The principle of party autonomy is fundamental to arbitration proceedings, allowing parties to choose various aspects of dispute resolution, including laws, forum, and procedure. However, this autonomy is not absolute and cannot be used to violate mandatory laws.
Unilateral arbitration clauses, where only one party has the option to refer disputes to arbitration or litigation, pose challenges regarding validity, enforcement, and procedural equality.
These clauses can be categorized into two main types. The first type provides an option to arbitrate, where all disputes are referred to litigation, but one party has the choice to commence arbitration proceedings. The second type provides an option to litigate, where there is a binding arbitration agreement, but one party retains the option to go to court.
The key feature of these clauses is the lack of mutuality in the dispute resolution mechanism, where one party has the right to choose the forum, while the other party is deprived of this right.
The validity and enforceability of unilateral arbitration clauses vary across jurisdictions. In England, courts have generally upheld the validity of such clauses, as seen in cases like Pittalis v Sherefettin and NB Three Shipping Ltd v Harebell Shipping Ltd , which established that unilateral clauses can be enforceable.
In contrast, some jurisdictions have shown reluctance towards unilateral clauses due to concerns about fairness and procedural equality. For instance, the French Cour de Cassation in the Rothschild case held a unilateral clause to be invalid on the ground of being potestative in nature.
The clause allowed the bank to bring an action before the courts of the client’s domicile or any other court of competent jurisdiction, while the client was bound to bring disputes before the courts of Luxembourg. The court applied the doctrine of ‘potestativité,’ which renders contractual clauses invalid if their performance depends solely on the discretion of one party.
In India, the courts have taken a different approach. The Delhi High Court in Union of India v Bharat Engineering Corporation considered a unilateral arbitration clause to be a contract of option, contingent upon the exercise of that option, and held that it became binding only when the option was exercised. The court concluded that an arbitration agreement requires mutual promises to submit differences to arbitration, and a unilateral clause does not meet this requirement.
Given the varying approaches to unilateral arbitration clauses across jurisdictions, it is crucial that such clauses are carefully drafted with consideration for the specific jurisdictional requirements and potential implications. The position of the parties, the precise wording of the clause, and the jurisdictions involved are critical factors that can impact the effectiveness and validity of these clauses.
