The Status and Operation of Unilateral or Optional Arbitration Clauses

Abstract

This article focuses on the history and evolution of the English court's attitude towards unilateral arbitration and dispute resolution clauses, but also considers the approach of other national courts to these clauses. It goes on to consider some potential pitfalls in the operation of unilateral clauses, which should be borne in mind when developing a strategy for bringing or defending a claim which falls within the scope of a unilateral clause. In summary, the decisions of the English High Court in NB Three Shipping Ltd v. Harebell Shipping Ltd 1 and Law Debenture Trust Corp plc v. Elektrim Finance BV and others 2 have confirmed the validity of unilateral optional or ‘trumping’ clauses under English law. The judgments also contain useful guidance on the subject of the proper operation and effect of such clauses where they are intended to be used to enable a party to decide (both as claimant and defending party) whether, and in what circumstances, a claim should be referred to court or to arbitration. The decision in NB Three Shipping is particularly significant not only because it finally dispels any lingering doubts as to the scope of the application of earlier English cases on this issue, but also because it gives draftsmen greater certainty on the operation of such clauses. In addition to the issue of whether such unilateral clauses are permissible under English (or any other) law, it is important to be aware of how they should properly operate in practice; another important issue is whether a party can exercise its option both as claimant and as the defending party. NB Three Shipping considered both of these issues, and should therefore be of great interest to, in particular, financial institutions and their advisors. Ordinarily, dispute resolution clauses are neutral in their approach, i.e. the parties …