We would like to ensure that you are still receiving content that you find useful – please confirm that you would like to continue to receive ILO newsletters.
14 December 2017
One of arbitration's cornerstone principles is that parties can agree on how to resolve their disputes. Their agreement is often contained in the form of a contractually binding promise by each party to refer disputes to arbitration. Such an agreement is symmetrical – each party has the same right to invoke arbitration. However, parties commonly agree on asymmetric, rather than symmetric, rights. The classic case is where only one party has the right to refer disputes to arbitration, but the other must litigate. Such asymmetric clauses are frequently used in financing transactions, where one party wishes to be sued only in its forum of choice (eg, its home jurisdiction), but wants the flexibility to enforce security and pursue assets against the other party wherever possible.
Enforcement of asymmetric clauses can be tricky. In some jurisdictions, there is a perception that such clauses depart from the cornerstone principle of agreement between the parties. For example, in China, such clauses are prohibited. Users of asymmetric clauses must be aware of potential difficulties in order to avoid being forced into litigation in an unfamiliar or unwanted forum.
Whether an asymmetric clause will be upheld depends on which jurisdiction's courts will be asked to rule on its validity. Some courts, such as those in India and Russia, are uncomfortable with the proposition of a lack of mutuality between parties or that one party may be at a disadvantage in choosing a dispute resolution forum. Others – such as those in England and Wales, Singapore and France – are comfortable with giving parties more freedom in choosing how to resolve their disputes and are more willing to permit asymmetry between the parties' rights.
Parties wishing to include asymmetric arbitration clauses are advised to consider carefully the courts' approaches to such clauses in all relevant jurisdictions. It is essential to consider a transaction's commercial background and identify which laws are likely to be relevant. Bearing in mind that an invalid arbitration agreement is grounds for resisting enforcement of an arbitral award, two critical considerations are the validity at the seat of arbitration and the governing law of the agreement. However, parties should also consider validity in jurisdictions where an award might be enforced and any other jurisdictions where a party might seek to bring proceedings in breach of the arbitration agreement (eg, the parties' home courts). A careful analysis at the drafting stage can reduce the risk of discovering that the arbitration clause is unenforceable only when a dispute arises, when the clause is most needed.
For further information on this topic please contact Sherina Petit at Norton Rose Fulbright LLP's London office by telephone (+44 20 7283 6000) or email (firstname.lastname@example.org). Alternatively, contact Katie Chung at Norton Rose Fulbright LLP's Singapore office by telephone (+65 6223 7311) or email (email@example.com). The Norton Rose Fulbright LLP website can be accessed at www.nortonrosefulbright.com.
Nosherwan H Vakil, advocate, assisted in the preparation of this update.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription.