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    UK: English High Court Rules on Separability of Arbitration Agreements

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    In the conjoined cases of Beijing Jianlong Heavy Industry Group v Golden Ocean Group and Beijing Jianlong Heavy Industry Group v Ship Finance International Ltd [2013] EWHC 1063, Judge Mackie QC held that arbitration clauses which were included in certain guarantee contracts were enforceable, even if the guarantees themselves might be unenforceable.

    Both of the conjoined cases raised the same issue, namely, whether the fact that an English law guarantee was (or was assumed to be) unenforceable because it involved the commission in a foreign country of acts which were unlawful according to local law meant that the arbitration agreements in those guarantees were also unenforceable. The detailed facts of the underlying arbitrations which gave rise to the present case are not relevant for present purposes, it need only be stated that in each case a Chinese company (Beijing Jianlong Heavy Industry Group (Jianlong)) gave guarantees to non-Chinese companies, which were subsequently claimed upon. Arbitration proceedings were then commenced, in which Jianlong claimed that both the guarantees and the arbitration agreements were unenforceable. The arbitration tribunals issued partial final awards stating that arbitration agreements were valid and enforceable, even if it were assumed that the guarantees were unenforceable. Jianlong made the present application to challenge those conclusions.

    Judge Mackie QC held that even if it were assumed that the guarantees themselves were unenforceable because they were entered into as part of a scheme which was intended to procure the carrying out of illegal acts in China, the arbitration clauses remained, in accordance with Section 7 of the Arbitration Act, separate and distinct from the contract of which they otherwise formed part. As such, he held that the arbitration clauses remained valid and enforceable stating that “The policy and purpose of the rule which invalidates the Guarantees does not strike down the arbitration provisions”.

    This case demonstrates the extent to which English courts will seek to uphold the validity of arbitration agreements, even in circumstances where the main agreement which contains the arbitration clause may itself be unenforceable.

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