Introduction
Arbitration has long been valued as an entirely voluntary process. In an ideal international commercial arbitration equally sided parties may freely decide to arbitrate as well as agree on innumerable options of how exactly possible disputes shall be resolved: institution or ad hoc arbitration, seat and language of arbitration, venues and means of proceedings, number and description of arbitrators, allocation of costs, etc.
Enjoying such procedural freedom, parties frequently decide that one party saves the option to refer disputes either to arbitration or to state court whilst the other party is entitled to bring the disputes exclusively to state court.
The rationale of such an asymmetrical (unilateral, one-sided, one-way) arbitration agreement is usually one party's will to exercise benefits of both arbitration (such as confidentiality, neutrality and rather more flexible process) and litigation in state courts (e.g. the public and open court trial may put some public pressure upon non-performing party).
The legal basis of such an agreement is the overarching principle of party autonomy. Indeed, such arbitration agreement is consistently presumed to be valid thought case law of many pro-arbitration jurisdictions including England and Singapore.
However, non omne est aurum, quod splendet. Despite obvious extend of practicality, flexibility and even some legal ground, there is a risk that asymmetrical arbitration agreement might be considered as invalid as well as an arbitral award made on the basis of such agreement might face impediment of public policy in the place of enforcement or seat of arbitration.
It is difficult to contend that there is a tendency in several jurisdictions such as Russia1 or Poland2 that asymmetrical arbitration agreements are recognized by local courts as defective. Along with this, in several countries such as Turkey3 and France4 state courts have not managed yet to lay down any unambiguous approach5.
The reasoning of invalidity of an asymmetrical arbitration agreement is mainly based on the principle of equality. In this regard, one may refer to the principle of equal treatment of parties represented by for example article 18 of UNCITRAL Model law. Others usually refer to such substantive or contract law provisions as article 3.2.7 of UNIDROIT Principles (art. 58 of Code of civil procedure of Poland or art. 168 of Civil Code in Russia).
At the end of the day, the principle of principle of equality appears to be from one side of an asymmetrical arbitration agreement, whilst the principle of party autonomy - from the other side.
Principle of party autonomy
It is commonly accepted that the principle of party autonomy is the basis of procedural flexibility and fundamental principle of the international commercial arbitration6.
As an example, this principle is contained in art. 19.1 of UNCITRAL Model law and different institutional rules such as art. 14.2 of LCIA Arbitration Rules. The effect of this principle was of utmost importance even on the stage of drafting UNCITRAL Model Law as art. 19.1 was adopted by the working group without any oppositions7.
Under this principle parties are almost entirely free to design their dispute resolution mechanism including the scope of disputes supposed to be submitted to arbitration as they wish. In other words, generally, there is no limitation on the liberty of the contracting parties drafting an arbitration clause8.
Therefore, as a general rule, this principle shall be understood as a ground of asymmetrical arbitration agreement allowing parties to tailor the "rules of the game" to their specific needs: freely submit their disputes to arbitration or to litigation subject to the will of one party9.
Admittedly, courts in such jurisdictions as England, Singapore and Australia found the absence of grounds for invalidity of arbitration agreement10. Within the rationale given to their decisions these authorities almost entirely relied on Pittalis v. Sherefettin case decided by English court of Appeal in 1986.
In that case, the judges were struggling with the issue of the validity of the asymmetrical arbitration agreement. There was a clear and consistent approach before the court that was based on the requirement of absolute extent of equality between parties' rights represented by such cases as Tote Bookmakers Ltd v. Dev. & Prop. Holding Co. (1985) and Baron v. Sunderland Corp (1966).
Nonetheless, in Pittalis v. Sherefettin court decided to overrule early approach and held that a one-way arbitration clause is a consequence of the nature of the commercial relationship between the parties, and would satisfy the mutuality requirement as long as both parties were aware of and had freely consented to it11.
After this, English Court in NB Three Shipping Ltd v. Harebell Shipping Ltd considered an express provision allowing both parties to bring the disputes to English courts and a separate provision apparently giving one party only the right to have arbitration. As a result, competent authority found no contradiction in giving one party "better" rights than the other.
In Law Debenture Trust Corp v Elektrim Finance BV the issue of asymmetry was approached from the other side. Under asymmetric dispute resolution clause parties were entitled to bring the disputes to arbitration subject to the one party's right to commence litigation. In this case judge upheld the application of option-holder to stay arbitration proceedings because the right to seek arbitration was subject to the agreed option to litigate.
Hence, according to the case law, English law approach undoubtedly recognizes the validity of optional agreements both regarding asymmetrical arbitration agreement or asymmetrical right to commence litigation.
High court of Singapore in Dyna-Jet Pte Ltd v. Wilson Taylor Asia Pacific Ltd. with reference to the rationale of English court approach represented by NB Three Shipping Ltd v Harebell Shipping Ltd unambiguously stated that dispute resolution clause which makes litigation subject to an express right to opt for arbitration of one of the parties constitutes valid and binding arbitration agreement once this entitled party has initiated the arbitration.
Upholding the High Court's decision, the Court of Appeal held that it is "immaterial" whether the arbitration clause is asymmetric or not.
Thus, if to consider such jurisdictions as England and Singapore, usually a properly drafted clause that evinces the parties' intent to permit one or more of them to elect unilaterally to arbitrate will not be a strong contradiction, as far as both parties freely negotiated all contractual provision including one-sided arbitration agreement and expressed their common intentions for it.
Principle of equality
As mentioned above, there is the opposite approach in different jurisdictions adopted either by case law or by legislation on validity of asymmetrical arbitration agreement.
If to consider Russia, as an indicative example, the cornerstone of the whole case law tendency that rejects validity of asymmetrical arbitration agreement because it breaches the principle of equality was presented in 2012 by the Supreme Arbitraz court decision in case RTK v. Sony Ericsson12.
In that case the court reversed consistent approach in Russia and held that an agreement on equal right to refer the dispute to arbitration and unequal right of one party to refer the disputes to state court is invalid because both parties shall have access to both dispute resolution mechanisms.
In doctrine it is emphasized that the decision almost lacked minimum legal background. At the same time, one shall admit that the court referred to "equality of arms" concept, which originated in European human rights law in the context of the right to a fair trial which eventually caused a high demand of criticism in doctrine13.
However, even after this decision there still was certain space for uncertainty in Russian case law regarding several procedural issues such as which exact type of dispute resolution clause shall be invalidated: shall it be invalid fully or exclusively in part of inequality.
The end of all uncertainties appeared on 26 December 2018 when Supreme Court of Russia published its Digest of Court Practice Relating to Judicial Assistance and Control over Domestic and International Arbitration. The digest contains express statement that a unilateral option clause puts one party in a more advantageous position than the other, since only this party has option to choose the dispute resolution mechanism which violates the balance of parties' rights and interests and therefore breaches principles of competitiveness.
As a consequence, court reasoned that such agreement shall be adapted to the extent of non-option holder's right to give the same equal opportunity to refer the dispute to state court.
Therefore, there is a high probability that asymmetrical arbitration agreement will be invalid and arbitral award based on such agreement will not be recognized and enforced in Russia.
Regarding such jurisdictions as Germany and France, one shall admit that any unambiguous and uniform approach in regard to validity of asymmetrical arbitration agreement has not yet been created by case law or doctrine.
Although it is not precluded directly by national law, in Germany there are several decisions of state courts that found asymmetrical arbitration agreements as invalid under German substantive law due to the imbalance of parties' rights in unilateral dispute resolution clauses14.
In France there are several well-known cases involving inequality within prorogation agreement that do not present uniform approach15. However, most scholars and practitioners are of the view that asymmetrical agreement is valid under French law only if the choice was foreseeable and limited, complies with the criterion of reasonability16.
Along with this, there is a slightly different approach in USA that was based mainly on the doctrine of unconscionability.
Unconscionability is a defensive contractual remedy which serves to relieve a party from an unfair contract or from an unfair portion of a contract17. In practice, when evaluating the claims of unconscionability, courts recognize two categories therein: procedural and substantive unconscionability. The procedural one covers the stage of drafting a contract, while the latter assesses the balance of contractual terms themselves18.
Thus, when assessing the equality of parties and looking for "conscionability" criterion within arbitration agreement, one should take into account the following: whether a party has taken unfair advantage of the other party's dependence, economic distress or urgent needs, or of its improvidence, ignorance, inexperience or lack of bargaining skill, whether the arbitration agreement was negotiable, whether the aggrieved party had a meaningful choice or was compelled to accept arbitration and whether the stronger party used deceptive tactics during the negotiations19.
Moreover, the nature and purpose of the contract itself shall be accessed with due scrutiny as well, considering all relevant circumstances surrounding the transaction20.
The asymmetrical arbitration agreement de facto forms a result of no less asymmetrical distribution of right and duties of the parties as far as one of them had stronger bargaining powers and was able to compel the other party to accede to its own conditions (typical business strictu sense), despite the fact that such asymmetry may be less beneficial for the party subscribing to it21.
However, there is a widespread approach that even in a situation one party had more bargaining power during the negotiation than the other one in light of the sized of business and reputation on market, this fact alone would never constitute a ground for invalidity of a contract22.
As a general rule, in most jurisdictions it is necessary to consider the process of negotiations and examine such issues as, for example, which party initially drafted the contract including arbitration agreement, which party had more bargaining powers during the negotiations and even such minorities as which party had more economic powers, including the number of employees and general turnover.
Moreover, in international commercial arbitration in most cases the question of how to interpret certain contractual provision arises. Since often there is no direct wording within the written provision of a contract, arbitral tribunal usually seeks to endorse common intentions of negotiating parties and interpret the wording in accordance with them23.
In relation to the asymmetrical arbitration agreement, the latter may be invalidated in case during the negotiations one of the parties had much more superior bargaining powers. At the same, this criterion is applied in case law usually in consumers' disputes. The main reason for such exclusive application is that in consumer's dispute usually parties act as much stronger and weaker parties being accurately described by prof. Gary Born as rabbits and foxes24.
As an example, in Arnold v. United Companies Lending Corp. the court stated that parties' agreement was grossly unequal with reference to these exact imbalanced bargaining power mentioned during the process of negotiation. Hence, competent court placed a national corporate lender on the one side, and an unsophisticated elderly couple on the other side25.
At the same time even in such a strict type of dispute, still it is not authoritative in the USA to invalidate such agreements and it is only upheld by minority of states whereas the majority refuses to follow it. Thus, the California Supreme Court held that unless the business can justify the lack of mutuality, usually arbitration clauses requires only a modicum of bilaterality to be considered conscionable and therefore valid26. In other words, the unilateral arbitration agreement shall no be considered as unconscionable per se27.
Conclusion
It is hard to argue that asymmetrical arbitration clause is differencia specifica from ordinary bilateral arbitration agreement. Thousands of international contracts contain this type of arbitration agreement therein, however the more it is attractive for business the more courts elaborate on them with precise consciousness.
Although there is almost no authority that will invalidate asymmetrical arbitration agreement per se, there is already consistent approach within some jurisdictions (e.g. Russia) to consider them as breaching one party's equality.
The appropriate consequence still remains to be an issue should it be invalidation or adaptation so that to restore the balance of parties' rights expansively.
Along with this, one should always remember that there is a risk of non-enforcement of arbitral award based on asymmetrical arbitration agreement in occasionally arbitration-friendly jurisdiction since public policy is extremely unpredictable.
Therefore, the drafting of asymmetrical arbitration agreement is recommended to be only accompanied by the advice of competent lawyers from relevant jurisdictions of at least the seat of arbitration and the enforcement of arbitral award.
Footnotes
1 E.g. Judgment of 19 June 2012, N A40-49223/11-112-401 (Presidium of Russian Supreme Arbitrazh Court)
2 Art. 1161 § 2 of Code of Civil Procedure of Poland
3 Turkish court of Appeal in case 19th civil chamber. No. 2009/3257 held that asymmetrical clause is invalid;
4 E.g. Rothschild case (Cass. 1st civ., 26 September 2012, No. 11-26.022), Apple case (Cass. 1st civ. 7 October 2015, No. 14-16)
5 IBA Arbitration Guide on Poland, Russian Federation, Turkey and France IBA Arbitration Committee. Available at: https://www.ibanet.org/LPD/Dispute_Resolution_Section/Arbitration/Arbcountryguides.aspx ;
6 Fouchard Philippe, Gaillard Emmanuel, Goldman Berthold, Savage John on International Commercial Arbitration, Kluwer Law International, 2007, p. 256
7 Redfern and Hunter, with Blackaby and Partasides, Law and Practice of International Commercial Arbitration, 4th Edition, 2004, p 315
8 Nesbitt, Simon/Quinlan, Henry, the status and operation of unilateral or optional arbitration clauses, Arbitration International 22, No. 1, 133-150 (2006), p. 136
9 G. Born, International commercial arbitration, Alphen aan den Rijn, 2nd edition, 2014, p. 867
10 NB Three Shipping Ltd v Harebell Shipping Ltd [2005] 1 Lloyds Rep 50; Law Debenture Trust Corp v Elektrim Finance BV & Ors [2005] EWHC 1412 (Ch); Singapore Court of Appeal decision in case Wilson Taylor Asia Pacific Pte Ltd v Dyna-Jet Pte Ltd [2017] SGCA 32; PMT Partners Pty. Ltd. (In Liq.) v. Australian National Parks
11 Pittalis v. Sherefettin, Queen's Bench Division, No.1986 1 QB 868 [1986]
12 Judgment of 19 June 2012, N A40-49223/11-112-401 (Presidium of Russian Supreme Arbitrazh Court)
13 Асимметричные арбитражные соглашения в английском и американском праве (Зенькович Д.И.) ("Адвокат", 2014, No. 12) Ходыкин Р.М. Гибридные оговорки о рассмотрении спора // Вестник ВАС РФ. 2012. No. 11. . 64
14 Judgment of 24 September 1998 III ZR 133/97; Judgment of 4 November 1992, (German Bundesgerichtshof); Gaillard E., Savage J. (eds.) Fouchard, Gaillard, Goldman On International Commercial Arbitration. The Hague. 1999, p. 140
15 Rothschild case (Cass. 1st civ., 26 September 2012, No. 11-26.022), Apple case (Cass. 1st civ. 7 October 2015, No. 14-16.898)
16 Барбе Ж., Рошер П. Опционные оговорки о способах разрешения споров: анализ с точки зрения французского и английского права, 2011. ? 1. ?. 114-115; Ashford FCIArb, Peter, Is an Asymmetric Disputes Clause Valid and Enforceable?, Arbitration: The Int'l J. of Arb., Med. & Dispute Mgmt 86, no. 3 (2020): 347–364, p. 361
17 Duarte Gorjao Henriques, Asymmetrical Arbitration Clauses under the Portuguese Law; Germantown Mfg. Co. v. Rawlinson, Pennsylvania Superior Court 491 A.2d 138 [1985]; D. Dobbs, Handbook on the Law of Remedies West Group, 1973; Ferguson v. Lakeland Mut. Ins. Co. Pennsylvania Superior Court 20 September [1991]
18 Doctor Associates Inc v. Distajo, United States Court of Appeals, Second Circuit [1995]; Chavarria v. Ralphs Grocery Company, United States Court of Appeals, Ninth Circuit [2013]; Thompson v. St. Regis Paper Company, Washington Supreme Court [1984]; Cappucitti v. DirecTv, Inc. United States Court of Appeals, Eleventh Circuit [2010]
19 UNIDROIT Principles, art. 3.2.7; State Ex Rel. Vincent v. Schneider, 194 S.W.3d 853 Supreme Court of Missouri 30 June 2006; Carte v. Countrywide, East Ford v. Taylor; Cappucitti v. DirecTv; Hans Smith, The unilateral arbitration clause: a comparative analysis, American Review of International Arbitration, Issue 20, 2009, p. 20
20 G. Born, International Commercial Arbitration, 2nd edition, Kluwer Law International, 2014, p. 858.
21 Deyan Draguiev, Unilateral Jurisdiction Clauses: The Case for Invalidity, Severability or Enforceability
Journal of International Arbitration 31, no. 1 (2014)
22 Quilloin v. Tenet Healthsystem Philadelphia, Inc., No. 11-1393 (3d Cir. 2012); G. Born, International Commercial Arbitration, 2nd edition, Kluwer Law International, 2014 , p. 858
23 UNIDROIT Principles, 4.3; Fouchard, para 1470, 1471; Investor's Compensation Scheme Limited v West Bromwich Building Society, [1998] House of lords, 1 WLR 896
24 G. Born, International Commercial Arbitration, 2nd edition, Kluwer Law International, 2014 , p. 869; Arnold v. United Companies Lending Corp 511 S.E.2d 854, 861 (W.Va. 1998)
25 Supreme Court of Appeals of West Virginia, USA, Arnold v. United Companies Lending Corp., 11 December 1998
26 California Supreme Court, USA, Armendariz v. Found. Health Psychcare Servs, 24 August 2000
27 Massachusetts Supreme Court, USA, Hannon v. Original Gunite Aquatech Pools, 20 April 1982
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