Arbitration is a form of Alternative Dispute Resolution (ADR), which is a legal procedure for settling disputes outside of the regular court system.
When parties agree to use arbitration to settle their disputes, they take their dispute to one or more persons referred to as the arbitrator or arbitral tribunal. By doing this, they agree to accept and be bound by the decision of the arbitrator or the arbitral tribunal and it would have the same effect as a judgment given by a court.
The arbitration agreement is the foundation of a valid arbitration and it is the source of the arbitrator/arbitral tribunal’s power to settle disputes between the parties. Therefore without the parties’ agreement to arbitrate, there can be no arbitration and parties will have to use the regular court system to settle their disputes. The agreement to arbitrate is usually included in the main contract between the parties and in this case, it will be referred to as the arbitration clause.
One distinctive feature of an arbitration agreement is that even where the arbitration agreement is included as a clause in the main agreement, it is separate and distinct from the main contract. This means that although the arbitration clause is a clause in the main contract, it is an independent agreement and it can therefore stand on its own. This is provided for in Section 12(2) of the Arbitration and Conciliation Act and is referred to as the doctrine of separability. By this doctrine, any illegality or termination of the main contract will not affect the power of the arbitrator or arbitral tribunal to settle the dispute between the parties. Therefore, the clause which provides that parties to an agreement can pursue arbitration before proceeding to court will remain valid even though it is later discovered that the main contract is invalid or void.