An arbitration clause should include an express provision that the clause survives the agreement.
There was an important shift in Cool Ideas 1186 CC v Hubbard. An unregistered homebuilder was trying to recover the costs of building a home even though the Housing Protection Act prohibits payment and makes it a criminal offence to build a house without being properly registered. Both the supreme court of appeal and the majority decision in the Constitutional Court refused to make an arbitration award an order of court because it would have the effect of enforcing an award that was contrary to public policy because it was in violation of a statutory prohibition that was backed by a criminal sanction.
A concurring judgment by two of the Constitutional Court judges went further and said:
“The process of taking the dispute to arbitration was rooted in the building contract. When the parties appointed the arbitrator and submitted their disputes to him, they acted in terms of the arbitration clause in the contract. The arbitrator too derived his power to determine those disputes from the building contract. Therefore, the invalidity of that contract vitiates the entire arbitration process. Consequently, the arbitration award was invalid because it was made in terms of an invalid contract.”
When drafting a contract the arbitration clause should not simply say the clause survives the invalidity of the agreement. The arbitration clause should stand apart from the agreement. It should say that the clause is a separate, self-standing arbitration agreement and that the arbitrator can determine any dispute including a dispute regarding the legality or validity of the contract.
And remember that if you want to enforce an arbitration award as an order of court this may not be possible if the result of doing so is against public policy and has the effect of enforcing illegal and criminal behaviour.
