Reflections on Party Autonomy, Consent, and the Principle of Separability of the Arbitration Clause

Party autonomy

Arbitration rests on the fundamental principle of party autonomy. This prerogative constitutes the legal faculty that natural or legal persons possess to freely shape their own relationships, deciding the scope of their rights and the obligations they wish to assume.

In the field of obligations and transactions, this principle grants the freedom to establish rules of conduct and define them in contracts that bind their signatories with the same binding force as law.

In international trade, it also translates into the power to add to the agreement commercial usages, professional codes of conduct and/or recommendations recognised as best practices, without these strictly belonging to any particular legislation. However, the exercise of party autonomy is not absolute; its effectiveness is conditioned upon respect for public policy laws, morality, and national and international good customs that sustain the legal order.

Consent and its validity as a manifestation of party autonomy

For party autonomy to materialise in a substantive and legal manner, it must be expressed through consent. Consent is the actual manifestation of will by which a person decides to give approval for something to occur or to assume a particular obligation.

This legal relationship does not require solemn formalities; it only requires the manifestation – whether express or tacit – of the intention to be legally bound with respect to a determined object and cause.

It should be clarified that the most commonly used manifestation of consent is written consent, which leaves material evidence of its existence or a means of objectively establishing it and thereby avoids questions as to whether or not consent existed.

Consequently, if consent is absent or vitiated, it is legally impossible for a valid obligation to arise. For the legal relationship to be valid, the expression of will must be free from circumstances that alter it, condition it, or distort the reality upon which the decision to give consent is based. When consent is obtained through deceitful or fraudulent manoeuvres, nullity affects the genesis of the legal act.

Fraud invalidates the document in its entirety because it alters the discernment of the deceived party, causing that party’s acceptance to be based on an artificial premise. Under the general rules of law, obligations arising from bad faith or fraud are affected by absolute nullity, which prevents them from producing legal effects.

The law neither protects nor makes enforceable an obligation whose material existence resulted from a distortion of the will, since no one is permitted to benefit from his or her own fraud or illegality.

The conflict in the distinction between contractual consent and the arbitration clause

When the parties decide to incorporate a dispute resolution mechanism into their contractual framework, they choose to insert an arbitration clause into the body of the document. Prevailing doctrine and modern legislation require this arbitration clause to be treated as an independent contract within the legal transaction from which the dispute to be arbitrated would arise. In short, a contract within the contract.

Under this premise, the principle of separability is sustained as a legal fiction according to which the agreement to arbitrate enjoys autonomy from the economic transaction. The invalidity or nullity of the commercial contract does not affect the continued existence of the arbitration clause.

This principle of separability enjoys global recognition in this field. It has been enshrined by the United Nations Commission on International Trade Law (UNCITRAL) and adopted by the majority of jurisdictions whose arbitration laws are inspired by its guidelines.

The Dominican Republic is no exception; our legal system expressly recognises this autonomy in Article 11 of Law No. 489-08 on Commercial Arbitration, by providing that the nullity of a contract does not necessarily imply the invalidity of its arbitration clause, seeking to safeguard the procedural certainty of the parties in the face of ordinary contractual crises.

Considerations on the anationality of the arbitration clause

In light of doctrinal trends asserting that the arbitration clause possesses an anational nature and is not subject to any state legislation – a position emblematically upheld by the French Court of Cassation – it is necessary to put forward a divergent position.

The arbitration clause cannot subsist in an absolute normative vacuum. Generally, when contracting parties enter into a legal transaction, they determine the substantive law applicable to the commercial agreement; this choice of law establishes, in a unified manner, the framework for the validity and interpretation of all the provisions contained in the document.

In those scenarios where the parties fail to expressly designate the law governing the arbitration clause or the agreement, the international legal order does not validate the absence of law but rather requires the identification of objective connecting factors.

In the absence of an express agreement, the validity of consent to arbitrate must be determined according to the characteristics of the contract, such as the place where it was executed, the territory where the substantive obligations are performed or, pursuant to the 1958 New York Convention, the law of the seat designated for the arbitral tribunal.

Detaching the arbitration agreement from every state rule constitutes a theoretical consideration that distorts the general theory of obligations, since every manifestation of will requires a positive legal framework that determines its validity and sanctions the existence of essential defects such as fraud.

In the case of the Dominican Republic, Article 10(5) of Law No. 489-08 provides: “When the arbitration is international, the arbitration agreement shall be valid and the dispute shall be capable of settlement by arbitration if the requirements established by the legal rule chosen by the parties to govern the arbitration agreement, by the legal rules applicable to the merits of the dispute, or by Dominican law are met,” which reinforces or confirms that, at least under Dominican Arbitration Law, the arbitration clause or arbitration agreement has no nationality.

Distinction between the arbitration clause and the arbitration agreement

In order to precisely define the scope of the will in private justice, it is essential to clarify a very recurrent doctrinal imprecision: equating the arbitration clause with the arbitration agreement. Although in ordinary practice they are used interchangeably, the arbitration clause and the arbitration agreement are two different matters, even though in principle they regulate or seek to regulate the same situation.

The arbitration agreement is the act by which the parties decide to submit the resolution of a dispute to arbitration. Its distinguishing characteristic lies in the fact that it is formed after the contract giving rise to the dispute.

This conceptual distinction requires us to recognise a fundamental legal reality: the arbitration agreement arises from different facts, at different times, and with a completely different will and consent and is, therefore, independent, which would logically justify the existence and application of the principle of autonomy or separability of the arbitration clause. In this case, it is indisputable that the manifestations of consent are individual.

Indeed, it is consistently recognised that an arbitration agreement, in its capacity as a contract, is affected by the same validity requirements applicable to obligations in general and, among them, particularly by defects in consent.

As previously stated, party autonomy and, therefore, consent as its natural manifestation, have their limits in the laws and principles that protect morality and public policy. This requirement of legality and integrity has been recognised by Dominican case law, which has stated the following: “…therefore, the validity of the transaction entered into must be recognised, provided that it meets the conditions established by Art. 1108 of the Civil Code, as regards the giving of free and unvitiated consent, the capacity of the parties, a certain object, and a lawful cause…” (Supreme Court of Justice, Civil Chamber, Judgment No. SCJ-PS-23-1546).

The real problem lies in the fact that, because the will was expressed in a unified manner in a single contract, the arbitration clause inevitably shares the same defects in consent that affect the legal act containing it.

It would be chimerical to construct a moment at which consent is separated in order to argue for the strict autonomy of the arbitration clause. If there was no valid will in the principal transaction due to deceit or fraud, the requirements of Article 1108 of the Civil Code are not satisfied with respect to the act as a whole.

Attempting to separate a preventive clause from a contract that is null due to fraud is untenable, as it seeks to validate consent that, from the perspective of public policy, never came into existence.

If this analysis were applied to the manifestation of the state’s consent to arbitrate, the scenario would be even more complex, taking into account that such consent may be presented in three different forms.

• Traditional contractual form – this consists of the traditional insertion of an arbitration clause into an administrative or commercial contract.
• Legislative form – this occurs when the state, through its domestic legislation, makes a public and open offer to arbitrate disputes arising from investments that meet the requirements provided for by law.
• International agreement – this is expressed in an international treaty (bilateral or multilateral) which, after being ratified by the corresponding body – in our case, the National Congress – is incorporated as law into the Dominican legal system.

As a general rule, when the state challenges the validity of a contract and, with it, the jurisdiction of the arbitral tribunal – recurrently alleging the existence of fraudulent manoeuvres (corruption), or arguing that its domestic laws or procedures for validly obtaining state consent were not complied with – arbitral tribunals tend to reject those allegations.

Relying on the doctrine of one’s own acts and the principle of good faith, and under the protection of the autonomy of the arbitration clause, arbitrators retain their jurisdiction, compelling the state to litigate before private justice.

The bilateral analysis of good faith and the conduct of the parties in determining the jurisdiction of the arbitral tribunal

The legal grounds generally used to retain the jurisdiction of arbitral tribunals when the state challenges it should be analysed bilaterally. This would provide greater balance to the examination by considering the participation of the party adverse to the state in the alleged fraudulent or deceitful manoeuvres.

It is also essential to assess whether the counterparty acted prudently and diligently before contracting with the state, as any good businessperson would.

Only through this bilateral examination can it be determined whether the private contracting party’s defence – based on the principles of legitimate expectations, good faith, or the conduct previously displayed by the state – is legally sustainable or whether, on the contrary, such defence is destroyed by applying the maxim nemo auditur propriam turpitudinem allegans: no one is permitted to rely on his or her own fault, negligence, or illegality in order to claim a right before the courts.

Fraudulent manoeuvres or acts, generically characterised as corruption, are generally carried out for the purpose of securing a contract with the state. This implies, by definition, the indispensable coexistence of the perpetrator of the deceptive manoeuvres and the injured person or errans.

Therefore, the validity analysis must necessarily balance the conduct of both actors. It is necessary to examine whether the private counterparty participated in or encouraged such manoeuvres or whether, on the contrary, it conducted prior due diligence that would have allowed it to identify whether the state body complied with all domestic legality requirements necessary to validly consent.

Conducting the aforementioned prior due diligence should be regarded as an elementary standard if it is considered that these allegations by the state are common and foreseeable in transnational trade. In fact, the Dominican Republic introduced this due diligence practice in 2021 through guidelines aimed at strengthening transparency and regulatory compliance in these processes, which are now incorporated into Law 47-25 on Public Procurement and its implementing regulations.

In this regard, it should be emphasised that the economic values involved in contracts with states are generally significant. This requires a good businessperson intending to contract with the state to act with greater diligence and foresight in order to safeguard the legal validity of the agreement about to be entered into. Acting imprudently, negligently, or fraudulently by encouraging or participating in questionable practices places the contract and the economic values involved therein at risk.

When consent is obtained through fraud or the deployment of fraudulent manoeuvres, the principle of separability falls away. If the private counterparty participated in the fraud or manoeuvres, or acted negligently in the face of a foreseeable risk, there would be no basis for invoking good faith, legitimate expectations, or the doctrine of one’s own acts in its defence. The purported autonomy of the arbitration clause would become invalid as a consequence of the defect in consent affecting the contract containing it.

As a corollary of the foregoing, the arbitral jurisdiction would lack jurisdiction to hear the dispute, and jurisdiction would be restored to the ordinary courts of justice, which, by their constitutional nature, are called upon to judge the validity of consent, protect morality and safeguard public policy.

Conclusion and final reflection

Given the aforementioned elements, it is evident that commercial arbitration, being eminently contractual, is affected by the validity requirements applicable to obligations in general and that the arbitration clause would not be protected by the principle of separability; however, the opposite would occur when this principle is applied to the arbitration agreement because, as previously stated, it would arise at a different time and independently from the contract from which the dispute derives. It should be noted that investment arbitration requires a distinct and particular analysis from that applicable to commercial arbitration.