Arbitration is generally a creature of contract. Like every other contract, it must satisfy certain conditions to be valid. Without a valid arbitration clause, no arbitration can be commenced, and no award can be rendered. Put differently, a valid arbitration clause is the cornerstone of every arbitral proceeding.
Where an arbitration clause is poorly drafted, it may create uncertainty regarding the commencement and conduct of the proceedings, including the request for arbitration, the appointment of arbitrators, the seat of arbitration, and the exchange of pleadings. Conversely, a carefully and thoughtfully drafted clause enables parties to commence the arbitral process with minimal procedural uncertainty. Accordingly, parties should bear in mind that there is no universally applicable or one-size-fits-all arbitration clause. Every arbitration agreement should be tailored to the nature of the underlying transaction and the commercial needs of the parties.
Having established the importance of an arbitration clause, what effect does the use of the word “may” instead of “shall” have on its enforceability? Does it render the arbitration agreement ineffective?
This question has long occupied courts across several jurisdictions. The much-anticipated answer was authoritatively provided by the Privy Council in Anzen Ltd & Ors v Hermes One Ltd [2016]. Ordinarily, the choice of words in a contract carries significant legal consequences. The word “may” is generally construed as permissive or discretionary, suggesting that parties have the option either to arbitrate or to litigate. By contrast, “shall” ordinarily conveys a mandatory obligation, requiring disputes to be resolved through arbitration.
For this reason, arbitration clauses employing the word “may” have often been argued to be non-mandatory and, consequently, incapable of compelling arbitration. However, the Privy Council adopted a distinctly pro-arbitration approach. After considering three possible interpretations of the clause, it preferred the third analysis, holding that it best reflected the parties’ intentions. Under this approach, a party wishing to arbitrate may either commence arbitration itself or insist on arbitration before or after the other party initiates court proceedings, without necessarily being the party that first commences arbitration.
In essence, the decision established an important guiding principle. First, the inclusion of an arbitration clause demonstrates the parties’ mutual intention that disputes should be capable of being resolved by arbitration. Secondly, where one party commences court proceedings, the other party may invoke the arbitration agreement by applying for a stay of the proceedings, provided the application is made before taking steps in the action, such as filing pleadings (see section 5 of the Arbitration and Mediation Act 2023).
In such circumstances, “may” effectively operates as “must.”
