The Viewpoint: Asymmetric Dispute Resolution Clause

Azadeh Meskarian

Following on from the recent decision of the Singapore Court of Appeal confirming the validity of asymmetric arbitration clauses in Dyna-Jet Pte Ltd v Wilson Taylor Asia Pacific Pte Ltd [2017] SGCA 32, this article considers the general enforceability of such clauses agreed between commercially sophisticated parties in England, Singapore and India.

One of the most attractive attributes of arbitration is that parties at the outset promise to refer any future disputes to arbitration prior to engaging themselves with the Courts of the relevant jurisdiction. Equal rights of referral of disputes to arbitration where parties share the same rights is referred to as symmetrical. In contrast, unilateral arbitration agreements contain an element of optionality, to the benefit of one party. In other words, one party has the option to choose the method of resolving disputes between the parties, with arbitration being one of them where as the other party will no benefit of such flexibility. This is often the case where one party benefits of a higher bargaining power. In such cases parties are not obliged to initiate arbitration in cases of dispute, these are generally common in financial transactions.

Enforcement of clauses of such kind have proved tricky to enforce and uphold throughout years in some jurisdictions. Prior to the parties electing to include asymmetric arbitration clauses in their agreements, it is essential for them to seek local advice and examine any difficulties they may later face in enforcing such clauses. Throughout the years Courts in certain jurisdictions such as Australia, Singapore and England have recognised such clauses, whereas enforcement has proved difficult in India, France and Russia.

England and Wales

In general the English Courts have through the years upheld the parties’ chosen dispute resolution method, be it in a form of a mutual or a unilateral arbitration clause. The general principle is for sophisticated parties to be free to choose their preferred route to dispute resolution. In 2015 in the case of Barclays Bank Plc v Ente Nazionale di Previdenza Ed Assistenza dei Medici e Degli Odontoiatri [2015] EWHC 2857 (Comm) the Commercial Court upheld an asymmetric clause where with good practical reasons the Defendant was given an option to only bring an action in the English Courts, whereas Barclays Bank had a freedom of choice in this respect.

More recently in February 2017 the High Court upheld an asymmetric jurisdiction clause in the case of Commerzbank AG v Pauline Shipping and Liquimar Tankers Management Inc. In this case the clause was part of a shipping loan agreement and related guarantee, permitting the bank to bring enforcement proceedings in England against the borrowers, in spite of the fact that the borrowers had already started proceedings against the bank in Greece. This recent ruling confirms that asymmetric jurisdiction clauses are categorised as exclusive jurisdiction clauses for the purposes of Article 31(2) the Brussels 1 Recast Regulations requiring an EU Member State Court to stay proceedings brought before it, until the Court within the jurisdiction of the parties’ agreement declares that it has no jurisdiction over the dispute.

This welcome decision further reflects that abusive litigations tactics will not be tolerated in the English Courts and the intention of parties will be highly valued by the Courts in the event of a dispute arising between the parties.

Singapore

The High Court and Court of Appeal have adopted a similar approach to that earlier taken in the English Courts.

In the case of Dyna-Jet Pte Ltd v Wilson Taylor Asia Pacific Pte Ltd [2017] SGCA 32, not only was the clause asymmetric by only providing Dyna-Jet Pte Ltd the power unilaterally to elect to refer a dispute to arbitration, it was also optional providing that any disputes “may” be referred to, and settled by arbitration.

The contract between the parties provided that any dispute should be settled by mutual consultation, failing which the Claimant may refer the dispute to be resolved by way of arbitration. Failing to reach a settlement through consultation Dyna-Jet Pte Ltd had initiated proceedings against the Defendant in the Singapore High Court. In the course of this dispute, the Defendant sought unsuccessfully to stay the High Court proceedings, arguing that the dispute should be referred to and settled by arbitration.

In upholding the High Court’s decision, the Court of Appeal affirmed the enforceability in Singapore of unilateral arbitration clauses. The Court of Appeal held that the fact that the option to arbitrate was exerciseable by one of the parties only was irrelevant as this was an arrangement that suited both parties. The Court further held that in cases of asymmetric arbitration agreements, the arbitration agreement becomes inoperative when the relevant party decides to initiate a Court claim instead of arbitration. The Court will therefore refuse to stay any proceedings on grounds of the prior option to arbitrate any disputes once the relevant party with such option has commenced legal proceedings.  Upon making the decision to commence legal action, it no longer has the option to go back on its election and to choose to initiate arbitration.

India

In contrast with the decision of the Singaporean and English Courts, the status of such clauses in India remains less certain following inconsistent decisions of the Indian Courts. Although some recent judgments have upheld asymmetric clauses, commercial parties should approach clauses of this nature with caution and seek local advice before adopting them in contracts.

In recent decisions in May and July 2017, the Bombay High Court and the Supreme Court of India respectively confirmed the validity of asymmetric clauses providing an option only to one party to appoint an arbitrator.  However, Courts in Delhi have historically refused to uphold asymmetric arbitration agreements. Whilst upholding clauses of this kind would be consistent with trends in other common law jurisdictions which seek to give effect to the parties’ intention at the time of the formation of the contract, further clarity is needed from the Indian Courts.

The issue is of great importance, given the prevalence of such clauses in finance documents in such jurisdictions, which might lead to a nation court refusing to enforce an arbitration award on the basis that the arbitration agreement was invalid.  It is therefore crucial for any party to consider the relevant jurisdictions where an award may have to be enforced prior to entering into an agreement. Although the inclusion of asymmetric clauses may be attractive to a party with greater bargaining power seeking flexibility in cases of disputes, a lack of careful consideration at the drafting stage may result in the agreement being unenforceable.

Azadeh Meskarian is a Solicitor at Zaiwalla & Co.