Asymmetrical arbitration clauses are those which afford more rights to one party than to another. For example, whilst a typical symmetrical arbitration agreement would provide that all parties must submit a dispute to arbitration, an asymmetrical clause would give one party the option of choosing between arbitration and litigation whilst binding the others to its decision.
According to Born, "[t]he weight of authority [...] upholds asymmetrical arbitration clauses."1 However, as is often the case in international arbitration, the enforceability of such clauses depends on their specific wording and their lex arbitri. This note considers how several jurisdictions have approached the enforceability of asymmetrical arbitration clauses.
England and Wales
In England and Wales, courts typically uphold the validity of asymmetrical arbitration clauses. In NB Three Shipping, the Commercial Court found that a charterparty which provided that "[t]he courts of England shall have jurisdiction to settle any disputes which may arise out of or in connection with this Charterparty but the Owner shall have the option of bringing any dispute hereunder to arbitration" was enforceable.2 The Court found that it was a deliberate decision made by both parties to enter into an agreement which was "designed to give 'better' rights to Owners than to Charterers."3
Indeed, asymmetrical arbitration agreements are generally considered as an expression of freedom of contract and, therefore, commonly enforced. Nevertheless, they are still subject to general principles of contract law and can be unenforceable in cases of duress and unconscionability.4
France
In 2012, the Court of Cassation decided in the infamous Rothschild case that an asymmetrical arbitration clause which gave one party the ability to choose any jurisdiction at all in which to arbitrate was unenforceable.5 The Court found that this was a potestative clause and therefore could not be enforced. The French doctrine of potestativité refers to situations in which the performance of a contract by one party depends on a condition precedent which is entirely within the control of another.6
However, the same Court clarified its position in the Apple case in 2015.7 In contrast with the Rothschild case, Apple Sales International only held the right to choose between jurisdictions in which either party was based or in which Apple was incurring losses stemming from a breach of contract. The clause therefore provided an objectively limited and determinable set of jurisdictions for Apple to choose from and was not affected by the doctrine of potestativité. The Court also stressed that these objective criteria made the clause sufficiently predictable to be enforced.
It, therefore, seems that asymmetrical arbitration clauses need to be sufficiently predictable with reference to objective criteria to be enforced by French courts. A clause giving one party unfettered discretion is unlikely to be enforceable.
China
According to Article 7 of the Interpretation of the Supreme People's Court of 2005, "[w]here the parties concerned agree that they may either apply to the arbitration institution for arbitration or bring a lawsuit with the people's court for settlement of dispute, the agreement for arbitration shall be ineffective".8 As such, asymmetrical arbitration clauses which allow one party to choose between arbitration or litigation would not ordinarily be enforceable in China. According to Zhao et al., the rationale behind this is that at the time of the dispute, if one party wanted to arbitrate but the other wanted to litigate, there would be no contemporaneous arbitration agreement.9
However, a Chinese court expressly recognised the validity of an asymmetrical arbitration clause for the first time in Fiber Optic vs. CDB.10 This was because, rather than simply allowing CDB to elect to arbitrate or litigate without the agreement of Fiber Optic, the asymmetrical arbitration clause was essentially framed as an arbitration agreement which CDB could back out of if it wished, but which Fiber Optic had still agreed to.11 When CDB chose to arbitrate, Fiber Optic had therefore agreed to the same. If CDB chose to litigate instead, Fiber Optic's agreement was conditional on CDB's agreement, which meant that when CDB chose to litigate there was no valid arbitration agreement.
Fiber Optic vs. CDB highlights the importance of careful drafting of asymmetrical arbitration clauses in China, as the general rule of Article 7 of the 2005 Interpretation remains in force. By framing an asymmetrical arbitration clause as a conditional agreement to arbitrate, it may be possible to sidestep Article 7 entirely, although it remains to be seen whether other courts will follow the decision in Fiber Optic vs. CDB.
India
In India, the state of asymmetrical arbitration agreements is unclear. According to Respondek, "The sticking point under Indian Law is that there must be reciprocity in an arbitration agreement."12 In Emmsons International, the Delhi High Court found a clause which only gave one party the right to refer a dispute to arbitration to be invalid.13 The Court clarified in Lucent vs. ICICI Bank that "unilateral appointment of arbitrators and unilateral reference [of a dispute to arbitration] are both illegal."14
However, the Calcutta High Court in New India Assurance found that an agreement allowing only one party to refer a dispute to arbitration was valid.15 Pending clarification by the Indian Supreme Court, the position of Indian law is therefore uncertain in light of contradictory precedent.
Conclusion
The enforceability of asymmetrical arbitration clauses varies widely across jurisdictions. While courts in England and Wales tend to uphold them, French and Chinese courts appear to impose strict conditions on their enforceability, requiring precise drafting. In India, conflicting case law makes the enforceability of such clauses altogether unpredictable. In order to ensure that an arbitration agreement is enforceable, it is prudent to avoid the unnecessary use of asymmetrical arbitration clauses.
Footnotes
1. G. Born, Formation and Validity of International Arbitration Agreements, in International Arbitration: Law and Practice (3rd edn., 2021), p. 92.
2.NB Three Shipping Ltd v Harebell Shipping Ltd [2004] EWHC 2001 (Comm), [7].
3.NB Three Shipping Ltd v Harebell Shipping Ltd [2004] EWHC 2001 (Comm), [11].
4. G. Born, Formation and Validity of International Arbitration Agreements, in International Arbitration: Law and Practice (3rd edn., 2021), p. 92.
5. Cass. Civ. 1ère, 26 Septembre 2012, n° 11-26.022.
6. Article 1170 CC.
7. Cass. Civ. 1ère, 26 Septembre 2012, n° 14-16.898.
8. Interpretation No. 7 [2005] of the Supreme People's Court, Article 7.
9. F. Zhao et al., Asymmetrical Arbitration Agreements Under PRC Law, 26 April 2024, https://arbitrationblog.kluwerarbitration.com/2024/04/26/asymmetrical-arbitration-agreements-under-prc-law/ (last accessed 29 October 2024).
10. Fiber Optic v. CDB, (2022) Jing 74 Min Te No.4, Beijing Financial Court.
11. F. Zhao et al., Asymmetrical Arbitration Agreements Under PRC Law, 26 April 2024, https://arbitrationblog.kluwerarbitration.com/2024/04/26/asymmetrical-arbitration-agreements-under-prc-law/ (last accessed 29 October 2024).
12. A. Respondek and F. Löwenthal, The Troubled Waters of Asymmetric Arbitration Clauses, Law Society Gazette, January 2020.
13. Emmsons International Ltd. vs. Metal Distributors (UK) And Anr. (2005) 1 CTLJ 39 (DEL).
14. Lucent Technologies Inc vs. ICICI Bank Limited & Ors (2009) CS(OS) No. 386/2005, para. 262.
15. New India Assurance Co. Ltd. vs. Central Bank of India And Ors. (1984) 1985 Cal 76.
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