De-mystifying Unilateral Optional Clauses

By- Rituparna Chand*

Abstract- This article will be extensively dealing with one of the controversial topics in the domain of
Arbitration which is best referred to as “Asymmetrical Clauses” will be used as UOC herein.
Furthermore, it will show the arguments expressing the validity of the Unilateral Optional Clause. It will
even show the arguments in contrary expressing the invalidity does strongly upheld the invalidity. The
article will also be discussing Furthermore, it will be shown in the end that despite the existence of the
arguments favouring the validity and invalidity of the UOCs, there is no conclusive opinion in regards
of the validity or invalidity of the clause.

I. Introduction
Unilateral Optional Clause as the name suggests vests opportunity on one of the parties to an
agreement to make a forum selection in order to settle a dispute either through arbitration or litigation,
compelling the other party to embrace the manner chosen by the other party. Furthermore, it creates
flexibility on part of one party to select an appropriate forum for dispute resolution in case a dispute
arises and when this happens, the consent from the other party is validly sought. Even though it is
apparent that UOCs are advantageous to one of the parties, due to the paucity of judicial materials, it
cannot be explicitly held that it is causing a pitfall to the other party that does not get to choose
appropriate manner for dispute settlement.

II. Position of UOCs across the world

The status of acceptance of asymmetrical clause by the English courts is affirmative post Pittalis v.
Sherefettin (1986) and the same was reiterated in NB Three Shipping (2004) and Debenture Trust Corp
plc v. Elektrim Finance BV 2005,1 whereby the court expressed their support in regards of the validity
of the UOC. In one of the recent cases of Mauritius Commercial Bank Ltd. v. Hestia Holdings Ltd and
Anr,2 English court eradicated even the existence of even slightest of doubt that was persisting in
regards of the validity of the clause and upheld the same by mentioning that such clauses are
incorporated in the commercial agreements for encouraging the transactions and business between the
parties.3 On the other hand, United States has remained inflexible towards the clause and most of the
states in United States have declared it invalid on grounds of unconscionability and lack of mutuality
while again Australia has resorted to the English decisions to upheld the validity of the UOC.

* 4th year BA LLB student at Maharashtra National Law University, Nagpur. She is vehemently passionate about Human rights,
International Commercial Arbitration and Investment Arbitration. In furtherance to that she is a voracious reader with a keen
interest in International Politics, Psychology and Evolution. She has represented the University at the Asia Pacific rounds of the
Manfred Lachs Space Law Moot court Competition, 2019 and emerged out to be the quarterfinalists. She has even represented
the University at the Virtual South Asian rounds of the Foreign Direct Investment International Arbitration moot, 2020.
1
(2005) 1 WLR 1591.
2
[2013 EWHC 1328 (Comm)]
3
Berard .M & Draguiev J., “Unilateral Option Clauses in Arbitration: An International Overview”, Available at
http://arno.uvt.nl/show.cgi?fid=142526.

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 III. Position of UOCs in India

As far as the status of UOCs in India is concerned, only Delhi and Madras High courts have actively
responded to its position. Madras High court in its decision of Castrol India Ltd v. Apex Tooling
Solutions4 expressed that the arbitration clause need not show mutuality but it discarded the view
where the party wished to incorporate arbitration according to its own whims as a single option. Delhi
High court has shown a mixed response towards the issue. Relying on the case of Bhartia Cutler
Hammer v. AVN Tubes,5 Delhi High court delivered that the exclusive rights shall not be vested on a
single party to invoke arbitration as a mode of dispute resolution without seeking opinion of the other
party. Placing reliance on Bhartia Cutler, the Delhi high court very categorically laid down in Emmsons
International Ltd. v. Metal Distributors.,6 that asymmetrical clause is void and does not provide a proper
legal recourse to one of the party’s to the contractual agreement and thus, it is in contravention of
Section 28 of the Indian Contract Act, 1872. Furthermore, Delhi High court showed a slight deviation in
case of Lucent Technology v. ICICI Bank,7 whereby the invalidity of the UOC was declared on the
ground that the submissive party was scrapped off its legal remedy. But again, in the decision of Fuerst
Day Lawson Ltd. v. Jindal Exports Ltd.,8 the validity of the Unilateral optional clause was upheld but as
the decision was governed by the English Law, the atmosphere of confusion still persists in regards of
the position of UOC in India. After a thorough observation, there can be an assumption of a possibility
of acceptance of the validity of UOCs in Indian Law but due to the varied opinions of the Indian courts,
it is best suited for the avoidance of incorporation of the UOCs in contractual agreements. But again
there is a hope that in order to resolve the uncertainty as created by the Indian courts in regards of the
position of UOC, can the apex court thoroughly with its intervention lay down a precise guideline that
would be beneficial for the contractual parties.

IV. Validity of the Unilateral Optional Clauses

Even with the existence of minor discrepancies, the intention of the parties have been given a greater
predominance in upholding the validity of the Unilateral Optional Clauses. Following reasons would be
showing the validity of the asymmetrical clause:

1. Asymmetrical clause cannot be considered to be unfair

Even though asymmetrical clauses vest the choice on one party but it would not be called unfair unless
it leads to unfair results or causes unfairness to the other party.9 Only when the unfairness caused to
the party is shown, it could be held invalid. 10 It was held in a celebrated case that if a party is given a
better position over the other in a contract, it would not be considered invalid.11

4
(2015) 1 LW 961 (DB).
5
(995 (33) DRJ 672).
6
[2005(80) DRJ 256].
7
(2009 SCC OnLine Del 3213).
8
MANU/DE/3204/2009.
9
Deyan Draguiev, ‘Unilateral Jurisdiction Clauses: The case for Invalidity, Severability or Enforceability’, Journal of International
Arbitration 31, no.1, 19,23(2014).
10
Simon Nesbitt & Henry Quinlan, ‘The Status and Operation of Unilateral or Optional Arbitration Clauses’, Arbitration
International, Vol.22 no.1, 133,142(2016).
11
NB Three Shipping Ltd. v. Harebell Shipping Ltd, [2005] 1 Lloyds Rep. 509.

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2. Asymmetrical clause does not breach the mutuality between the parties

The question of the ‘lack of mutuality’ was raised initially as asymmetrical clauses vest power on a
single party to proceed for arbitration. 12 In the case of Pittalis v. Shorefettin13 , the existing unilateral
clause was not considered to be of lack of mutuality as there was no unequal operation towards the
other party. 14 In furtherance to that, Fuerst Day Lawson v. Jindal exports laid down that, the question
of mutuality does not come into operation for the fact that the offer was accepted by the petitioner and
in connection to that, the arbitration mechanism comes into operation with full implications.

Further, Morison J., laid down that the existing unilateral arbitration clause satisfies the requirements of
the arbitration, and by relying on Pittalis laid down that the parties have the liberty to agree in the manner
in case of resolving the disputes that arises between them. 15 Further, the party who does not have the
option to proceed to a forum has been protected on the grounds that when the advantaged party has
selected a forum to commence the proceedings, it is assumed that the party has submitted to the
jurisdiction of that forum and further, cannot choose any other forum. 16

3. The clause is backed by a strong commercial logic

Asymmetrical arbitration clauses, otherwise known as the “Unilateral Optional clauses” are one of the
most accepted form of standard clauses for the commercial transactions. 17 The validity of the
asymmetrical commercial transactions have been upheld in regards of the contractual transactions. 18
The predominant reason behind the existence of such an clause is to expose the business parties to
the option where they can choose to make the requirements work according to their own business set
up.19 It has been observed through the cases that the UOCs have satisfied the requirements of the
arbitration, and parties have the liberty to choose the manner that would best fit them in resolving the
disputes.20 Further, to avoid the injustice caused to the other party, whenever a party does not have the
option to proceed to a forum has been protected on the grounds that when the advantaged party has
selected a forum to commence the proceedings, it is assumed that the party has submitted to the
jurisdiction of that forum and further, cannot choose any other forum. To substantiate the same, reliance
can also be made on Law Debenture Trust Case whereby it was observed that even though unilateral
clause is subjecting a single party to an advantage, it should be treated as any other contractual clause
for safeguarding the commercial transactions between the parties.21

V. Is the validity of the UOCs conclusively to be upheld?

12
Bas Van Zelst, ‘Unilateral Option Arbitrational Clauses: An unequivocal choice for arbitration under the ECHR’, Maastricht
Journal of European and Comparative Law, Vol25(1), 77,81(2018).
13
(1986) 1QB 868.
14
Salonee Patil, ‘Unilateral optional Clauses: The Way Forward,’ Christ University Law Journal’, Vol.7, No.2, 45,47(2018).
15
Lobb Partnership Ltd v. Aintree Racecourse Co. Ltd (2000) BLR 65.
16
Supra at 2., 148.
17
GARY B. BORN, INTERNATIONAL COMMERCIAL ARBITRATION,866 (2014).
18
PMT Partners Pty Ltd v. Australian National Parks & Wildlife Service, (1995) 184 CLR 302[Australia]., (2001) 3 HKC 580[Hong
Kong], (2017) SGCA 32[Singapore].
19
Castrol India Limited & Ors v. Iqbal Singh Chawla & Ors.,Delhi High Court, Jan 1, 2018.
20
Lobb Partnership Ltd v. Aintree Racecourse Co. Ltd (2000) BLR 65.
21
Deyan Dragueiv, ‘Unilateral Jurisdiction Clauses: The case for Invalidity, Severability or Enforceability’, Journal of International
Arbitration 31, no.1, 19,26 (2014).

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It has been observed that a lot of courts have rejected the validity of the Unilateral Optional Clause on
the following grounds:

• Non- existence of Mutuality between the parties is one of the most used grounds that is
strongly supported by the courts in rejecting the validity of the Unilateral Optional Clause. 22
Even though the courts have resorted to lack of mutuality in cases where certain rights have
been vested on a single party, according to the general rules of the Contract Law, consideration
does not have to adequate, it has to be merely present. Hence, in such situation, disparate
position of the parties carrying a shortcoming whereby consideration from one of the parties is
not present, the clause shall not be declared to be invalid.
• It is obvious that as the name suggests, UOC is advantageous to one party and subjects the
other party to adhere to the clause chosen by the privileged party that might be discouraging to
them. In furtherance to the invalidity of the UOC, it is observed by the courts that UOCs violate
Art. 6 of ECHR in regards of attaining a fair trial.23 As far as the concept is concerned, the
equality persists only in regards of approaching the specific chosen forum as equals but not in
regards of choice of the forum. In the case of Emmsons International Ltd. v. Metal Distributors,24
it was laid down by the court that if the party had an opportunity to approach either an ordinary
tribunal or arbitration, then the clause will be valid as he was not scrapped off his right to seek
justice. Hence, where a party has a broader choice but the other party still can access justice,
the arbitration clause shall remain valid. Therefore, the case of Russkaya v. Sony Ericsson25
shall not be considered to be instrumental in deciding the invalidity of the arbitration clause on
the basis of inequality.
• There is an argument in regards of the clause being unconscionable as it forces the party to
succumb to the conditions as prepared by the other party with an unfair advantage.
Furthermore, the dispute in regards of unconscionability should not come into the play when
there is a commercial transaction between two commercial parties as the main objective of
incorporation of the unilateral jurisdiction clause in the commercial agreements is to foster the
international trade and the parties agree to the UOC incorporated in the arbitration agreement
out of their own volition.26 In order to prove the unconscionability, one of the parties should not
be given the opportunity to seek redressal. But again, as far as the UOCs are concerned, they
are approved by both the parties. It was observed in the case of Berent v. CMH Homes,Inc.27,
the Supreme court of Tennesse laid down that the entire contract shall not be vitiated because
of unconscionability as the party did not lack a choice to proceed for seeking a redressal.

22
Hans Smit, The Unilateral Arbitration Clause: A comparative Analysis, 20 American Rev. Int. A. 391, 401 (2009).
23
Youssef Nassar, “Are Unilateral Optional Clauses valid?”, Kluwer Arbitration Blog(Oct 13, 2018).
24
[2005(80) DRJ 256].
25
Supreme Arbitration Court (Russia), 19 June 2012.
26
‘Unilateral Jurisdiction Clauses in International Financial Contracts’, International Chamber of Commerce, Doc 470/1248
Rev,1,3 (28th August 2015).
27
466 S.W.3d 740 (Tenn.2015).

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Conclusion

Even though UOCs have been acclaimed internationally in regards of commercial and business
transactions, the official declaration of the validity of UOCs have still remained a moot question as these
clauses have been refused validation on the grounds of equality, fairness and thus, in forthcoming days
as well it will be facing backlashes creating hindrances in maintaining a healthy commercial relationship
between the contractual parties. As UOCs are still in their developing stage, the theory itself comprises
of flaws that leads to its unacceptance in most of the jurisdictions. Thus, the acceptance of UOCs should
not just rely on the existing law rather it should be based on the situation, intention of the contractual
parties, existing clause in the agreement and during any complication that might arise out of the clause,
the dispute resolution bodies must measure the gains and losses along with the intention of the parties
before invalidating the clause in toto.

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