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ASYMMETRIC JURISDICTION CLAUSES: GROUNDS FOR VALIDITY WITHIN DIFFERENT JURISDICTIONS
VASILY BAKUMENKO, National Research University Higher School of Economics (Moscow, Russia)
https://doi.org/10.17589/2309-8678-2020-8-3-84-115
The article is devoted to the comparative analysis of asymmetric jurisdiction clauses in international procedural law. The paper focuses, firstly, on a detailed analysis of the national and international approaches to the nature and interpretation of asymmetric jurisdiction clauses within international civil procedure, and, secondly, on the rules on interpretation, validity and enforcement of such clauses under different jurisdictions and private international law in general. After examining the accumulated case law and theoretical material, particular attention is paid to the issue that currently there is a number of different grounds for recognition of asymmetric jurisdiction clauses as valid. Although Russian courts tend to invalidate such clauses, the issue has not been unambiguously resolved and requires reconsideration of the established approaches in light of the recent trends on international level. Thus, particular attention is paid to the highly problematic and contradictory aspects of unilateral dispute resolution provisions under the general principles of law, including autonomy, mutuality and equality of the parties. The article proposes to reconsider the most typical arguments for invalidating such clauses, both in terms of substantive and procedural principles. Analysis of these issues is of key theoretical and practical importance for the effective evolution of modern arbitration and litigation practices not only in Russia but all over the world.
Keywords: international civil procedure; in ternational commercial arbitration; asymmetric jurisdiction clause; hybrid jurisdiction clause; unilateral option clause.
Recommended citation: Vasily Bakumenko, Asymmetric Jurisdiction Clauses: Grounds for Validity Within Different Jurisdictions, 8(3) Russian Law Journal 84-115 (2020).
Table of Contents
Introduction
1. Grounds for Validity of Asymmetric Jurisdiction Clauses Under National Laws
1.1. Potestative Conditions
1.2. Equality of the Parties
1.3. Mutuality of Obligations
1.4. Good Faith
1.5. Party Autonomy
2. Asymmetric Jurisdiction Clauses Under the Principles of International Civil Law and Procedure
2.1. Party Autonomy and Contractual Principles
2.2. Balance and Equality of the Parties
2.3. Means to Cure Asymmetric Jurisdiction Clauses Conclusion
Introduction
Considering the current increase in cross-border disputes between representatives of different jurisdictions, various issues of international dispute resolution are becoming highly relevant nowadays. in this regard, business entities, guided by strictly pragmatic approaches to conducting their business, seek not only to prevent adverse outcomes by establishing additional guarantees and security mechanisms, but also to minimise the unpredictability of the outcome in cases of disputes arising out of contracts. Concerns about exposure to venue and enforcement risks have significant economic implications and may inhibit transactions to the extent that leading market actors may be dissuaded from entering into them because the optimal forum may be legally or practically unavailable. Thus, in their effort to transfer jurisdiction to more favourable forums or even use alternative dispute resolution mechanisms, parties tend to include jurisdiction or dispute resolution clauses in their contracts. Recent trends in this regard show that parties to international contracts more often choose complex jurisdictional clauses that not only combine elements of arbitration and prorogation agreements but also stipulate non-standard allocation of their rights, as reflected in the concept of asymmetric jurisdiction clauses.
To date, no legal doctrine has provided a universal definition of asymmetric clauses, but typically such clauses provide options that accord one of the parties to a dispute the right to demand arbitration or insist upon ordinary litigation.' Within
Hans Smit, The Unilateral Arbitration Clause: A Comparative Analysis, 20(3) American Review of International Arbitration 39', 394 (2009).
legal doctrines, asymmetric clauses are also referred to as "one-sided," "one-way," "hybrid jurisdiction" or"option jurisdiction" clauses, as well as"non-mutual agreements to arbitrate."2 Despite the great number of approaches to terminology, an asymmetric jurisdiction clause, by its nature and rationale, can be defined as a clause providing that, should a dispute arise, one of the parties to the contract may choose the adjudicatory forum. Typically, the clause will provide for arbitration or court adjudication at the election of the privileged party.3 That said, the choice of forum is inserted in the clause a priori and is latent until the envisioned dispute arises out of the agreement.4
Still, most questions concerning asymmetric jurisdiction clauses remain poorly studied, although the answers to them determine enforceability and validity of such clauses. Furthermore, in different jurisdictions, due to the objective differences in substantive and procedural laws, the approaches to asymmetric jurisdiction clauses also differ very significantly. The differing attitudes towards asymmetric clauses pose risk to their flexibility, diminished by the practical ambiguity of their actual effect.5 Thus, the most acute and urgent issue in this respect concerns the differences in approaches to the validity and enforceability of such clauses in different jurisdictions, which apply various lines of legal argumentation.
1. Grounds for Validity of Asymmetric Jurisdiction Clauses Under National Laws
The most important question concerning asymmetric clauses is whether the national treatment will validate and enforce such clauses as they were tailored by the parties. in this light, the main aim of this section is to analyse as much case law indicating the national approaches to asymmetric clauses from a commercial perspective as was available, including decisions that were not rendered in a commercial setting but do concern asymmetric clauses and are thus relevant to the issues raised. The relevant case law is further classified by the nature of the main arguments on which the national courts base their decisions to either recognise unilateral forum clauses as valid or not.
1.1. Potestative Conditions
Potestative conditions form a continental legal concept, under which it is considered that clauses dependent on acts purely within the sphere of control of the
2 Please note that all the mentioned terms are used as synonyms in this paper.
3 Laurent Niddam, Unilateral Arbitration Clauses in Commercial Arbitration, 5 Arbitration and Dispute Resolution Law Journal 147 (1997).
4 Deyan Draguiev, Unilateral Jurisdiction Clauses: The Case for Invalidity, Severability or Enforceability, 31(1) Journal of International Arbitration 23 (2014).
5 Marie Berard et al., Unilateral Option Clauses in Arbitration: An International Overview, Practical Law, 23 June 2017 (May 7, 2020), available at http://uk.practicallaw.com/7-535-3743.
debtor should be void, since the debtor may unilaterally effect changes in the position of the other party and even, more importantly, evade its obligations. Historically, French case law was the first jurisdiction that invalidated asymmetric clauses by applying the concept of "condition potestative." Although the French tendency with regard to enforceability of asymmetric provisions in jurisdiction agreements appears less obvious due to the inconsistent judicial practice and awareness in this respect within legal doctrines,6 it is worth to mention that originally French courts recognised the validity of bilateral option clauses. In particular, this approach was taken in cases where the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (hereinafter the Brussels Convention),7 expressly allowing parties to agree on asymmetric jurisdiction clauses, was not applicable.8
For instance, a forum clause with asymmetric elements was upheld in Sicaly v. Grassof where only the French company was granted the right to submit the dispute to arbitration, despite the default rule in the contract that referred to litigation. In refusing to invalidate the clause, the French courts held that the clause explicitly demonstrated that the Dutch party had agreed on the term that disputes within the scope of the agreement could be settled by means of arbitration and had therefore implicitly waived its rights under Article '4 of the French Civil Code.'0 Though this appears to be the exceptional case that has been considered in France, scholars agree that the ruling was correct, stressing the absence of grounds for such clauses not to be upheld under French law.''
However, turning to the concept of potestative conditions, the most serious discussions in the professional and academic environment throughout the European Union were brought by the ruling of the Court of Cassation in Rothschild,'2 which concerned the dispute between the Luxembourg bank and its investor who placed
6 Cour d'appel d'Aix-en-Provence, Chambre civile 2, 11 octobre 1988, 88-3806; Cour de cassation, Chambre commerciale, 24 avril 1990, 88-19.877.
7 1968 Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (Apr. 15, 2020), available at https://eur-lex.europa.eu/legal-content/GA/TXT/?uri=CELEX: 41968A0927(01).
8 БарбеЖ., Рошер П. Опционные оговорки о способах разрешения споров: анализ с точки зрения французского и английского права // Вестник международного коммерческого арбитража. 2011. № 1(3). С. 114-115 [Jerome Barbe & Peter Rocher, Option Clauses on Dispute Resolution: Analysis from the Point of View of French and English Law, 1(3) Bulletin of International Commercial Arbitration 110, 114-115 (2011)].
9 Cour de cassation, Chambre civile 1, 15 mai 1974, 72-14.706.
10 Nicolas Bouchardie & Céline Tran, Arbitration in France, Practical Law (Apr. 15, 2020), available at https:// uk.practicallaw.thomsonreuters.com/4-536-9585?originationContext=document&transitionType=D ocumentItem&contextData=%28sc.Default%29&comp=pluk.
11 Simon Nesbitt & Henry Quinlan, The Status and Operation of Unilateral or Optional Arbitration Clauses, 22(1) Arbitration International 133 (2006).
12 Cour de cassation, Chambre civile 1, 26 septembre 2012, 11-26.022.
a deposit through the French branch. The agreement between the parties contained a clause according to which the Luxembourg courts were given the exclusive jurisdiction in respect of any disputes arising, and the bank was entitled to initiate a trial either at the place of residence of the investor (i.e. Spain) or before any other competent state court in the absence of the above-mentioned propagation agreement. In 2009, the investor announced significant financial losses and brought the claim in Paris against the Luxembourg bank. The trial and appeal courts recognised their competence to consider the dispute, stressing that it is prohibited for the bank to select whatever jurisdiction it wishes. The Court of Cassation upheld this approach, recognizing the clause as incomplete and inconsistent with the purpose envisaged under Article 23 of the Council Regulation No. 44/2001 EC on Jurisdiction, Recognition and Enforcement of Judgments in Civil and Commercial Cases of 22 December 2000 (hereinafter the Brussels I Regulation).13 However, the rationale shifted to pointing out that the clause constituted a potestative condition in granting solely the bank the right to bring action either in a court at the place of residence of the client or any other court that has competence to consider the case. Meanwhile, the investor was granted only the right to bring action in the courts of Luxembourg, which impaired the objectiveness and predictability of the agreement.14 Thus, the action brought in the French courts was recognised as legitimate and the asymmetric clause was invalidated.
Considering this argumentation from a legal perspective, it seems rather peculiar. First, according to the widespread viewpoint, Article 23 of the Brussels I Regulation allows parties to conclude asymmetric agreements. At the same time, an agreement whereby one of the parties is granted, upon presentation of a suit, the right of choice between the court specified in the agreement and another court that has competence in the absence of an agreement, while the other party can sue only in the court specified in the agreement, should be clear and unambiguous. In other words, parties are expressly allowed to decide on jurisdiction which is not exclusive. Second, the provisions of a legislative act of the European Union should be interpreted autonomously from the national legislation of Member States.15 Furthermore, while the governing law of the agreement in Rothschild was the law of Luxemburg, it was interpreted under the purely French doctrine of potestative conditions, according to which obligations entered into under a condition subject to the will of one of the parties are null and void by virtue of Article 1174 of the French Civil Code.
13 Council Regulation (EC) No. 44/2001 of 22 December 2000 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (Apr. 15, 2020), available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32001R0044. Please note that this Regulation is no longer in force; it remained in effect until 9 January 2015.
14 Marie-Elodie Ancel et al., Reflections on One-Sided Jurisdiction Clauses in International Litigation (About the Rothschild Decision, French Cour de Cassation, 26 September 2012), 148 Banque & Droit 3 (2013).
15 Draguiev 2014, at 38.
The French Supreme Court did not take the above arguments into account and was most likely guided by the fact that the option right was too broadly defined. However, even if this interpretation is applicable, it is still inconsistent with earlier case law of the European Court of Justice, which held that
it is sufficient that the clause states the objective factors on the basis of which the parties have agreed to choose a court or courts to which they wish to submit their disputes.'6
Furthermore, the emphasis in the ruling of the Court of Cassation was made precisely on the nature of the agreement itself, not on the fact that the agreement was concluded with the consumer as a "weaker" party. The court also did not refer to violation of the principle of adversarial proceedings or the parties having unequal procedural status. Given all these facts, Rothschild was deservedly criticised'7 for not referring the matter to the Court of Justice of the European Union for a preliminary ruling.'8
Nonetheless, the decision itself has triggered the risk that may arise in the event of an asymmetric clause with the option to settle a dispute in court or by means of arbitration. Specifically, the approach of Rothschild was later upheld in ICH v. Crédit Suisse' by the French court that similarly invalidated the asymmetric clause as being of disparate nature.20 in this case, the dispute concerned repayment of the debt to Credit Suisse, seated in Zurich, by investments of the French company, which in turn were secured by its English agent. The facility agreements included a dispute resolution clause, according to which the bank enjoyed the exclusive right to bring claims before any courts, while the choice of forum for the borrower was limited to Zurich or the location of the bank's branch. As a result of low investment returns, Société civile immobilière iCH (iCH), the successor of the French company, initiated proceedings against the banks before the court of Angers, claiming the facility was structurally unviable. Both the trial and appeal courts declared their incompetence to consider the dispute since the plaintiff had not objected to the jurisdiction designated under the clause. Nonetheless, the Court of Cassation overruled these decisions based on violation of the legal certainty principle as well as regulation under the Convention on Jurisdiction and the Recognition and Enforcement of
16 CoreckMaritime GmbH v. Handelsveem BVand others, Case C-387/98, [2000] E.C.R. 1-09337.
17 See, e.g., Richard Fentiman, Unilateral Jurisdiction Agreements in Europe, 24(1) Cambridge Law Journal 26 (2013).
18 See Treaty on the Functioning of the European Union, Art. 267(1)(b) and (3) (Apr. 15, 2020), available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A12012E%2FTXT.
19 Cour de cassation, Chambre civile 1, 25 mars 2015, 13-27.264.
20 See Brooke A. Marshall, Imbalanced Jurisdiction Clauses under the Lugano Convention: Judgment of the French Cour de Cassation of 25 March 2015, 24(2) Zeitschrift für Europäisches Privatrecht 515 (2016).
Judgments in Civil and Commercial Matters (hereinafter the Lugano Convention),21 since the right of the bank to choose the forum was not based on objective elements. It is interesting to mention that the case involved consideration of Article 23 of the Lugano Convention (applicable to jurisdiction agreements designating a non-EU Lugano Convention state), which is identical to the rules prescribed under Article 23 of the Brussels I Regulation.
Considering the approach of the French courts in Rothschild, it is more interesting to analyse the practice within the Italian legal system, which also recognises the institution of potestative conditions under Article 1355 of the Italian Civil Code.22 Like in France, historically Italian case law tends to recognise validity of unilateral clauses.23 This approach still remains, as can be illustrated by recent cases considered barely a year before Rothschild.24 For instance, in Grinka in liquidazione v. Intesa San Paolo, Simest, HSBC,25 the Supreme Court of Italy upheld the asymmetric clause, in accordance with which the company agreed to the jurisdiction of the English courts only and the bank was granted the option to submit claims either to the courts of Italy or other courts that can be recognised as a competent forum under applicable international treaties. In this case, the Italian Supreme Court pointed out that such a clause was consistent with the Brussels I Regulation, recognizing the parties' discretion to include such clauses that can be characterised as nonexclusive in nature.26 Although the clause in question was relatively similar to the one in Rothschild, the Italian Supreme Court recognised the validity of the clause, granting only one party the right to choose the forum, although such choice was exclusively at the discretion of that party.
However, the approach of Italian courts is still an exception rather than the rule regarding the application of potestative conditions that are used to declare asymmetric clauses invalid in the European Union. This may be substantiated by the case law of Bulgaria, which although to date has not dealt with disputes arising out of asymmetric clauses under cross-border agreements, has a precedent of domestic nature on the issue. Still, the Bulgarian Supreme Court's arguments allow to draw a conclusion on potential regulation of unilateral clauses in relation to foreign
Convention on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (Apr. 15, 2020), available at https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=C ELEX%3A22007A1221%2803%29.
Claudio Perrella, Italian Supreme Court Considers Unilateral Jurisdiction Clauses, Mondaq, 8 April 2013 (May 7, 2020), available at http://www.mondaq.com/italy/x/231358/Arbitration+Dispute+Resolution/ Italian+Supreme+Court+Considers+Unilateral+Jurisdiction+Clauses.
Corte di Cassazione, No. 2096, Judgment, 22 October 1970, Giustizia Civile Mass., 1970, p. 1103.
Corte d'Appello di Milano, Sportal Italia v. Microsoft Corp., Judgment, 22 September 2011.
Corte di Cassazione, Grinka in liquidazione v. Intesa San Paolo, Simest, HSBC, No. 5705, Judgment, 11 April 2012.
Perrella 2013.
21
22
23
24
25
26
economic contracts. In particular, the Bulgarian Supreme Court in its judgment of 2 September 20''27 decla red invalid the asym metric clause with an a rbitration option providing for the lender's right to bring claims in different arbitration institutions with their seat in Bulgaria.
After the dispute arose, the lender referred the matter to the Arbitration Court of the Bulgarian Chamber of Commerce and Industry, which recognised its competence over the dispute and decided that the borrowers were jointly and severally liable to the lender and obliged to pay the amount of the debt and interest. The borrowers appealed to the Supreme Court of Bulgaria with a request for the annulment of the arbitration award, referring to the lack of competence of the arbitration institution for the consideration of the dispute. In support of the claims, the claimant pointed out that the arbitration clause contradicted the fundamental principles of good faith and procedural equality, and therefore should be invalidated.
The Bulgarian Supreme Court ruled that the creditor's right to choose, at its discretion, the body for resolving a dispute in which it can exercise its right to bring an action, fell under the category of potestative conditions. In view of the potential of enforcement of potestative conditions to cause damage to third parties, their existence is possible exclusively on grounds provided by law, but not as a result of contractual agreements.28 Guided by the above points, the court ruled that the clause violated the law by granting one of the parties the unilateral right to choose the body to resolve the dispute and was invalid in accordance with Article 26(1) of the Bulgarian Law on Contracts and Obligations, under which all contracts concluded in violation or circumvention of the law are considered void. Thus, it can be stated that the reasoning that guided the Bulgarian Supreme Court was very close to the argumentation presented in Rothschild.
Hence, the analysis of the case law shows that the concept of potestative conditions, being of continental legal nature, is directly used in respect of invalidation of asymmetric clauses within European jurisdictions, although recently some of them have taken a contrary approach. Nevertheless, it would be incorrect to identify the application of the potestative conditions principle as the only reason for invalidation of asymmetric clauses, since judicial practice often refers to other general principles of law, which are analysed below.
1.2. Equality of the Parties
As far as forum clauses with asymmetric options confer a wider array of rights only on one of the parties (i.e. an option to choose dispute resolution bodies), some
27 Bulgarian Supreme Court of Cassation, Second Commercial Chamber, Commercial Case No. 1193/2010, Judgment No. 71, 2 September 2011.
28 Gilles Cuniberti, Bulgarian Court Strikes Down One Way Jurisdiction Clause, Conflict of Laws, 13 November 2012 (May 7, 2020), available at http://conflictoflaws.net/2012/bulgarian-court-strikes-down-one-way-jurisdiction-clause/.
jurisdictions, seeking to restore the balance of powers (which is deemed inviolable as will be illustrated below), resort to the principle of equality of the parties. The most striking example in this respect is evolution of the case law of Russian courts. Before turning to the negative approach which evolved in Russian jurisprudence, it should be noted that historically, as in some of the jurisdictions analysed above, Russian courts held that asymmetric clauses are generally valid and legally effective.29
For instance, in Red Barn Capital LLC v. ZAO Factoring Company Eurocommerz,30 the court found that the asymmetric clause was consistent with the Russian law. In this case, the contract included a clause that provided for LCIA arbitration, but with an exception that if one of the parties presents its objections to arbitration before the arbitrators are appointed, it could refer the dispute to a state court.31 In connection with a delay in the fulfilment of obligations, Red Barn Capital LLC brought a claim in the Moscow Arbitrazh [Commercial] Court, which refused to consider the case and ceased the proceedings, citing lack of jurisdiction due to the arbitration agreement concluded between the parties. In the course of subsequent appeals, the higher courts upheld this position, ruling that the clause was valid and the claimant could choose to start proceedings in Russian courts.32 In particular, it was decided that the facility agreement established a wider scope of rights to elect forum for the lender, thus finding it justifiable and feasible that the agreement was aimed to secure the interests of the party exposed to higher risk.
However, the ruling of the Supreme Arbitrazh Court of 2012 marked a stark deviation from this approach,33 and subsequently many specialists and practitioners
29 See, e.g., Постановления Федерального арбитражного суда Московского округа от 22 декабря 2009 г. № КГ-Д40/11983-09, от 23 декабря 2009 г. № КГ-Д40/13340-09, от 12 января 2010 г. № КГ-А40/14014-09 [Rulings of the Federal Arbitrazh Court of the Moscow District of 22 December 2009 No. KG-A40/11983-09, of 23 December 2009 No. KG-A40/13340-09, of 12 January 2010 No. KG-A40/14014-09] (May 7, 2020) available at http://www.garant.ru.
30 Постановление Девятого арбитражного апелляционного суда от 22 сентября 2009 г. по делу № A40-59745/09-63-478; Постановление Федерального арбитражного суда Московского округа от 28 декабря 2009 г. по делу № A40-59745/09-63-478 [Ruling of the Ninth Arbitrazh Court of Appeal of 22 September 2009 in case No. A40-59745/09-63-478; Ruling of the Federal Arbitrazh Court of the Moscow District of 28 December 2009 in case No. A40-59745/09-63-478] (May 7, 2020) available at http://www.garant.ru.
31 James Stacey & Angela Taylor, Unilateral Jurisdiction Clauses in the UK, International Financial Law Review, 23 September 2013 (May 7, 2020) available at http://www.iflr.com/Article/3258087/Unilateral-jurisdiction-clauses-in-the-UK.html.
32 Francesca Albert, Russia: An Improvement in Relations Between the Russian Courts and International Arbitration, Kluwer Arbitration Blog, 28 February 2011 (May 7, 2020), available at http://arbitrationblog. kluwerarbitration.com/2011/02/28/russia-an-improvement-in-relations-between-the-russian-courts-and-international-arbitration/.
33 Постановление Президиума Высшего Арбитражного Суда Российской Федерации от 19 июня 2012 г. № 1831/12 по делу № А40-49223/11-112-401 [Ruling of the Presidium of the Supreme Arbitrazh Court of the Russian Federation of 19 June 2012 No. 1831/12 in case No. A40-49223/11-112-401] (May 7, 2020) available at http://www.garant.ru.
reasonably concluded that clauses of this kind are to be treated as invalid within Russia. This concerned Russkaya Telefonnaya Kompaniya CJSC (RTK) and Sony Ericsson Mobile Communications Rus LLC (Sony Ericsson), a subsidiary of the foreign company incorporated in Russia. The clause in question provided for arbitration through ICC in London by default, but Sony Ericsson was also granted the exclusive right to bring claims before any competent court to consider disputes arising out of the contract. In 2009, RTK brought the claim in Moscow seeking replacement mobile phones of required quality. Pointing out that the contract between the parties included an arbitration clause, Sony Ericsson objected to the court's jurisdiction and the proceedings were terminated at the trial stage.34 This approach was upheld by the appeal and cassation courts, which found the clause consistent with the party autonomy principle. Nonetheless, in a supervisory proceeding initiated by RTK, the Supreme Arbitrazh Court emphasised that equal rights of the parties to bring claims before any adjudicatory bodies and institutions constitute a legal guarantee of fair trial, citing the principles of adversarial proceedings and procedural equality. Thus, considering "the general principles of protection of civil rights," it was pointed out that a jurisdiction clause may not be discriminatory in nature, granting one party the right to present its claims before a competent state court and simultaneously restricting the other party. If included, such a clause violates the balance of the rights and shall be considered invalid. Accordingly, the restricted party is also entitled to bring claims before a competent state court in order to enjoy the right of judicial protection on the same grounds as its counterparty.
The ruling in this case received a lot of discussion and criticism from the Russian legal community, including for lack of clarity on the interpretation of legislative provisions. First, it was not entirely clear whether the Supreme Arbitrazh Court invalidated the clause entirely or just the part of it that was asymmetric in nature,35 and second, whether the mechanism of this clause was converted into a bilateral one that grants both parties rights to choose between arbitration and litigation.36 Therefore, formally the clause was not invalidated, although its design was altered and the agreed mechanism of forum election was deprived of its purpose.
34 Timur Aitkulov & Julia Popelysheva, The Supreme Arbitrazh Court of the Russian Federation Rules on the Validity of Dispute Resolution Clauses With a Unilateral Option, Kluwer Arbitration Blog, 11 September 2012 (May 7, 2020), available at http://arbitrationblog.kluwerarbitration.com/2012/09/11/the-supreme-arbitrazh-court-of-the-russian-federation-rules-on-the-validity-of-dispute-resolution-clauses-with-a-unilateral-option/?doing_wp_cron=1598075183.5103440284729003906250.
35 SeeХодыкин Р.М. Гибридные оговорки о рассмотрении спора // Вестник ВАС РФ. 2012. № 11. С. 64 [Roman M. Khodykin, Hybdrid Jurisdiction Clauses, 11 Bulletin of the Supreme Arbitrazh Court of the Russian Federation 60, 64 (2012)].
36 Егоров А.В. Ассиметричные оговорки о разрешении споров судебная практика заменяет на симметричные // Вестник международного коммерческого арбитража. 2012. № 2. С. 188. [Andrey V. Egorov, Court Practice Replaces Asymmetric Dispute Resolution Clauses with Symmetric, 2 Bulletin of International Commercial Arbitration 186, 188 (2012)].
Even more ambiguity on regulation of asymmetric clauses within Russia was brought by the decision of the Supreme Court of the Russian Federation of 20'5, which after the judicial reform became the highest judicial authority.37 The case concerned a jurisdiction agreement that granted the claimant the choice to bring action before a state court or an arbitration court at its own discretion. Although the lower courts did not recognise the validity of such provisions, the Russian Supreme Court ruled that the clause was valid, as it did not indicate the specific party to whom the option was granted, but only pointed to the claimant as the option holder. Consequently, the phrase "at the choice of the claimant" does not violate the balance of rights of the parties, because at the conclusion of such arbitration agreements the parties to civil proceedings are not discriminated in terms of equality of their procedural rights, as it allows any of them to file a claim either with a competent court or an arbitration institution.
Considering the above, it can be concluded that Russian courts have refused and would refuse to enforce and recognise asymmetric clauses as violating the principle of equality. Recently, the Supreme Court of the Russian Federation confirmed this approach in its report on court practice for 20'8, stressing that asymmetric clauses shall be considered invalid to the extent that they provide for inequality of the parties in the right to choose a forum.38 Although the review does not formally have a precedent, it provides valuable guidance on the approach that Russian courts are likely to take in relation to asymmetric arbitration agreements. Still, parties may include a broader clause providing special options not for a particular party, but rather for a status of this party should a dispute arise. Although such mechanisms can hardly be considered asymmetric in terms of their function, they offer an opportunity to use atypical dispute resolution provisions for parties in their relations.
A similar approach to the invalidity of asymmetric clauses can be illustrated by German practice, where asymmetric clauses as contractual arrangements are not considered invalid in general. In particular, from a procedural perspective, German arbitration law does not establish restrictions on asymmetric mechanisms as such.39 As for contractual regulation, the only applicable rule states that a clause is invalid if it contradicts public policy (Sec. '38 of the German Civil Code). At the same time, if an asymmetric clause is incorporated in the general terms (i.e. represents an
37 Определение Верховного Суда Российской Федерации от 27 мая 2015 г. № 310-ЭС14-5919 по делу № А62-1635/2014 [Decision of the Supreme Court of the Russian Federation No. 310-ES14-5919 of 27 May 2015 in case No. A62-1635/2014] (May 7, 2020) available at http://www.garant.ru.
38 Обзор практики рассмотрения судами дел, связанных с выполнением функций содействия и контроля в отношении третейских судов и международных коммерческих арбитражей (утв. Президиумом Верховного Суда Российской Федерации 26 декабря 2018 г.) [Review of Judicial Practice in Cases Related to the Fulfillment of the Functions of Assistance and Control in Relation to Arbitration Courts and International Commercial Arbitrations, approved by the Presidium of the Supreme Court of the Russian Federation on 26 December 2018] (May 7, 2020) available at http://www.garant.ru.
39 Nesbitt & Quilan 2006, at 147.
agreement of adhesion), it can be invalidated if it is inconsistent with the principle of good faith and unreasonably disadvantages the other party to the contract. Thus, the main difference between asymmetric clauses included in standard and negotiated agreements is that in standard forms the court may only invoke invalidity of the entire clause, while clauses in negotiated contracts are subject to partial invalidation. in particular, the court can interpret the clause in such a way that the parties agreed to arbitration or litigation without limitations, although they know that such limitations are invalid.40 However, court practice shows that sometimes German courts invalidated asymmetric clauses on the basis of equality, especially in cases where the imbalance of the parties' rights was striking.4' Similarly, with regard to domestic arbitration, the German Supreme Court applied national regulations to invalidate a clause granting only one party the choice between different means to resolve the dispute.42
Despite the absence of case law on the validity and enforceability of asymmetric clauses in Polish jurisprudence, legal doctrines and recent changes in the Polish legislation provide an opportunity to draw certain conclusions and make certain assumptions regarding the application of the principle of equality of parties in respect of asymmetric clauses, as in Russia and Germany. in particular, in 2005, Poland adopted a new arbitration statute,43 which is based on the provisions of the UNCiTRAL Model Law. in accordance with Article ''6'(2) of the Polish Civil Procedure Code, arbitration agreements that violate the equality principle, including those that grant only one party the right to bring action in an arbitral or state court, are invalid. This rule arises out of Article 32(1) of the Constitution of Poland, which declares universal equality before the law. initially, according to the schedule of the codification commission, it was planned to invalidate agreements with a unilateral arbitration option to elect a forum for dispute resolution. However, in the course of further legislative work, an approach was adopted whereby provisions of arbitration agreements that violate the principle of equality of parties should be invalidated. Thus, if an arbitration agreement contains a provision on the right of only one party to choose between litigation and arbitration, such an agreement would be considered invalid in terms of granting such a party the right to seek arbitration.44
40 BGH (German Bundesgerichtshof), 04.11.1992 - Viii ZR 235/91, BGHZ 120, 108, 122.
41 BGH, 26.01.1989 - X ZR 23/87, BGHZ 106, 336.
42 Fouchard, Gaillard, Goldman on International Commercial Arbitration 140 (E. Gaillard & J. Savage (eds.), The Hague: Kluwer Law International, 1999).
43 Зенькович Д.И. Асимметричные арбитражные соглашения в России и за рубежом // Международное право и международные организации. 2013. № 4. С. 556 [Dmitry I. Zenkovich, Asymmetric Jurisdiction Clauses in Russia and Abroad, 4 International Law and International Organisations 534, 556 (2013)].
44 Tadeusz Erecinski et al., Kodekspostqpowania cywilnego. Komentarz. Czqsc czwarta. Przepisyzzakresu miqdzynarodowego postqpowania cywilnego. Czqsc piqta. Sqd polubowny (arbitrazowy) [Code of Civil Procedure. Commentary. Part Four: Provisions in the Field of International Civil Procedure. Part Five: Arbitration Court] (Warszawa: LexisNexis, 2009).
Considering the above, it can be inferred that some of the continental jurisdictions would apply more general principles of law with respect to invalidation of forum clauses with asymmetric elements and in particular the principle of equality of the parties. However, even though asymmetric clauses provide an unequal allocation of rights between the parties, the argument that their concept is inconsistent with the procedural equality principle seems rather disputable, as will be illustrated in more details below.
1.3. Mutuality of Obligations
Another common justification for invalidation of asymmetric jurisdiction clauses within both civil and common law jurisdictions is lack of mutuality (i.e. reciprocity) between the parties. Generally, the mutuality principle requires that all terms and conditions of the contract should be applicable to all parties for the contract to be valid and enforceable. Otherwise, the contract must be rejected by the parties as having "an unfair advantage of partially applied rules under any legal agreement."45 England was one of the first jurisdictions that had a tendency to apply the concept of mutuality in respect of asymmetric clauses. Generally, under English jurisprudence, the approach to uphold jurisdiction clauses with unequal obligations has been fairly consistent since the '940s.
For instance, in Woolf v. Collis Removal Service,*6 a landmark case on this subject, the court considered an arbitration clause included in a contract between a warehouse operator and its customer and limiting the latter to bring claims before state courts. The English court found the clause valid, noting that there were no unequal elements to deprive it of the character associated with jurisdiction clauses in general. Nevertheless, already in the '960s, there were contrary decisions, recognizing only those arbitration clauses that granted both parties equal rights to submit claims to arbitration. Analysing a clause granting only one party the right to seek arbitration, the English court in '966 noted:
It is necessary that the arbitration clause be the consent of each party to the transfer of disputes to arbitration, either party should a dispute arise have the right to apply to arbitration[;]
in particular, a clause should be consistent with the principle of mutuality.47
45 See Arthur M. Kaufman & Ross M. Babbitt, The Mutuality Doctrine in the Arbitration Agreements: The Elephant in the Road, 22(2) Franchise Law Journal 101 (2002) (May 7, 2020), also available at https:// heinonline.org/HOL/LandingPage?handle=hein.journals/fchlj22&div=19&id=&page=.
46 Woolf v. Collis Removal Service [1948] 1 K.B. 11.
47 See Gary B. Born, International Commercial Arbitration 733 (Alphen aan den Rijn: Kluwer Law International, 2009).
Following the mentioned approach, until 1986, jurisdiction agreements were to be "reciprocal" in England, that is, to give both parties the same rights to submit a dispute to arbitration. In Tote Bookmakers Ltd. v. Development & Property Holding Co. Ltd.48 it was equally confirmed that the exclusive arbitration option of one party does not actually constitute an arbitration agreement. The rationale in this ruling was based on earlier practice,49 which in fact was not related to arbitration issues. However, this trend was not long-term and the said decision was overruled on the basis of the modern approach. Namely, a watershed in the jurisprudence of English courts was the case of Pittalis v. Sherefettin,50 in which the court refused to recognise the lack of reciprocity in such a clause, referring to the parties' consent to the asymmetric clause. Afterwards, English courts refrained from emphasizing the reciprocity or symmetry principles as grounds for invalidation of asymmetric jurisdiction clauses.
Having considered the English judicial system approach to the application of the mutuality principle, a similar conclusion can be drawn in respect of U.S. courts but with some exceptions.51 In the United States the validity of asymmetric jurisdiction clauses naturally depends on the laws and jurisprudence of each individual state. Prior to the 1990s, a significant number of U.S. courts did not recognise asymmetric arbitration clauses as valid on the basis of the doctrine of reciprocity of obligations. The application of this doctrine can be illustrated by the ruling in Hull v. Norcom, Inc.,52 which concerned an arbitration clause, included in an employment contract, that provided only the employer with the right to bring claims before state courts. Applying the law of New York, the Eleventh Circuit Court of Appeals recognised the arbitration agreement as unilaterally binding and, as a consequence, unenforceable. For the sake of fairness, it should be noted that subsequently in Sablosky v. EdwardS. Gordon Co. this judicial approach was rejected, thereby eliminating the application of any reciprocity requirement regarding the obligation or method of legal protection with respect to arbitration agreements. To a large extent, in its reasoning the court referred to the earlier case law and academic positions that rejected the mutuality doctrine.53
The application of the principle of reciprocity of obligations as a basis for invalidating jurisdiction clauses was also reflected in a number of recent decisions of the Supreme Court of Arkansas. Even nowadays Arkansas, considered a consumer
48 Tote Bookmakers Ltd. v. Development & Property Holding Co. Ltd. [1985] 2 W.L.R. 603.
49 Baron v. Sunderland Corporation [1966] 2 Q.B. 56.
50 Alex Bevan, Optional Arbitration Agreements: The English Position, Commercial Dispute Resolution, 30 November 2011 (May 7, 2020), available at http://www.cdr-news.com/categories/expert-views/ optional-arbitration-agreements-the-english-position.
51 See Vladimir R. Rossman & Morton Moskin, Commercial Contracts: Strategies for Drafting and Negotiating 5-66 (New York: Wolters Kluwer Law & Business, 2013).
52 Hull v. Norcom, Inc., 750 F.2d 1547 (11th Cir. 1985).
53 Walter v. Hoffman, 267 N.Y. 365, 196 N.E. 291 (1935); Epstein v. Gluckin, 233 N.Y. 490, 135 N.E. 861 (1922).
friendly state, remains a highly controversial venue for application of the mutuality principle.54 In particular, in Showmethemoney Check Cashers, Inc., based on the rationale of Hull v. Norcom, Inc., it was decided that the clause lacked reciprocity of obligations, as the arbitration agreements
cannot be used as a shield against a judicial procedure initiated by the other party, while preserving only for the first party the sword of prosecution.55
This was upheld in E-ZCash Advance, Inc. v. Harris, which emphasised that
The reciprocity of obligations is absent when one of the parties uses an arbitration agreement to protect itself from the trial, while retaining the right to seek protection in the judicial system.56
Interestingly, this case concerned a symmetrical arbitration clause that did not apply to disputes falling under the jurisdiction of small claims litigation. However, the court decided that since it was not possible to assume on what other grounds the lender would have had to submit to arbitration its claim against the borrower, there was no reciprocity of obligations in the arbitration clause and, therefore, it was unenforceable.
Following the English courts' approach, U.S. courts have also grown to accept the doctrine of reciprocity, on the basis of which courts previously refused to execute a jurisdiction clause granting only one party the right to seek arbitration. However, as it is fairly pointed out by some scholars, the doctrine of reciprocity has completely lost its meaning under contract law, as a result of which its application to jurisdiction clauses in support of the need to give all parties the same rights is no longer relevant. The mechanism of a unilateral clause is now generally considered an appropriate way for parties to exercise their autonomy of the will with respect to the dispute resolution procedure, unless such procedure is recognised as unfair in accordance with the applicable law.57 At the same time, it should be acknowledged that this conclusion is not absolute, since rulings still appear in which asymmetric arbitration clauses are invalidated because of violation of reciprocity requirements.58
Despite the fact that the practice of Australian courts with regard to asymmetric clauses is not as extensive as in the united Kingdom or the united States, there
54 Katherine B. Church, Arkansas and Mandatory Arbitration: Is the Feeling Really Mutual, 65(2) Arkansas Law Review 343 (2012).
55 Showmethemoney Check Cashers, Inc. v. Williams, 342 Ark. 112, 27 S.W.3d 361 (2000).
56 E-Z Cash Advance, Inc. v. Harris, 347 Ark. 132, 60 S.W.3d 436 (2001).
57 Born 2009, at 733-734.
58 See, e.g., Gonzalez v. West Suburban Imports, Inc., 411 F.Supp.2d 970 (N.D. Ill. 2006); Wisconsin Auto Title Loans, Inc. v. Jones, 280 Wis. 2d 823 (Wis. Ct. App. 2005).
is nevertheless an interesting precedent that allows to draw some correlations within the common law perspective on the regulation of asymmetric jurisdiction clauses based on the mutuality doctrine. The case concerned a dispute arising from a construction agreement with a clause providing that the contractor would enjoy its exclusive right to initiate proceedings before the arbitral tribunal only if the contractor satisfied the multistep pre-trial procedure.59 Unlike the appellate court, the Supreme Court came to the conclusion that such clause constituted an arbitration agreement to the extent that the applicable law
extends to an agreement whereby the parties are obliged if an election is made, particular event occurs, step is taken or condition is satisfied (whether by either or both parties) to have their dispute referred to arbitration.60
Hence, in this case the mechanism of forum election was recognised as an asymmetric clause that could be invoked by the beneficiary if the prescribed procedure was followed. At the same time, the Court recognised the validity of such clause as no restrictions to choose forum are established within the Australian legislation. It is important to note that the analysed decision was predominantly based on English jurisprudence and academic views, which once again proves the existence of patterns in approaches to asymmetric clauses among common law countries.
Most post-colonial jurisdictions have also adopted the approach of common law courts, which by that time had already reconsidered the applicability of the mutuality principle with respect to asymmetric clauses in Pittalis. For example, in one of the most cited cases before the Hong Kong Court was the question of the validity of a non-standard jurisdiction clause. While the clause was not asymmetrical in nature, the case had important implications with regard to the subject.61 The dispute in question involved an arbitration clause, according to which, if the parties were unable to settle their differences amicably, the customer was required to notify the contractor whether the differences were settled and such decision was binding until the moment when the project was considered completed. If the contractor was not satisfied, it had to notify the customer on the referral of the dispute to arbitration within 15 days following the receipt of the decision.
As a result, the contractor filed its claims with the court and the customer subsequently objected. Citing Pittalis, the court recognised the validity of such clause under Article 8(1) of the UNCITRAL Model Law,62 noting that failure to refer the dispute to arbitration by one of the parties did not make the clause unenforceable,
59 PMT Partners Pty. Ltd. (In Liq.) v. Australian National Parks & Wildlife Service [1995] H.C.A. 36; (1995) 184 C.L.R. 301.
60 Id. at 323.
61 China Merchant Heavy Industry Co. Ltd. v. JGC Corp. [2001] 3 H.K.C. 580.
62 UNCITRAL Model Law on International Commercial Arbitration 1985, U.N. Doc. A/40/17, Annex I.
on the basis of which the court stayed the proceedings. Considering the above, two main conclusions may be drawn. First, if the party that enjoys the option to arbitrate fails to exercise such right within a particular time limit, it will be left without legal opportunity to bring claims before Hong Kong courts for their resolution. Second, asymmetric clauses are likely to be recognised as valid by Hong Kong courts, which tend to follow the English courts' approach in this respect.
Like in Hong Kong, the courts of Singapore have followed the English approach. Namely, in 20'6, the High Court of Singapore addressed the question on unilateral jurisdiction clauses in considering a dispute arising out of a construction contract providing one of the parties with the exclusive right to refer a dispute to arbitration if it is not resolved by means of mutual negotiation.63 As a result of failure to reach a settlement, the option holder filed a claim with a state court rather than an arbitral tribunal, which was later unsuccessfully objected by the counterparty. In particular, the High Court of Singapore in its line of argumentation determined that the clause was valid due to the following reasons: first, mutuality is not recognised as a vital element of an arbitration agreement under the Singapore legislation on commercial arbitration; and second, only mutual consent of the parties to conclude an agreement plays a material role for the validity of the clause, even if it provides for an asymmetric allocation of rights.
Generally, Singapore courts have affirmed validity of asymmetric clauses, stipulating, however, that they can become inefficient if the party with the exclusive option decides to choose a court instead of an arbitration tribunal; hence, arbitration remains an option rather than an obligation for future disputes (i.e. "future optionality"). That said, there were no objective grounds to suspend proceedings, since the relevant party had already taken advantage of one of the options designated under the clause. Since the High Court of Singapore did not draw a distinction between the types of asymmetric agreements, including arbitration agreements, which make arbitration mandatory subject to an express right to opt for litigation, the decision can be interpreted as a broad endorsement of the validity of forum clauses with asymmetric elements.
Apart from the Asian jurisdictions mentioned above, some interesting cases also emerged in Indian court practice. Enforceability of asymmetric clauses in India is more controversial due to inconsistent case law. Namely, historical analysis of Indian court practice shows that courts in Delhi tend to invalidate asymmetric jurisdiction clauses. This approach was rooted in Indian law, which stipulates that arbitration agreements are subject to the principle of mutuality. In particular, the High Court of Delhi concluded that asymmetric clauses are invalid since prior to the moment when the beneficiary elects the forum there is a lack of the mentioned mutuality.64
63 Dyna-Jet Pte Ltd. v. Wilson Taylor Asia Pacific Pte Ltd. [2017] 1 Lloyd's Rep. 59.
64 Union of India v. Bharat Engineering Corp. ['977] '' I.L.R. (Delhi) 57.
Nonetheless, recent approaches within Indian court practice can show the contrary. For instance, the Calcutta High Court declined to follow the previous reasoning and came to the subsequent decision that an asymmetric clause is binding and effective as far as the parties agreed to enter into it, even though the enforceability of such clause is subject to one party's intention.65
Furthermore, several recent cases, albeit not directly related, may indicate a tendency to uphold symmetry as such within the legal field of India. Namely, in these cases the Indian courts did not invalidate the clauses with unilateral right to appoint the arbitrator.66 Nonetheless, we believe that this conclusion should be taken with caution as it is more likely that Indian courts will also consider some general principles of procedure in deciding on their jurisdiction, including convenience of the proceedings, the interests of justice and other. Thus, even though some recent case law supports validity of asymmetric provisions in forum clauses, there is still uncertainty on their recognition within India and the regulation regime is far from settled. Whilst the position to recognise such clauses as valid would correspond to the general approach evolving in common law jurisdictions and would fairly uphold parties' intention at the time of drafting of asymmetric clauses, further clarity is needed.
Summarizing the above, the mutuality principle can be considered as one of the most common justifications for invalidation of asymmetric clauses, especially in common law jurisdictions, although most of these jurisdictions have reassessed their approach with its application.
1.4. Good Faith
In the middle of the 1990s, U.S. courts, in invalidating asymmetric arbitration clauses, in order to justify the need for an element of reciprocity in an arbitration clause, began to apply the doctrine of good faith,67 which implies multilateral nature of contractual terms. The prevailing case law was made in California, where the legislation recognises the existence of substantial bad faith in arbitration agreements where the "weaker" party is entitled to bring claims before arbitration only, while the "stronger" one has the right to elect from various mechanisms of dispute settlement, including litigation. However, legal literature mentions that asymmetric arbitration clauses are expressly prohibited by Californian law as contradicting the good faith principle and one of the signs of this is the lack of reciprocity in such agreements.68 The forerunner of the U.S. court rulings that demonstrated the transition to the application of the principle of good faith was Armendariz v. Foundation Health
65 New India Assurance Co. Ltd. v. Central Bank of India & Ors, A.I.R. 1985 Cal. 76.
66 See, e.g., TRF Ltd. v. Energy Engineering Projects Ltd. [2017] 8 S.C.C. 377.
67 See David Horton, Unconscionability Wars, 106(1) Northwestern University Law Review 387 (2012).
68 Benjamin T. Duranske, Virtual Law: Navigating the Legal Landscape of Virtual Worlds 383 (Chicago: American Bar Association, 2008).
PsychcareServices, Inc. In this case the employees contested a forum clause, which by default mandated arbitration of all disputes related to unlawful dismissal, while the employer was solely empowered to bring claims before the court, thereby having more chances to protect its interests. In the ruling it was noted that the arbitration clause was included in the employment contract, which in its nature was a contract of adhesion and the terms of which could not be discussed or negotiated. Thus, attention was drawn to the need for a "modicum of mutuality" in order for the arbitration clause in the contract of adhesion to be enforceable. The court explicitly emphasised that its decision was based on the doctrine of good faith, not mutuality, explaining that restricting the methods of legal protection caused the recognition of the arbitration clause to be "biased and unfair."69
It is also worth to mention the case of Arnold v. United Companies Lending Corp., where an asymmetric clause was recognised as violating the principle of good faith, which made it unenforceable in the contract between the lender and the borrowers (i.e. individuals). The arbitration clause in this case provided for the default referral to arbitration of all disputes related to the loan. At the same time, the creditor was granted the right to bring action in some courts of general jurisdiction in certain categories of disputes, including debt collection. The court concluded that the relative positions of the parties were "extremely unequal"; the terms of the contract were "unreasonably favourable with respect to the lender."70 Unlike similar cases, decisions on which had previously been based on the doctrine of reciprocity of obligations, the West Virginia court reached a similar result by applying the doctrine of good faith.
A few months later, the Montana Supreme Court came to a similar conclusion in Iwen v. U.S. West Direct.7' In this case, an attorney sued the company U.S. West Direct with a claim for damages caused by improperly indicating his phone number in an advertisement posted in a telephone directory. The included arbitration clause stipulated referral of all disputes to arbitration except for the requirements of U.S. West Direct about recovery of debts under the contract. Having established that the clause formed a part of a contract of adhesion, the terms of which the claimant could not negotiate, the court declared that the clause violated the principle of good faith. Subsequently, this decision was taken as the basis for the decision of the Ninth Circuit Court of Appeals in the case of Ticknor v. Choice Hotels Intern., Inc. concerning the validity of an arbitration clause incorporated in a franchise agreement.72
Thus, a conclusion can be drawn that in some states courts still view the application of asymmetric arbitration clauses unfavourably, especially with regard to agreements concerning employment and consumer matters. For instance, some U.S. courts refused
69 Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (2000).
70 Arnold v. United Companies Lending Corp., 204 W.Va. 229, 5'' S.E.2d 854 ('998).
7' Iwen v. U.S. West Direct, 293 Mont. 5'2, 977 P.2d 989 ('999).
72 Ticknor v. Choice Hotels Intern., Inc., 265 F.3d 93', 94' (9th Cir. 200').
to recognise asymmetric clauses in employment contracts due to violation of the good faith principle, i.e. such a clause cannot be enforced under the general principles of contract law as being unilateral and unfair.73 This approach is especially characteristic of courts which express "hostile attitude to arbitration agreements in general" in disputes involving "domestic" arbitration clauses.74 The same is substantiated by the legal opinion prepared for the Federal Trade Commission and the U.S. Department of Commerce on the use of alternative methods of resolving disputes in transactions involving consumers in the online market.75 In particular, the document states that many arbitration clauses compiled by large companies and imposed on individuals provide for the obligation of an individual to refer a dispute to arbitration for resolution, while the company has the right to choose from various mechanisms of dispute settlement.
Generally, the thesis of some American scholars that at present courts in the U.S. "have not come to a consensus on the feasibility of" asymmetric jurisdiction clauses remains quite relevant.76 Within the U.S., some courts cite non-observance of the principle of mutuality or violation of the good faith principle to invalidate such clauses. For instance, in Hull Dye & Print Works Inc. v. Riegel Textile Corp. the court concluded that the clause that granted the right to seek arbitration to only one party lacked reciprocity and could not be enforced. Similarly, in Kaye Knitting Mills v. Prime Yarn Co., Inc. the U.S. court quashed the arbitral award, pointing out that neither the agreement granting the right to arbitration to only one of the parties (invalidated by the court) nor the decision rendered on the basis of such an agreement was binding on the claimant. Meanwhile, other courts come to the opposite conclusion. Thus, the trend to invalidate asymmetric clauses within the U.S. jurisprudence, although not dominant, still appears.77 Furthermore, those U.S. courts that invalidate asymmetric arbitration clauses adhere to the approach according to which these arbitration clauses are unfair to consumers. Thus, considering the above, asymmetric clauses are recognised under the U.S. jurisprudence, unless such clauses violate the principle of good faith, which operates in addition to the principle of mutuality.
1.5. Party Autonomy
Among the various analysed examples that have established less favourable treatment of asymmetric provisions in forum clauses, the English case of NB Three
73 See Roger L. Miller & Gaylord A. Jentz, Business Law Today 95 (9th ed., Mason: South-Western College/ West, 2010).
74 Born 2009, at 735.
75 International Trade Administration, Department of Commerce; Federal Trade Commission, Public Workshop: Alternative Dispute Resolution for Consumer Transactions in the Borderless Online Marketplace, 65 Fed. Reg. 7831 (2000).
76 See John Dewar, International Project Finance: Law and Practice 448 (New York: Oxford University Press, 2011).
77 Christopher R. Drahozal, Nonmutual Agreements to Arbitrate, 27(4) Journal of Corporation Law 540 (2002).
Shipping Ltd. v. Harebell Shipping Ltd., where the principle of party autonomy was emphasised, should also be mentioned. This was the first case that referred to practical operation of asymmetric clauses. The clause in question provided that the charterers were restricted from bringing any claims before courts of England, while the owner of the ship was also entitled to seek either arbitration or litigation in an English or other court considered competent under applicable international treaties. In the course of the dispute, the charterers initiated proceedings in England, while the owner exercised its option to arbitrate. The court stayed proceedings, emphasizing that the purpose of the arbitration law in England was to give parties autonomy to select a forum and generally pointing out that there was nothing contradictory to contractual principles in granting one party a "better" position with respect to choice of the forum.78
This approach was also upheld in Law Debenture Trust Corp. PLC v. Elektrim Finance BV& Ors.7 Although the matters under dispute were different from those settled in NB Three Shipping, the English court noted that the asymmetric clause should be treated in the same way as any other advantageous term of a contract, not as a deficiency. In particular, the default forum under the trust deed was arbitration with the trustee's exclusive right to bring a claim before courts of England. Once the guarantor commenced arbitration proceedings, the trustee brought an action in court, claiming that its option was still valid. Based on the plain wording of the clause, the court pointed out that the beneficiary of the clause was entitled to exercise its exclusive option if it had not taken part in the action already initiated and there was no reasonable ground for the counterparty to assume that the beneficiary would not use the granted right. Otherwise, had the trustee brought its claims in an arbitration proceeding or failed to object thereto, it would have waived its right to opt for litigation. Taking into account the absence of actions to indicate such waiver, the court proceeded with the case emphasizing, inter alia, that it was in the guarantor's interest to agree and try to figure out what forum should be selected in order to avoid extra expenditures.
The mentioned cases demonstrate that English jurisprudence is quite consistent in upholding asymmetric jurisdiction agreements, although there are a relatively small number of judicial cases where a party without options tried to challenge clauses on the basis of optional nature. In most jurisdictions where there is a risk of parallel proceedings, the principle of primacy is essential, i.e. the court first seised has jurisdiction. As for the cases analysed, the outcomes were different and the courts found that the rationale of asymmetric clauses was for the protection of the beneficiary's interests and thus its exclusive option was preserved even when the counterparty had already started the proceedings.
78 NB Three Shipping Ltd. v. Harebell Shipping Ltd. [2005] 1 Lloyd's Rep. 509.
79 Law Debenture Trust Corp. PLC v. Elektrim Finance BV & Ors. [2005] 2 Lloyd's Rep. 755.
Most recently, the validity of unilateral optional arbitration clauses was similarly confirmed by the rulings in Deutsche Bank AG v. Tongkah Harbour Public Co. Ltd. and Deutsche Bank AG v. Tungkum Ltd. and Mauritus Commercial Bank Ltd. v. Hestia Holdings Ltd. and another.80 In the latter case the asymmetric jurisdiction clause fell outside the Brussels I Regulation as far as the parties, being domiciled in India and Mauritius, stipulated that jurisdiction of the English courts was a default rule, but granted one of the parties the right to commence proceedings in "any other courts in any jurisdiction." The option holder commenced proceedings in England, whilst the other party challenged the English courts'jurisdiction on the basis that the effect of the option was so unreasonable as to be inconsistent with English public policy. Applying English law, the court interpreted the clause to refer to "any court which would regard itself as of competent jurisdiction" and held that it was effective. It was also noted, referring to the reasoning in Rothschild, that even if the clause were to be interpreted as allowing the option holder to commence proceedings in any court in any jurisdiction, this would still have been enforceable on the basis of the party autonomy principle. Consequently, the rationale of the English courts in all the above-mentioned cases was that since the asymmetric clauses were agreed upon for the needs of the businesses, they should be considered valid even with the provision of unequal allocation of rights.
Nevertheless, the question of how the English courts would treat asymmetric clauses where a party is an individual becomes of current interest. Some authors suggest that, although asymmetric clauses are typically used in commercial agreements, companies as parties to such clauses do not constitute a formal condition for their effectiveness and validity.81 At the same time, the result may be different in cases involving a consumer protection regime or clause assessment under the reasonableness test under the Unfair Contract Terms Act 1977.82 Still, the significance of the analysed cases is very high, since it is very likely that they will serve as a reference point for courts in other common law jurisdictions.
It is interesting to mention that, although most civil law jurisdictions tend to invalidate asymmetric clauses, the latest case law of some countries within the European Union has taken a more progressive approach in this regard. In particular, case law of Spain shows that generally the concept of unilateral dispute resolution provisions is consistent with national legislation and its interpretation under regional regulation of the European Union, even though it runs contrary to the dominant approach of French courts. As for case law of Spain, until recently the issue of asymmetric clauses did not arise before the Spanish courts. However, in 2013, the Madrid Court of Appeal considered a dispute between Spanish and Dutch companies
80 Berard et al., supra note 5.
81 Draguiev 2014, at 26.
82 Unfair Contract Terms Act 1977 (May 7, 2020), available at https://www.legislation.gov.uk/ukpga/1977/50.
concerning a clause that provided for alternative jurisdiction of arbitration and litigation bodies in the Netherlands.83 The court declared the asymmetric clause valid and consistent with Spanish law, referring to the principle of party autonomy and thus finding lack of jurisdiction to consider the merits of the dispute. It is more interesting to note that the Spanish court indicated that the recognition of unilateral clauses as valid is consistent with the practice in other jurisdictions. However, as noted previously, still the main tendency within civil law countries centres on invalidation of such dispute resolution provisions in contracts.
Hence, the evolution of the judicial practice from the rejection of unilateral provisions in jurisdiction agreements to their recognition within England can be noted. At the same time, unlike the French cases, the English decisions take a much stricter approach to enforcing the parties' expressed choice. Asymmetric options are considered enforceable and legitimate, and the asymmetric nature of an agreement is not regarded as a cause for invalidation.
2. Asymmetric Jurisdiction Clauses Under the Principles of International Civil Law and Procedure
Considering the analysis above, several arguments can be constructed on the basis of which courts would treat unilateral clauses as null and void. In spite of these arguments, which seek to outline the pitfalls associated with the view that asymmetric clauses should be invalid, if it is assumed that a unilateral clause nevertheless features a significant defect, it becomes even more important to consider the possible avenues to sever the defective provision and preserve the agreement between the parties, although not with the initial content wholly intact. There should be a policy basis underlying the particular instruments suggested to be used for rectification. This section considers the most common grounds for invalidating asymmetric jurisdiction clauses as well as the possible ways of their reassessment.
2.1. Party Autonomy and Contractual Principles
Party autonomy is a fundamental principle of every legal system, and private international relations are not an exception in this regard. Still, as shown above, some of the national adjudicatory bodies express positions that interpret this principle much more broadly, in such a way that sometimes the "weaker" party tries to use this interpretation for the purpose of ex post protection of its interests by declaring the asymmetric jurisdiction clauses null and void. Nonetheless, it is difficult to deny the fact that the concept of jurisdiction clauses is the quintessential expression of the party autonomy principle. As far as both parties to the agreement clearly expressed
83 See Paula Hodges QC et al., Madrid Court of Appeal Affirms Optional Dispute Resolution Clause, Lexology, 13 December 2013 (May 7, 2020), available at https://www.lexology.com/library/detail. aspx?g=700f5036-8e7d-4579-bc49-315b9455d1a2.
their intention to derogate from the established jurisdiction and adopt a specific mechanism for resolving a potential dispute, there is no reason to invalidate an asymmetric jurisdiction clause completely and render it ineffective unless the defect involves a fundamental violation, such as coercion, error, dishonesty, incapacity or other legal issues.
Thus, the general approach adopted by courts should be in favorem validitatis.84 At the same time, interpretation of asymmetric clauses should be based on their special features, including their complex and optional nature that provides unilateral benefit to one of the parties. Consequently, if a court interprets a clause in a way that damages its cohesion and integrity, preservation of party autonomy should be of first priority, although it can be done partially. In other words, norms of applicable private international law should not have effect and establish the jurisdiction which would be determined if parties had not included any clause. Contrary to that, national courts, when considering the validity and enforceability of asymmetric clauses, should take into account that the parties have explicitly agreed and expressed that they wish for their dispute to be considered and adjudicated in a certain manner, which is far different from what is generally expected.
This argumentation can be similarly applied to asymmetric clauses with a more complex design, providing both arbitration and prorogation options. Nowadays, arbitration, being independent from state courts'jurisdiction, is becoming increasingly popular, as it is associated with an impartial and confidential procedure, as well as a more flexible and efficient dispute resolution mechanism. Most jurisdictions with a favourable policy in respect of arbitration commonly adopt or implement rules envisaged in the UNCITRAL Model Law (e.g. German Civil Procedure Code, Sec. 1032; French Civil Procedure Code, Arts. 1446 and 1448; U.S. Federal Arbitration Act, Sec. 3; Law of the Russian Federation No. 5338-I on International Commercial Arbitration, Art. 8),85 including the rules requiring court proceedings to be stayed or terminated, thus providing an effective and independent arbitration regime. Recent court practice of civil law countries also suggests that the presence of an arbitration clause should be interpreted in favour of the parties' intention to ensure that their disputes are decided by the arbitral tribunal. For instance, this position was taken by the German court, which affirmed the same conclusion stressing its universal application.86 Considering this, it seems that there are enough reasons to promote such approach as a general principle in the treatment of asymmetric clauses.
Another reason for invalidation of asymmetric jurisdiction clauses is indirectly linked to the principle of party autonomy, including the institution of potestative conditions, which was discussed previously. In the classical approach under the
84 See Fouchard, Gaillard, Goldman on International Commercial Arbitration, supra note 42, at 262.
85 Draguiev 2014, at 35.
86 SchiedsVZ 2007, 215 (Heft 4) IHR 4/2007, 163 f.
continental doctrine, potestative conditions are dependent on the intention of one of the parties. Therefore, they are typically considered void, since the debtor may unilaterally effect changes in the position of the other party and even, more importantly, evade its obligations. Currently, potestative conditions that depend on the debtor are to some extent prohibited in jurisdictions of the French approach (e.g. French Civil Code, Art. ''74; Quebec Civil Code, Art. '500; Italian Civil Code, Art. '355; Spanish Civil Code, Art. '.''5), despite the fact that there is no formal prohibition of such conditions under the control of the creditor. In the newest European codifications (i.e. the Civil Code of the Netherlands, German Civil Code) and the acts of the unification of private law (i.e. the UNIDROIT Principles, the Principles of European Contract Law) there is no prohibition of conditions on the debtor's side.87
Nowadays, the question on the application of this legal institution to jurisdiction clauses, as illustrated above, remains rather controversial, although such clauses provide an option to one of the parties and serve as a preventive mechanism against optional, arbitrary, unpredictable or unilateral actions of another.88 Nonetheless, the model of creditor-debtor relationships is deemed to be unsuitable for the institution of jurisdiction clauses, which aimed to designate a relationship that would form in case of escalation of a dispute.89 Whilst jurisdiction clauses constitute a procedural contract under the continental approach, it is still difficult to identify the parties thereto as simply a creditor and a debtor, since in this case the transfer of property or proprietary rights is completely absent, and the rights arising in favour of the parties have a completely different character. It is presumed that the use of potestative conditions aims to prevent unilateral exercise of discretionary powers under an agreement between private parties. Nonetheless, if such power is deemed present, would it be exercised subject to a set of requirements agreed in advance? The purpose for the application of potestative conditions in this case would be lost, and it can be assumed that a one-sided jurisdiction clause by its nature appears to contain preconditions, i.e. an arising dispute cannot be considered as arbitrary.
However, this conclusion can be hardly applied from an arbitration perspective, especially considering such cases as NB Three Shipping Ltd. v. Harebell Shipping Ltd. In the mentioned case the beneficiary of the arbitration option was granted power to prevent judicial proceedings under the clause. At the same time, it should be noted that there would be no efficiency or sense in the arbitration element of the clause if it
87 See Агеев А.В. Проблемы регулирования потестативных условий // Вестник экономического правосудия Российской Федерации. 2015. № 1. С. 84-106; № 2. С. 39-87 [Alexey V. Ageev, Regulation Problems of Potestative Conditions, 1; 2 Bulletin of Economic Justice of the Russian Federation 84; 39 (2015)].
88 See Jacques Ghestin, La notion de condition potestative au sens l'article 1174 du code civil in Etudes dédiées à Alex Weill 243 (Paris: Dalloz, 1983).
89 Pascal Ancel & Gilles Cuniberti, One Sided Jurisdiction Clauses - A Casenote on Rothschild (2013) (May 7, 2020), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2226551.
did not involve such an advantage. From the commercial perspective, this argument becomes even more relevant and shows the general approach of English courts to support the justification of business considerations in contracts. The mentioned case acts as the only case on this issue, because the subsequent practice did not face the same type of clauses. Even though English law may endorse such an approach, it is not clear whether other jurisdictions will follow the same interpretation and how a similar jurisdiction clause will function under particular national legislation on arbitration.
Although the principle of mutuality is of a great significance, connoting such concepts as equality and justice, still "symmetry is not justice and the so-called requirement of mutuality of obligation is now widely discredited."90 However, some courts did not refuse to find asymmetric clauses invalid solely due to the fact they were inconsistent with the reciprocity principle. Such conclusions are riskier in commercial conditions, where a certain extent of inequality and imbalance in allocation of the parties' rights and obligations is a natural aspect of contractual and business relations.
2.2. Balance and Equality of the Parties
The predominant number of precedents on asymmetric clauses concerns financial and other contractual arrangements between commercial organisations, thus posing a question whether courts have sufficient level of competence to renegotiate and alter conditions of contracts intentionally established between business entities. Despite the fact that having stronger negotiating and bargaining power, lending and financial institutions most commonly act as option holders, the commercial essence of credit facility relationships predetermines such more favourable provisions, which can result in an obvious imbalance of the parties' rights.
According to the civil law doctrine, private relationships generally can be divided into general ones and those of commercial nature, which may arise only between enterprises that engage as professional business entities and consequently enjoy a different status. Contrary to that, the common law approach does not draw such a strict line of a commercial setting, trying to use objective criteria and considering whether the contract involves business turnover or not.9' However, the common feature of both legal systems is that they developed a lexspecialis of consumer regime, which has a higher level of protection compared to the "commercial" one, although there is no universal concept or exact definition.92
Generally, it can be presumed that the risk of an asymmetric clause being invalidated is higher if the parties to such agreement are individuals, especially
90 Drahozal 2002, at 543.
91 See, e.g., Commercial and Consumer Law 10 (M. Furmston & J. Chuah (eds.), Harlow: Pearson, 2010).
92 See Comment to the Preamble to the UNIDROIT Principles 2010, para. 2 (May 7, 2020), available at https:// www.unidroit.org/instruments/commercial-contracts/unidroit-principles-2010/418-preamble/862-preamble-purpose-of-the-principles.
consumers. From the theoretical viewpoint, it is quite logical and reasonable. Still, in some jurisdictions the right of the consumer to derogate from the special regime is strictly limited or even completely excluded (e.g. German Civil Procedure Code, Sec. 1031; Austrian Civil Procedure Code, Sec. 617; Swedish Arbitration Act, Sec. 6; italian Civil Code, Arts. 1341 and 1342).93 Nonetheless, the reasoning in some of the analysed court decisions is not based on the subjects' status, for instance, in the Rothschild case. Consequently, these decisions seem to generally favour invalidation of asymmetric clauses. Additionally, it raises the question on justification for the distinction between relationships that are commercial in nature and those that are not: in most situations, courts seem to uphold arguments based on the equality and imbalance of the parties despite their actual status.
More often, such imbalance lies in the very process of drafting a jurisdiction clause, which as mentioned previously can be an obvious and inherent feature of the parties' relationship, especially with regard to their negotiating status and power. Thus, in fact, one of the parties has to comply and agree with the disadvantageous conditions of the clause and the whole agreement in general. At the same time, it should be noted that commercial contracts may contain many similarly unbalanced terms, which are not deemed invalid unless they violate peremptory norms of law.94 in such situations, courts tend to turn to more general and amorphous principles, such as justice, morality and good faith; however, the interpretation and application of such provisions is explained on a case-by-case basis, which impairs their universal applicability.95 it appears that this entire approach has more negative consequences, since it not only violates the certainty of interpretation, but also allows to break down any agreed provision.
At the same time, in the event of a dispute where one of the parties has chosen the institution to submit the claim, the choice of the court crystallises, excluding the possibility of seeking another dispute resolution venue. Hence, as some authors note, the imbalance would be automatically addressed at the stage when the dispute is actually settled. However, the same conclusion is not applicable to situations where a jurisdiction clause establishes an imbalance of interests with regard to the dispute resolution procedure itself, for example, when the procedure for appointing arbitrators or provision of evidence is less favourable to one of the parties. Consequently, such imbalanced features would be valid after the choice of a competent institution is authorised.
As a rule, legal literature, as well as some jurisprudence, considers a clause asymmetric if it grants one of the parties a more favourable position in terms of choosing a dispute resolution body. Still, this position is rather disputable since
93 Commercial and Consumer Law, supra note 91, at 113.
94 Law Debenture Trust Corp. PLC v. Elektrim Finance BV & Ors., supra note 79.
95 See, e.g., Jean-Louis Bergel, Théorie générale du droit 185 (Paris: Dalloz, 2003).
asymmetric clauses only provide a wider range of rights to one of the parties, but do not limit or waive discretion of the other.96 in other words, each party to such clauses still has the right to bring claims and select a venue to present them. However, under asymmetric jurisdiction clauses, the "weaker" party (more often the debtor) always tends to claim violation of its rights on the basis of unequal position, but this cannot be considered fair. Usually asymmetric clauses are used in loan agreements or other financial instruments and give the right to choose the forum to the creditor. Such allocation of the rights seems quite balanced as far as it is the creditor who needs additional remedies for the protection of the money it lends. Thus, in the normal course of events the creditor should be able to choose which court to use to get its money back, and there is no violation of the borrower's rights, since it has no need to seek dispute resolution.
An alternative argument regarding violation of balance between the parties refers to the equality principle, which presupposes fair trial and efficient procedure and is directly violated by the mere principle of asymmetric clauses. For instance, as noted by the European Court of Human Rights, procedural equality
implies that each party must be afforded a reasonable opportunity to present his case ... under conditions that do not place him at substantial disadvantage vis-à-vis his opponent.97
Although the significance of the principle of equality of the parties is quite obvious,98 still, some scholars suggested that it is proper to apply this principle to a procedure that has already commenced. Meanwhile, asymmetric clauses provide the option for election of a dispute resolution venue and lack effect on the arbitration or litigation procedure itself. For instance, this was confirmed in Mauritius Commercial Bank Ltd. v. Hestia Holdings Ltd. & Sujana Universal Industries Ltd., where the court pointed out that the equality principle implies the "access to justice within the forum chosen by the parties, not to choice of forum."99
Nevertheless, it is worthwhile to consider in more detail the question of why the principle of equality of the parties is still not absolute. Firstly, the requirement of equal access to justice cannot be realistically applied in such a way that each party is actually on an equal footing in legal proceedings. This altruistic assumption is necessarily divorced from the complex realities of international commercial litigation, where equality at best is an illusion. Secondly, it is difficult to understand why a freely concluded contract, in
96 Draguiev 2014, at 34.
97 ECtHR, Dombo Beheer B.V. v. The Netherlands, Appl. No. '4448/88, Judgment, 27 October '993.
98 See European Convention for the Protection of Human Rights and Fundamental Freedoms, as amended by Protocols Nos. 11 and '4, 4 November '950, E.T.S. 5, Art. 6.
99 Mauritius Commercial Bank Ltd. v. Hestia Holdings Ltd. & Sujana Universal Industries Ltd. [20'3] E.W.H.C. '328.
the absence of severe violations of rights and intentions (e.g. bad faith or fraud), can be considered as a violation of the rights of the party. In an alternative but still related context, case law demonstrates that a party that admitted the exclusive jurisdiction of English courts cannot bring claims concerning violation of rights under Article 6 of the European Convention on Human Rights if an English court grants an injunction to prevent it from filing a claim elsewhere.'00 Even if Article 6 is involved in this context, it is rather disputable that it would apply to the party's choice of jurisdiction.
That said, the principle of parties' equality, as envisaged under the ECHR, concerns the procedural position of the parties before a particular adjudicatory body, but not equality of choice of venue for trial. Thus, some involuntary restrictions of a party's right to bring a claim, e.g. an injunction against a lawsuit that deprives the petitioner of an opportunity to sue in any place, may generally violate the requirement of access to justice. The principle will also be violated if the effect of limiting the choice of forum can be to force them into a court in which they do not receive substantial justice, but in such cases inequality in the choice of forum is not the source of injustice. The source of injustice is rather the scope of civil rights and duties of the party in court, which deprives them of a fair and impartial trial leading to a miscarriage of justice.
Considering the above, the question of whether the principle of equality can be applied to asymmetric clauses, which in turn do not affect the proceedings as such, becomes relevant. Meanwhile, the other most likely conclusion is that the mechanism under the clause is structured in such a way that the court (or arbitration institution) chosen in advance is one where the parties are in principle deprived of a fair trial in the course of the procedure already initiated. Thus, considering the general good faith approach of parties and absence of intention to establish an option in respect of an especially unjust forum, it can be concluded that the principle of equality cannot affect the validity of hybrid clauses.
2.3. Means to Cure Asymmetric Jurisdiction Clauses
Considering the arguments presented above in favour of asymmetric clauses being recognised as valid under different concepts and civil law principles, still it is worth to consider the practical ways of treating such clauses, even if they are partially inconsistent with particular rules within different jurisdictions. The most effective instrument in this regard is deemed to be partial invalidity of contracts, also known as the severability principle in respect of jurisdiction clauses.
The mentioned instruments are generally available within the legislation of most civil law jurisdictions under contract law (e.g. French Civil Code, Art. '' 57; German Civil Code, Arts '34, '39; Italian Civil Code, Art. '4'9; Civil Code of the Russia
n Federation, Art. '80, etc.).'0' In this light, the continental theory of law
'00 OT Africa Line Ltd. v. Hijazy (No. 1) (The Kribi) [200'] ' Lloyd's Rep. 76. '0' Draguiev 20'4, at 43.
generally recognises dispute resolution clauses as either "agreement on procedural issues"'02 or "contract to refer,"'03 and the severability principle is similarly applicable in respect of the latter. Some common law jurisdictions recognise this principle as well.'04 For instance, in Booker v. Robert Half Intern., Inc. the court, taking into account the policy favouring alternative dispute resolution mechanisms, upheld the validity of the arbitration clause even though it contained an invalid provision on punitive damages.'05 That said, if a dispute resolution clause is valid only in part (e.g. the asymmetric option in an asymmetric arbitration clause is inconsistent with applicable law), there are neither policy, nor practical reasons to invalidate such clause in its entirety and disregard the mutual intention of the parties.
Considering this rule in respect of entire contracts, the argumentation based on per argumentum a fortiori should be applicable to the corresponding parts of such contracts. Thus, if a particular term of a contract can be separated without any negative effect on other provisions, the same approach should be applicable with respect to hybrid clauses. inconsistencies with applicable law, which do not make such clauses void per se, should be treated by separation of defective parts from lawful ones. Such approach seems to preserve the general principle of party autonomy and, consequently, the legal certainty on the treatment of terms agreed between the parties. Assuming there are grounds for holding a clause defective, only the defective part of an asymmetric clause should fail. At the same time, the part to be voided should be decided on a case-by-case basis.
in light of the above-mentioned principles, the part of an asymmetric clause that establishes arbitration for both parties should be considered valid. On the contrary, if the part stipulates an undefined number of venues (as was the case in Rothschild), it should be regarded as defective. Applying the same reasoning, if litigation is the only option on both sides, the effective part would be the one that gives both parties equal rights to elect forum. Generally speaking, the rationale of this approach is to make footing between the parties balanced and equal, presuming that the absence thereof constitutes a defective element in itself. Furthermore, application of such severance rules would also counter the risk of potestative conditions or fair trial objections.
Another option to cure asymmetric jurisdiction clauses inconsistent with regulations under a particular jurisdiction involves the contrary instrument. in particular, this approach entails not severing but expanding the clause with a view to bringing the parties into the same position by restoring their rights' balance and equality. This approach was smoothly taken in RTK v. Sony Ericsson, where the Russian court extended the provisions of the asymmetric jurisdiction clause to the
'02 Cour d'appel de Paris, Sam v. Perin, 8 octobre '998 ['999] Revue de l'arbitrage 350.
'03 Pittalis v. Sherefettin ['986] 2 All E.R. 227, 33'.
'04 See, e.g., Ailion v. Spiekermann ['976] 2 W.L.R. 556.
'05 Booker v. Robert Half Intern., Inc., 3'5 F.Supp.2d 94 (D.D.C. 2004).
other party, thus making it symmetric. Nonetheless, the approach of the Supreme Arbitrazh Court taken in the mentioned case should be applied with caution. First, as a rule, courts do not have the authority to amend contracts, unless a party petitions for the contract to be amended in the manner prescribed by law. Second, we presume that this approach can be applied only in a case where an asymmetric clause grants only one party the option to litigate; otherwise, it loses any rationality and applicability as it is difficult to imagine that a national court would expand the arbitration element to another party.
To conclude, the mentioned approaches to cure asymmetric jurisdiction agreements are rather effective, although their application results in an original symmetric model of a dispute resolution agreement, depriving the designed mechanisms of any economic and conceptual rationale they were intended to have. Nonetheless, courts in most jurisdictions do not use even the mentioned approaches and instruments to invalidate asymmetric clauses domestically; thus, their application would generally be viewed positively with regard to predictability and the party autonomy principle.
Conclusion
Although the analysis of foreign legislation and case law carried out with respect to validity and enforceability of asymmetric clauses is not exhaustive, it still allows to draw some conclusions. Generally, two different approaches to validity and interpretation of unilateral clauses within common and civil law countries can be identified: while the former tends to recognise such clauses as valid and enforceable, the latter invalidates them on the basis of inconsistency with general principles of law. However, it is worth to note that there is no sharp boundary line between these approaches, as shown by recent court practice of civil law jurisdictions (e.g. Italy and Spain). To be more precise, it is difficult to assert that there is a certain jurisdiction that is ab initio hostile to asymmetric clauses. More commonly, courts approve jurisdiction agreements of asymmetric nature, recognizing them as valid and enforceable. Still, this practice is not universal and absolute. For instance, relatively recent approaches, especially those upheld by the highest courts, raise additional issues on validity and enforceability of asymmetric clauses in some countries. At the same time, despite the negativity that may have emerged, some continental jurisdictions have confirmed asymmetric clauses, which led to a further increase in the flow and unpredictability in the studied area.
The most typical grounds on which national courts invalidate asymmetric jurisdiction clauses are: the concept of potestative conditions; the inclusion of such a clause in an adhesion contract; and violation of the principles of equality of parties, good faith, reciprocity or mutuality by contractual terms. Meanwhile, the principle of good faith is the only principle within case law that serves to support validity of asymmetric jurisdiction clauses, although its application is rather limited.
At the same time, we believe there is a number of ways to reassess the established practice in a number of countries with regard to asymmetric jurisdiction clauses from the perspectives of general principles of law and legal policy. First, as imbalance of parties' rights and obligations is a natural and common element of commercial contracts, which are not deemed invalid unless they violate peremptory norms, it cannot serve as a basis for asymmetric clause invalidity, unless such clause constitutes gross violation of law or a party's rights. Second, the principle of equality of the parties cannot be applied as an argument for invalidation of asymmetric clauses since it can be applied only to a procedure that has already commenced. However, this conclusion is most likely to be different if the clause is structured in such a way that the chosen forum will deprive a particular party (especially the one deemed to be "weaker") of a fair trial in the course of the proceedings already initiated. Finally, the principle of severability of contracts and expansion of contract provisions by the court are deemed to be the most effective methods to save asymmetric clauses if their provisions contradict applicable national laws and regulations.
References
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Drahozal C.R. Nonmutual Agreements to Arbitrate, 27(4) Journal of Corporation Law 540 (2002).
Fentiman R. Unilateral Jurisdiction Agreements in Europe, 24(1) Cambridge Law Journal 26 (2013). https://doi.org/10.1017/s0008197313000251
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Information about the author
Vasily Bakumenko (Moscow, Russia) - PhD Student, School of General and interdisciplinary Legal Studies, National Research University Higher School of Economics (3 Bolshoy Trekhsvyatitelskiy pereulok, Moscow, 109028, Russia; e-mail: [email protected]).
