Legal Updates

An arbitration clause has a “life of its own” independent from other clauses of the contract and will apply also when a contract is terminated

October 3, 2017

An investor invested hundreds of thousands in an R&D joint venture for developing a high-tech product where the investment agreement set that a company will be incorporated in which the parties will equally hold the shares and if one of the parties will wish to withdraw the joint venture it will offer to purchase the shares of the other and in lack of agreement on the price and terms of the purchase, the amount will be set by an arbitrator. The joint venture continued without the incorporation of a company and at some point the other party gave notice of termination of the agreement because of breach thereof by the investor. The investor moved the Court to appoint an arbitrator to evaluate the share of the investor in the joint venture.
The Court accepted the motion and held that an arbitration clause has an "life of its own" and when the contract is terminated for reasons other than being illegal ab initio, the arbitration clause will continue to apply even after the termination and regardless the question of its validity. The non-incorporation of the company is a technical matter and thus the investor has a right to enforce the sale of its shares in the joint venture pursuant to a valuation set by an arbitrator under the agreement.