Arbitration where contract is invalid

We are a hospital based in Dodoma and entered into a contract with another hospital based in a foreign country to supply cadavers for educational purposes. The contract contained an arbitration clause under which we agreed to resolve disputes by arbitration. The Contract was also governed by Tanzanian law, something which our counterparts agreed to.  Unfortunately, the other Hospital did not honour the contract, citing that it was invalid because the supply of cadavers is not permitted under Tanzanian law. Having learned this, we requested the return of money paid under the contract. However, the other Hospital is refusing to pay us back. We are unsure whether to go to Court or pursue arbitration as stipulated in the invalid contract.

PJ, Dodoma

The invalidity of a contract does not prevent arbitrators from deciding disputes arising out of the contract under the arbitration agreement. It is a general principle under common law that the arbitration clause is distinct from the main contract. This principle is enshrined in the Arbitration Act [Cap. 15 R.E. 2023] (the Arbitration Act), which codifies the common law principle in Tanzania. Section 12 of the Arbitration Act provides that unless otherwise agreed by the parties, an arbitration agreement which forms or was intended to form part of another agreement, whether or not in writing, shall not be regarded as invalid, non-existent or ineffective because that other agreement is invalid, did not come into existence or has become ineffective, and the arbitration agreement shall for that purpose, be treated as a distinct agreement.

Note that it is only when the arbitration agreement itself is directly impeached for a specific reason that the arbitral tribunal will be prevented from deciding the dispute relating to the main contract. In this case, it is insufficient to say that the contract as a whole is impeachable on the ground of illegality. Courts have also held that an arbitration clause cannot be impeached on grounds of invalidity of a contract. Your lawyer can guide you further.