Normalising Unilateral Option Clauses in India: Avoiding the Rothschild Pitfalls and Balancing Pre-Procedural Rights

What are Unilateral Option Clauses

The validity of Unilateral Option Clauses (UOCs) has been disregarded across considerable jurisdictions in the past owing to its non-mutual nature. However, with the changing nature of international arbitration practices and acceptance of the natural imbalance involved between parties to international commercial transactions, it is becoming evident that UOCs are here to stay. Referred to as “hybrid”, “asymmetrical”, “sole option clauses” etc., UOCs are akin to dispute resolution clauses, which confer a discretionary right in favour of a sole party to opt for the mode of dispute resolution. Usually, different from the predetermined bilateral forum, if any in the first place, the choice of forum binds the other party to the agreement, once invoked. For instance, when the agreed mode for settlement of disputes is arbitration, such clauses empower the beneficiary to initiate proceedings before competent courts and, vice versa, which binds the other party. Resultantly, the beneficiary has the power to choose between commencing arbitration or initiating court proceedings across competent jurisdictions.

UOCs are often discussed in connection with international arbitration, which has emerged as an expeditious and desired[1] mechanism to resolve disputes arising out of international commercial transactions. Heralded as the epitome of a natural imbalance, UOCs have stirred up a legal debate on the grounds of inequality and unconscionability. This has paved the way for different approaches concerning its validity across various jurisdictions. This has jeopardised party autonomy as even when a clause may be upheld and an award passed as a result of the same, the enforcement forum may set it aside considering it unconscionable, imbalanced, or against their fundamental public policy.

Validity of unilateral option clauses: A global perspective

The recognition and validity of UOCs are determined by the mandatory stipulations of the applicable law. The underlying principles concerning the applicable law being different, the recognition and validity differs across jurisdictions. While common law countries such as the UK, Singapore, and Australia have adopted a liberal approach[2] in interpreting these clauses, the position has remained uncertain across civil jurisdictions such as Russia, France, etc. Courts across common law countries have maintained that UOCs fall under the ambit of party autonomy and should be treated as any other contractual clause that gives an advantage to one party.[3] Conversely, civil law jurisdictions have cited lack of mutuality and procedural equality to strike them down.[4] There being no definite answer vis-à-vis recognition and enforceability of UOCs in India, evaluation of global practices concerning UOCs becomes necessary, to illuminate the grounds and pitfalls which the Indian courts may consider and avoid respectively, to pave the way for acceptance of these clauses.

UOCs in common law jurisdictions

The first instance of a UOC in England was in Baron v. Sunderland Corpn.[5] (Baron).The Court of Appeal (the Court) in Baron[6] held that arbitration agreements require mutuality. Resultantly, the impugned clause could not be allowed for want of mutuality. However, 20 years later, the Court reversed its own decision in Pittalis v. Sherefettin[7] (Pittalis). The Court held that commercial parties should be allowed to curate clauses as per their needs which may not have bilateral invocation rights. Post Pittalis[8], the position of English courts vis-à-vis UOCs has remained stable over the years, which can be ascertained from the judgment in NB Three Shipping Ltd. v. Harebell Shipping Ltd.[9] (Harebell). In Harebell[10], the Court, while upholding the UOC held that “mutuality was no longer a requirement” under the English Law. A similar stance has been adopted in Mauritius Commercial Bank Ltd v. Hestia Holdings Ltd.[11] wherein the Court disallowed the argument that such a clause violated the right of the party to a fair trial[12] under the European Convention of Human Rights (ECHR). The Court clarified the invoked stipulation of the ECHR was concerned with equal access to justice during legal proceedings and not before. Popplewell, J. cited the Cambridge Law Journal in support of UOCs –

Such clauses are valid in English Law.… Indeed, despite their asymmetric, optional character it is difficult to conceive how their validity could be impugned or what policy might justify doing so….[13]

Similarly, courts in Singapore have recognised and upheld the validity of UOCs in Wilson Taylor Asia Pacific Pte Ltd v. Dyna-Jet Pte Ltd.[14] (Wilson Taylor). In Wilson Taylor[15], the respondent had the sole discretion to invoke arbitration proceedings, but initiated court proceedings instead, which was the predetermined bilateral forum between the parties. The claimant while challenging it, requested the Court to refer the parties to arbitration. While determining whether the UOC constituted a valid arbitration clause, the Court held that, whether the dispute fell within the mandate of the arbitration agreement can only be ascertained once a dispute has been referred to arbitration. The Court stated that once the right was not exercised by the respondent, the claimant could not request the Court to direct them to invoke arbitration proceedings as far as the present dispute is concerned. However, the Court upheld the clause stating consent to the terms at an early stage satisfied the precondition of mutuality. Resultantly, the clause could not be nullified at a later stage, merely because the invocation rights were unilateral.

A similar view has been taken in Australia, wherein the High Court upheld the validity of UOCs in PMT Partners Pty Ltd. v. Australian National Parks and Wildlife Service.[16] The High Court stated that merely because the agreement enabled a party to exercise discretion for invoking arbitration or litigation, it cannot be a stand-alone ground for nullifying it. Reflecting further on it, the Court said, there was nothing under Australian Law that restricted a party’s right to enjoy such a right over another party.

UOCs in civil law jurisdictions

Civil law jurisdictions such as France and Russia, which had previously upheld UOCs for a considerable duration, have now been treating them with hostility.[17] While doing so, the courts have decided to go against the tide, and invalidate those clauses by relying primarily on lack of equal procedural rights.[18]

The French Cour de cassation (Court), for instance, decided to invalidate UOCs in X v. Banque Privée Edmond de Rothschild[19] (Rothschild). The subject-matter in Rothschild[20] concerned a dispute resolution clause, which reserved a right in the defendant’s favour to initiate proceedings before any court having “competent jurisdiction”[21], including the courts of the client’s domicile.[22] The defendant argued that principles governing international transactions allowed parties to submit to multiple jurisdictions[23], provided they were domiciles of the member States to the Brussels Regulation. However, the Court upheld the Cour d’appel’s view point that UOCs were invalid. The Court clarified that a potestative[24] clause which on one hand restricted the lender to the jurisdiction of courts in Luxembourg and on the other, created a sole benefit for the bank to initiate proceedings across any competent court, could not be allowed. This marked a clear departure from the court’s own ruling in Société Sicaly v. Société Grasso Stacon NV, Bull[25], where the Court had allowed a UOC to sustain believing the dispute resolution clause to be the manifestation of party intent.[26]

In Russia, the Supreme Arbitration Court in Russkaya Telephonnaya Kompaniya v. Sony Ericsson Mobile Communications Rus Ltd. Liability Co.[27](Sony Ericsson) held UOCs to be contrary to the principle of fair balance between parties. Yet, the clause was modified to accord bilateral rights to the parties involved, instead of expressly invalidating it. However, shortly after the Supreme Arbitration Court was abolished, the Supreme Court of Russia in Piramida LLC v. BOT LLC[28] held that a clause with the default method of resolution as litigation with a unilateral right to refer disputes to arbitration in favour of the claimant[29] did not contravene the principle of equality. However, in 2018, the Supreme Court of Russia issued a Digest concerning international and domestic arbitration practice, which stated that UOCs violated the principle of effectiveness and equal treatment of parties.[30] However, no mention of the approach adopted in Sony Ericsson[31] indicates a dearth of clarity concerning UOCs in Russia.

Even though multiple countries have adjudged UOCs to be valid, we still need to take into consideration the decision of Rothschild[32], which has, inter alia, assaulted natural imbalance by adopting a flawed interpretation of procedural fairness. The above discussion indicates the position of civil law courts, which have invalidated UOCs citing procedural inequality and fairness. While this goes against the evolution shown by courts in common law countries, this has cast a shadow of doubt on the practice of global courts, which look up to international practices in absence of domestic rulings concerning the same.

Rothschild: A threat to recognition and validity of UOCs globally

While the French Court in Rothschild[33] invalidated UOCs citing “potestative character” and breach of the Brussels I Regulation[34], it has come at a cost of disregarding party autonomy. As Lauren D. Miller has emphasised, that it is not dominance[35] but party autonomy, which enables parties to curate a dispute resolution clause suitable to their needs. This necessitates an evaluation of “potestative character”, apart from putting Rothschild[36] through the test of Article 18, UNCITRAL Model Law on International Commercial Arbitration (Model Law).

Does imbalance alone make a clause potestative?

Draguiev points out that while courts may be guided by a narrow interpretation of public policy when a UOC concerns two natural persons. However, the same test cannot be applied to a transaction involving corporations, financial institutions and artificial persons, considering the natural imbalance involved.[37] This has led the courts down a road where the subjective satisfaction of imbalance has prompted the invalidation of UOCs, without considering if it satisfies the condition of a “potestative clause”. Additionally, Sinha and Krishnani have observed that a clause can be categorised as “potestative” only when an unlimited choice has been given to the beneficiary[38] either concerning the power to make unilateral amendments to the agreement or forum selection.

In Rothschild[39], the Court failed to notice that in contrast with an actual “potestative” clause, a UOC is prenegotiated which allows the beneficiary to proceed before competent jurisdictions only. Therefore, there is no reason to invoke “potestative character” if the Court ascertains the competent jurisdictions where proceedings may be initiated. Additionally, by reading “potestative character”[40] and the Brussels I Regulation together, the Court has legitimised an ill-conceived practice[41], capable of having far-reaching effects on party autonomy across the globe.

While courts generally follow principles of international law to fill the gaps in their corresponding municipal laws, the Court in Rothschild[42] did the opposite by interpreting the Brussels I Regulation from the lens of French Law. Although this has led the Court to establish their take on UOCs, it has been categorised as the “least convincing”[43] part of the judgment. Furthermore, by reading the Brussels Convention narrowly, the Court has overlooked the element of party autonomy contained in it.

It appears, that a similar issue before other European courts will most likely result in repeating the Rothschild[44] judgment, who are more likely to follow suit without discerning the reasoning of the Court.[45] However, the judgment cannot be considered conclusive, let alone one which provides legal stability[46] owing to the Court’s narrow interpretation of procedural fairness. There being no clear rationale capable of having an impact on UOCs, the Rothschild[47] ruling is as good as non-existent.[48] Additionally, any court of other jurisdiction relying on Rothschild[49] may be led down a similar road which will significantly increase the threat to the validity of UOCs internationally. Therefore, the clauses ought to be put through the test of Article 18 of Model Law, to ascertain if the principle of equality is compromised by upholding a UOC.

Putting Rothschild to the test of Article 18

Miller points out two potential problems concerning UOCs: (i) parallel proceedings which defeat the purpose of arbitration; (ii) the award being set aside at the enforcement stage.[50] While the chances of the second potential problem being a cause of concern are substantially high[51], most national courts would ensure the first potential problem does not arise. This may include granting an anti-suit injunction or referring parties to arbitration upon satisfying itself with a presence of a valid agreement to arbitrate.[52]

Though Miller is right to point out that both Sony[53] and Rothschild[54] indicate the Court’s attitude towards UOCs[55], it cannot be concluded that there is no future for such clauses in the said jurisdictions, as the courts in both instances failed to consider the scope of “equal treatment of parties”[56]. An overview of Rothschild[57] indicates that the court’s short-sightedness has rather led to putting a veil over the fact that most, if not all, commercial transactions are imbalanced, which justifies a clause symbolising natural imbalance, only to secure the creditor’s right against a recalcitrant debtor.[58]

Sinha and Krishnani have pointed out that the courts can invalidate a UOC only when it is grossly unjust[59] and not merely on the ground that there is no equality in forum selection.[60] The Court’s duty under Article 18 of the Model Law is to shield parties from unjust conduct of the Arbitral Tribunal during the proceedings. It stipulatesthat the parties have a right to be treated with parityin terms of an opportunity to present their case.[61] A plain reading of the same indicates that the scope is restricted to equality during proceedings and not in terms of forum selection or pre-procedural rights. Facing a similar issue, a New Zealand Court stated that the provision was concerned with the right of parties to present their case without any interference from the Tribunal.[62] Additionally, it has also been clarified that only when a breach occurs during arbitral proceedings, shall the court invoke Article 18 and not otherwise.[63]

Putting the uncertainty to an end, the Superior Court of Justice, Ontario has stated that the principle underlying Article 18 is aimed at shielding parties before the Tribunal from “injudicious conduct” of the Tribunal, institution, or the arbitrator. In addition to this, the Court has clarified thatthe protection does not extend to any “strategic choices” the parties had made[64] concerning pre-procedural rights. When the abovementioned test is applied to UOCs, it can be conclusively said that Article 18 will come into play only when one of the parties is treated unjustly or a party is treated more favourably than the other during arbitral proceedings and not when inequality exists in terms of forum selection. As the principle behind “potestative character” has been misinterpreted and UOCs do not go against procedural equality under Article 18, the Rothschild judgment[65] ought to be reconsidered, to prevent courts across the globe from following suit by considering it as general international practice.

The unstable UOC jurisprudence in India

When it comes to discussing India’s position on UOCs, it is difficult to form a clear understanding as various High Courts have dealt with UOCs in varying manners. While the Calcutta High Court was the first court to uphold UOCs in India shortly after Independence, the trend initiated by the Delhi High Court to invalidate UOCs has recently made a U-turn. Although it remains an obscure subject within the arbitration jurisprudence in India, being hostile toward UOCs can hamper India’s journey towards becoming a global arbitration hub.

India’s backsliding stance on UOCs

What is believed to be the first case concerning UOCs came up before the Calcutta High Court in Kedarnath Atmaram v. Kesoram Cotton Mills, Ltd.[66](Kedarnath). The dispute concerned a sales contract having an arbitration clause, which created a sole right in the seller’s favour to refer disputes to arbitration, before the Indian Chamber of Commerce.[67]

The Court while upholding the clause observed:

The fact that the agreement provides an option to either the buyer or the seller to refer the matter to arbitration does not affect the validity of the arbitration agreement. Once the option is exercised or the election is made, the position in law is that both the buyers and the sellers are bound to have the matter determined by arbitration …. The other party has agreed to abide by that option, and immediately the option is exercised there is a binding agreement that both the parties must abide by the award of the Arbitration Tribunal.[68]

However, decades later a similar matter came up before the Delhi High Court in Bhartia Cutler Hammer  Ltd. v. AVN Tubes Ltd.[69](AVN Tubes). Under the agreement, the defendants had an exclusive right to opt for arbitration or initiate proceedings before a competent court. Not only was the plaintiff devoid of any such right but they had no right to legal recourse at all. Additionally, once the defendant had ascertained the choice of dispute resolution, they were not required to consult the other party for selecting an arbitrator. When the suit was filed by the plaintiff, the defendant opposed it by stating that disputes were to be settled through arbitration, while the plaintiff alleged that the dispute resolution clause was void for want of mutuality. The Delhi High Court while ruling in favour of the plaintiff stated that the clause was unenforceable and void as it gave rights to legal proceedings to just one party which did not satisfy the requirement of mutuality.

A similar case came up before the Delhi High Court in Emmsons International Ltd. v. Metal Distributors(UK)[70] (Emmsons). The case concerned an international commercial contract that was to be governed by the laws of the UK in substance. As per the agreement, the defendant had an exclusive right to refer any dispute to arbitration or initiate court proceedings before any competent court. The clause in the present case drew the court’s ire, as not only was the plaintiff deprived of any right concerning the choice of dispute resolution but was also barred from enforcing their right under the contract. Relying partially on AVN Tubes[71] and taking note of the absolute bar, the Delhi High Court found the clause be to void for want of mutuality as well as for being in the teeth of fundamental public policy laid down under the Contract Act, concerning a party’s right to legal recourse.[72]

The trend of invalidating UOCs has been continued by the Delhi High Court in Lucent Technologies Inc. v. ICICI Bank Ltd.[73], wherein an exclusive right was created in favour of ICICI Bank, allowed them to approach any alternate dispute resolution forum, which was to be binding on the parties. Relying on AVN Tubes[74] and Emmsons[75], the Court invalidated the clause as it restrained one of the parties absolutely from taking legal recourse for enforcing their rights.

Going against the tide

The Delhi High Court which spearheaded the movement to invalidate UOCs has made a U-turn following its judgment in Jindal Exports Ltd. v. Fuerst Day Lawson Ltd.[76](Jindal). The subject-matter of the dispute concerned a dispute resolution clause contained in a sales contract which allowed the buyer to refer disputes to litigation proceedings before the High Court of Justice, England, or invoke arbitration proceedings. Furthermore, the buyer had the discretion to choose any one of the prescribed rules in the dispute resolution clause, which once decided, was binding on the sellers. However, once the selection was made, both parties were provided with an equal set of procedural rights. The petitioners (buyers) argued that the impugned clause was not an arbitration clause hence, there could not be any arbitral proceedings regarding disputes which had arisen out of the sales contract.

While dealing with the issue raised by the plaintiff, the Court held that the said clause amounted to an arbitration clause as it satisfied the key requirements i.e. (i) it was in writing[77]; the parties had consented to their disputes being heard and resolved by an Arbitral Tribunal; and the Arbitral Tribunal was empowered to entertain the subject-matter.

The Court having satisfied itself that an arbitration clause existed, refused to invalidate the clause for want of mutuality. It held that lack of mutuality was not a ground to nullify an arbitral clause anymore under the applicable law. The Court went on to state that when there was an agreement in unambiguous terms concerning the method of resolving their disputes, the mere fact that the power to refer it to arbitration was immaterial. The contract signified the bilateral nature of the dispute resolution clause and therefore, it was neither unconscionable nor in the teeth of public policy.

Placing reliance on Jindal[78], the Madras High Court upheld the validity of UOCs in Castrol India Ltd. v. Apex Tooling Solutions[79](Castrol), wherein it had to be determined if the impugned clause of the dealership agreement fulfilled the legislative requirements[80] for being an arbitration agreement. The clause created a unilateral right to choose between litigation proceedings and arbitration, while there was nothing to indicate the presence of a corresponding right for the other party. However, sensing delay, the respondents initiated litigation, which was purported to be stopped by way of arbitration proceedings by the appellant. Holding that the respondents could not be made to wait as long as the appellant took to refer matters to arbitration, the Court allowed the litigation proceedings to continue. While upholding the validity of the UOC, the Court stated that the Indian Arbitration law was enacted in conformity with the Model Law hence, interpretation of the statute and clauses thereunder ought to conform to international practices.

Thus, the Court seems to have adopted the approach taken in Sony Ericsson[81] case wherein the Supreme Court of Arbitration, Russian Federation extended the right to initiate proceedings to the other party as well. However, the Madras High Court seems to have gone a step further by extending rights to the respondent and holding the UOC valid at the same time.

The road ahead for UOCs in India

While the Indian courts have gone from approving UOCs to disapproving them, recent trends in Jindal[82] and Castrol[83] indicate an inclination towards international practices. The Madras High Court in Castrol[84]while upholding the impugned clause, observed:

  1. …the view adopted is that conferment of discretion to pick up either arbitration or the courts as the form of resolution of disputes was not per se bad in law. It is also no doubt that the world is a smaller place and our arbitration law being brought in conformity with UNCITRAL Model Law, consideration ought to be given to the statute and the clauses under it in conformity with international practices.

While the Court’s reliance on international practice has aided in upholding UOCs, the possibility of a Rothschild-like scenario84 cannot be ruled out. Additionally, there being no precise ruling from the Supreme Court of India, the life span of the pro-UOC tide cannot be predicted, which necessitates the initiation of a balanced approach by parties to minimise the risk of invalidation.

Minimising impartiality

The French Court in Rothschild[85] had partially relied on impartiality while invalidating the UOC which may have an impact on courts in India, considering the observation of the Madras High Court in Castrol.[86] However, the Supreme Court has attempted to redefine independence and impartiality in Voestalpine Schienen GmbH v. DMRC[87] (Voestalpine) where the dispute was concerning the appointment of an arbitrator. The appellants in the present case were required to appoint an arbitrator from the panel of arbitrators prepared by Delhi Metro Rail Corporation Ltd. (DMRC), however, the mode of selection of arbitrators was challenged by the appellant.

The appellant argued that the arbitrators nominated to the panel were ineligible[88], as they were ex-government employees. Refusing to hold the panel of arbitrators ineligible, the Court stated that the mere status of an ex-government employee will not be enough to bar their appointment to a panel of arbitrators, from which the final selection was to be made. Furthermore, the Court observed that impartiality and independence were two distinct concepts, and even an independent arbitrator may lack impartiality and vice versa. The Court observed:

  1. Independence and impartiality are two different concepts. An arbitrator may be independent and yet, lack impartiality, or vice versa. Impartiality, as is well accepted, is a more subjective concept as compared to independence. Independence, which is more an objective concept, may thus, be more straightforwardly ascertained by the parties at the outset of the arbitration proceedings in light of the circumstances disclosed by the arbitrator, while partiality will more likely surface during the arbitration proceedings.[89]

However, considering the reservations of the appellant, regarding the panel, the Court directed the respondents to have a broad-based panel, which would do away with any dilemma the appellant may have. This, the Court said was necessary to further an arbitration-friendly culture in India. The Court observed:

  1. Time has come to send positive signals to the international business community, in order to create healthy arbitration environment and conducive arbitration culture in this country. Further, as highlighted by the Law Commission also in its report, duty becomes more onerous in government contracts, where one of the parties to the dispute is the Government or public sector undertaking itself and the authority to appoint the arbitrator rests with it. In the instant case also, though choice is given by DMRC to the opposite party, but it is limited to choose an arbitrator from the panel prepared by DMRC. It, therefore, becomes imperative to have a much broad-based panel, so that there is no misapprehension that principle of impartiality and independence would be discarded at any stage of the proceedings, specially at the stage of constitution of the Arbitral Tribunal. We, therefore, direct that DMRC shall prepare a broad-based panel on the aforesaid lines, within a period of two months from today.[90]

Balancing pre-procedural rights

As the concern around UOCs deals with pre-procedural rights, the cure for the same may have been found by the Supreme Court in Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV)[91] (CORE). In the present case, the matter concerned the procedure adopted for appointing arbitrators. While the respondents argued against allowing ex-railway employees to be nominated on a panel of arbitrators from which the final selection was to be made, the appellants relied on previous judgments of the Supreme Court wherein ex-government employees were not barred solely because they served under some public sector undertaking. Considering the expertise of ex-employees in determining technical aspects, the Supreme Court allowed them to be nominated to the panel of arbitrators from which a final selection was to be made by the respondent.

The Court reiterated that mere association with the Railways will not be enough to indicate any association with the Central Organisation, thereby affirming the Voestalpine[92] ruling. The Court went on to state that the appointment must be construed broadly and the fact that the respondent was given the choice to select two arbitrators out of the panel, only counterbalanced[93] the discretion given to the appellant with respect to the entire arbitral process. This viewpoint may as well be the key to balancing UOCs in the future and minimise the risk of them being invalidated for want of equality.

This approach can aid the functionality of UOCs in India, by constructing the dispute resolution clause and providing sufficient rights to the respondent in case the claimant decides to exercise the discretion granted by the UOC. As an act of counterbalancing, once the claimant decides to exercise the discretion and opt for arbitration, the clause will empower the respondent to appoint the arbitrators from a panel previously determined by them. As the respondents will be in charge of appointing the arbitrators, this will minimise the risk of unfair treatment or bias by the arbitrator, which has been feared by parties on whom a UOC is generally binding, thereby, allowing party autonomy to flourish, without compromising on the aspect of fair treatment of the parties during an arbitral proceeding. This would amount to a judicial endorsement of what Deyan Draguiev calls “personification of healthy business practice”.[94]

Initiating steps towards a pro-UOC ecosystem

With the rapid growth of international commercial transactions, courts in India must look beyond conventional norms of equality, which has the ability to damage the spirit of arbitration.[95] UOCs being the epitome of natural imbalance between the parties, the courts need to adopt a liberal approach while considering the feasibility of a UOC. Though the with the advent of Brussels Recast, any judgment upholding or disallowing a UOC will not become res judicata automatically across other courts[96], it does not apply to pre-amendment judgments such as Rothschild[97], which leaves the door open for more unwanted inroads in the domain of international arbitration.

Additionally, in absence of domestic jurisprudence concerning the same, the courts in India may cross paths with Rothschild[98], while referring to prevalent international practices. As the courts, while considering international judgments are unlikely to unpack the merits of the case, it may lead to unwelcomed developments in India’s arbitration practice, which circumvents party autonomy by overlooking the natural imbalance involved. Considering the rapid growth of the Indian market and preferences of a vast majority of the parties and investors alike towards tailoring the dispute resolution clause as per their needs, the courts ought to give the parties a chance to strike an acceptable balance between contractual autonomy and equal treatment.

As it is yet to be decided whether UOCs are here to stay or go, the burden falls on the beneficiary to provide for counterbalancing rights to the other party in case the beneficiary decides to invoke the UOC contained in their agreement. Evident from past practices, the courts in India are more likely to invalidate a clause which is unacceptably imbalanced. However, considering the pro-arbitration trend, courts may consider UOCs, provided the imbalance is cured by way of sufficient pre-procedural rights to the other party, which shall come into force, if and when a UOC is invoked. Additionally, excessive litigation with respect to the clause in question will only end up defeating the purpose of arbitration, which is why the parties should draft the clause broadly, as and when they think adding a UOC will serve their interests.

Once this procedure of balancing pre-procedural rights is followed, the courts will only be required to review the validity of the arbitration agreement and the extent of imbalance involved by following the approach of Wilson Taylor[99], and intervene only when such an agreement promotes gross inequality. Allowing UOCs and limiting court interference to cases of gross inequality, will not just pave the way for Indian courts to recognise and endorse the prevailing natural imbalance between parties, but will act as one of many steps towards nurturing a pro-arbitration environment in India.


*Fourth year student, BA LLB (Hons.),  New Law College, Bharati Vidyapeeth (deemed to be) University, Pune. Author can be reached at arijit8899@gmail.com

**Fifth year student BA LLB (Hons.),  Amity Law School, GGSIPU, Delhi.

[1]Amelia C. Rendeiro, Indian Arbitration and Public Policy, 89 T.L. Rev. 699, 700-01 (2012) (discussing the recognition of arbitration as a desired mode of dispute resolution).

[2] Kevin Cheung, Unilateral Option Clauses to Arbitration: The Debate Continues, Kluwer Arbitration Blog (25-4-2021, 6:20 p.m.), http://arbitrationblog.kluwerarbitration.com/2020/02/25/unilateral-option-clauses-to-arbitration-the-debate-continues/.

[3]Marie Berard, etal., Unilateral Option Clauses –2017 Survey, Clifford Chance (6-6-2021, 6:20 p.m.), https://www.cliffordchance.com/content/dam/cliffordchance/briefings/2017/01/unilateral-option-clauses-2017-survey.pdf.

[4] Simon Nesbitt and Henry Quinlan, The Status and Operation of Unilateral or Optional Arbitration Clauses, 22(1) Arb. Intl. 133, 140 (2006).

[5](1966) 2 QB 56 : (1966) 2 WLR 363 (CA).

[6](1966) 2 QB 56 : (1966) 2 WLR 363 (CA)

[7](1986) 1 QB 868 : (1986) 2 WLR 1003 (CA).

[8](1986) 1 QB 868 : (1986) 2 WLR 1003 (CA).

[9]2004 EWHC 2001 (Comm) : (2005) 1 Lloyd’s Rep 509.

[10]2004 EWHC 2001 (Comm) : (2005) 1 Lloyd’s Rep 509.

[11]2013 EWHC 1328 (Comm) : (2013) 2 Lloyd’s Rep 121.

[12]Convention for the Protection of Human Rights and Fundamental Freedoms, (opened for signature on 4-11-1950, entered into force on 3-9-1953), Art. 6.

[13] Richard Fentiman, Unilateral Jurisdiction Agreements in Europe, 72(1) CLJ 24, 25 (2013).

[14](2017) 2 SLR 362 (Sing SC).

[15](2017) 2 SLR 362 (Sing SC).

[16](1995) HCA 36: (1995) 184 CLR 301 (Aust HC).

[17]Pavlo Malyuta, Compatibility of UOCs with the European Commission of Human Rights, 8(1) UCL J. L. and J. 25, 27-8 (2019).

[18]Pavlo Malyuta, Compatibility of UOCs with the European Commission of Human Rights, 8(1) UCL J. L. and J. 25, at 34 (2019).

[19]Europe Cass. Civ. (1ère) No. 11-26.022 (French cour de cassation).

[20]No. 11-26.022 (French cour de cassation).

[21] Maxi Scherer, The French Rothschild Case: A Threat to Unilateral Dispute Clauses?, Kluwer Arbitration Blog (26-4-2021, 5:10 p.m.), http://arbitrationblog.kluwerarbitration.com/2013/07/18/the-french-rothschild-case-a-threat-for-unilateral-dispute-resolution-clauses/.

[22]Maxi Scherer, The French Rothschild Case: A Threat to Unilateral Dispute Clauses?, Kluwer Arbitration Blog (26-4-2021, 5:10 P.M.), http://arbitrationblog.kluwerarbitration.com/2013/07/18/the-french-rothschild-case-a-threat-for-unilateral-dispute-resolution-clauses/.

[23] Council Regulation (EC) No 44/2001 of 22-12-2000 on Jurisdiction, Recognition and Enforcement of Judgments in Civil and Commercial Matters, Art. 23(1).

[24] Deyan Draguiev, Unilateral Jurisdiction Clauses: The Case for Invalidity, Severability or Enforceability, 31(1) J. of Intl. Arb. 19, 29 (2014).

[25]1974 I No 143, p. 122 Class. Civ. (1ère) (French Cour de cassation).

[26]Richard Fentiman, Unilateral Jurisdiction Agreements in Europe, 72(1) CLJ 24, 25(2013).

[27]Decision No. 1831/12.

[28]Piramida LLC v. BOT LLC, Decision No. 310-ЭС14-5919.

[29] Mikhail Samoylov, The Evolution of Unilateral Arbitration Clauses in Russia, Kluwer Arbitration Blog (26-4-2021, 5:30 p.m.), http://arbitrationblog.kluwerarbitration.com/2015/10/01/the-evolution-of-unilateral-arbitration-clauses-in-russia/.

[30]Timur Aitkulov, etal., Supreme Court of the RF issues Digest of Case Law on the issues of Arbitration, Clifford Chance (6-6-2021, 5:20 p.m.) https://www.cliffordchance.com/content/dam/cliffordchance/briefings/2019/02/supreme-court-of-the-rf-issues-digest-of-case-law-on-the-issues-of-arbitration-eng.pdf.

[31]Decision No. 1831/12.

[32]No. 11-26.022 (French cour de cassation).

[33]No. 11-26.022 (French cour de cassation).

[34]Council Regulation (EC) No. 44/2001 of 22-12-2000 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters, Art. 23(1).

[35]Lauren D. Miller, Is the Unilateral Jurisdiction Clause No Longer an Option? Examining Courts’ Justification for Upholding or Invalidating  Asymmetrical or Unilateral Jurisdiction Clauses,51 Tex. Intl. J. 321, 336 (2016).

[36]No. 11-26.022 (French cour de cassation).

[37]Deyan Draguiev, Unilateral Jurisdiction Clauses: The Case for Invalidity, Severability or Enforceability, 31(1) J. of Intl. Arb. 19, 31 (2014).

[38]Rajat Sinha, Vivek Krishnani, Exposing Asymmetry to New Challenges: Status of Unilateral Decision Clauses Under Article 18 of the Model Law, 38 Assn. Suisse de Arb. 603, 609 (2020).

[39]No. 11-26.022 (French cour de cassation).

[40] French Civil Code,Art. 1170.

[41]Youssef Nassar, Are Unilateral Option Clauses Valid?, Kluwer Arbitration Blog, (29-4-2021, 8:24 p.m.), http://arbitrationblog.kluwerarbitration.com/2018/10/13/are-unilateral-option-clauses-valid/.

[42]No. 11-26.022 (French cour de cassation).

[43]Youssef Nassar, Are Unilateral Option Clauses Valid?, Kluwer Arbitration Blog, (29-4-2021, 8:24 p.m.), http://arbitrationblog.kluwerarbitration.com/2018/10/13/are-unilateral-option-clauses-valid/.

[44]Lauren D. Miller, Is the Unilateral Jurisdiction Clause No Longer an Option? Examining Courts’ Justification for Upholding or Invalidating  Asymmetrical or Unilateral Jurisdiction Clauses,51 Tex. Intl. J. 321, at 330 (2016).

[45]Lauren D. Miller, Is the Unilateral Jurisdiction Clause No Longer an Option? Examining Courts’ Justification for Upholding or Invalidating  Asymmetrical or Unilateral Jurisdiction Clauses,51 Tex. Intl. J. 321, at 331 (2016).

[46]Lauren D. Miller, Is the Unilateral Jurisdiction Clause No Longer an Option? Examining Courts’ Justification for Upholding or Invalidating  Asymmetrical or Unilateral Jurisdiction Clauses,51 Tex. Intl. J. 321, at 329 (2016).

[47]No. 11-26.022 (French cour de cassation).

[48]Lauren D. Miller, Is the Unilateral Jurisdiction Clause No Longer an Option? Examining Courts’ Justification for Upholding or Invalidating  Asymmetrical or Unilateral Jurisdiction Clauses,51 Tex. Intl. J. 321, at 329 (2016).

[49]No. 11-26.022 (French cour de cassation).

[50]Lauren D. Miller, Is the Unilateral Jurisdiction Clause No Longer an Option? Examining Courts’ Justification for Upholding or Invalidating  Asymmetrical or Unilateral Jurisdiction Clauses,51 Tex. Intl. J. 321, at 327 (2016).

[51]The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, (opened for signature 11-06-1958, entered into force 7-6-1959), Art. V(2)(b).

[52] Arbitration Act, 1996 (UK), S. 9(1) enables a party to arbitration against whom legal proceedings have been initiated to make an application before the Court to stay the matter concerning such proceedings. Similarly, Arbitration and Conciliation Act 1996, S. 8(1) allows courts in India to refer parties to arbitration provided a valid arbitration agreement exists between them.

[53]Decision No. 1831/12.

[54]No. 11-26.022 (French cour de cassation).

[55] Lauren D. Miller, Is the Unilateral Jurisdiction Clause No Longer an Option? Examining Courts’ Justification for Upholding or Invalidating  Asymmetrical or Unilateral Jurisdiction Clauses,51 Tex. Intl. J. 321, 332 (2016).

[56] UNCITRAL Model Law on International Commercial Arbitration, 1985, Art. 18.

[57]No. 11-26.022 (French cour de cassation).

[58]Deyan Draguiev, Unilateral Jurisdiction Clauses: The Case for Invalidity, Severability or Enforceability, 31(1) J. of Intl. Arb. 19, 20 (2014).

[59] UNIDROIT Principles on International Commercial Contracts, 2016, Art. 3.2.7.

[60]Rajat Sinha, Vivek Krishnani, Exposing Asymmetry to New Challenges: Status of Unilateral Decision Clauses Under  Art. 18 of the Model Law, 38 Assn. Suisse de Arb. 603, 606 (2020).

[61] UNCITRAL Model Law on International Commercial Arbitration, 1985, Art. 18.

[62]Trustees of Rotoaria Forest Trust v. Attorney-General, (1999) 2 NZLR 452.

[63]Attorney General  v. Tozer (No. 3), M1528-IMO2 CP607/97.

[64]Corporacion Transnacional de Inversiones, S.A. de C.V. v. STET International SpA, 1999 CanLII 14819.

[65]No. 11-26.022 (French cour de cassation).

[66]1949 SCC OnLine Cal 382.

[67]Kedarnath Atmaram v. Kesoram Cotton Mills, Ltd., 1949 SCC OnLine Cal 382.

[68]Kedarnath Atmaram v. Kesoram Cotton Mills, Ltd., 1949 SCC OnLine Cal 382

[69]1991 SCC OnLine Del 322.

[70]2005 SCC OnLine Del 17.

[71]1991 SCC OnLine Del 322.

[72]Contract Act 1872, S. 28(a).

[73]2009 SCC OnLine Del 3213.

[74]1991 SCC OnLine Del 322.

[75]2005 SCC OnLine Del 17.

[76]2009 SCC OnLine Del 4061.

[77]Arbitration and Conciliation Act, 1996, S. 7(3).

[78]2009 SCC OnLine Del 4061.

[79]2015 SCC OnLine Mad 2095.

[80]Arbitration and Conciliation Act, 1996, S. 7.

[81]Decision No. 1831/12.

[82]2009 SCC OnLine Del 4061.

[83]2015 SCC OnLine Mad 2095.

[84]2015 SCC OnLine Mad 2095.

84No. 11-26.022 (French cour de cassation).

[85] No. 11-26.022 (French cour de cassation).

[86]2015 SCC OnLine Mad 2095.

[87](2017)4 SCC665.

[88]Arbitration and Conciliation Act, 1996, S. 12(5).

[89]Voestalpine Schienen GmbH v. Delhi Metro Rail Corpn., (2017) 4 SCC 665, 688.

[90]Voestalpine Schienen GmbH v. Delhi Metro Rail Copn., (2017) 4 SCC 665, 690-691.

[91](2020) 14 SCC 712.

[92](2017) 4 SCC 665.

[93]Central Organisation for Railway Electrification v. ECI-SPIC-SMO-MCML (JV), (2020) 14 SCC 712, 726,para 27.

[94]Deyan Draguiev, Unilateral Jurisdiction Clauses: The Case for Invalidity, Severability or Enforceability, 31(1) J. of Intl. Arb. 19, 20 (2014).

[95]Amelia C. Rendeiro, Indian Arbitration and Public Policy, 89 T.L. Rev. 699, 700-01, at 701 (2012) (discussing the recognition of arbitration as a desired mode of dispute resolution).

[96] Ali G.R. Auda, The Future of Arbitration under the Brussels Recast Regulation, (2016) 82 The International Journal of Arbitration, Mediation and Dispute Management 122, 126.

[97]Ali G.R. Auda, The Future of Arbitration under the Brussels Recast Regulation, (2016) 82 The International Journal of Arbitration, Mediation and Dispute Management 122, 126.

[98]X v. Banque Privée Edmond de Rothschild, Europe Cass. Civ. (1ère) No 11-26.022 (French cour de cassation).

No. 11-26.022 (French cour de cassation).

[99] (2017) 2 SLR 362 (Sing SC).

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