding contract was formed, there will generally be no binding arbitration agreement either.

For more information, see this post on our Arbitration Notes blog.