THE PROVISION OF UNILATERAL OPTION
A unilateral option provision is a dispute resolution agreement that gives just one party the sole right to choose a specific dispute resolution process, such as arbitration or litigation. Courts have had to decide whether to maintain such clauses in the interests of party autonomy or interfere for public policy reasons. The reason for unilateral arbitration provisions stems from the need to bypass traditional dispute settlement processes favouring specially devised mechanisms. Unilateral arbitration provisions, in particular, aim to keep the benefits of both litigation and arbitration intact. The meaning of such phrases varies by jurisdiction.
While most jurisdictions maintain unilateral arbitration provisions, there is a growing trend in national courts worldwide to declare them void, leaving the parties with litigation as their sole option for resolving disputes (what is initially sought to be prevented by the inclusion of these clauses).
Position in India
Due to conflicting rulings by Indian courts, the validity of asymmetric provisions in India is uncertain.
The Delhi High Court held in Bhartia Cutler-Hammer v. AVN Tubes (1995 (33) DRJ 672 that a person could not have an exclusive power to initiate arbitration because the Indian Arbitration and Conciliation Act, 1996, required the parties to enter into a mutual arbitration agreement and allow for bilateral invocation. Regardless of the parties' explicit assent to such a clause, it would be unenforceable.
The Delhi High Court held in Emmons International Ltd. v. Metal Distributors that UACs restrict other parties' legal remedies, which violates Section 28 of the Indian Contract Act, 1872.
The Delhi High Court ruled a unilateral choice clause unenforceable in Lucent Technology v. ICICI Bank (2009 SCC OnLine Del 3213). Invoking Section 28 of the Indian Contract Act, 1872, the court cited both Bhartia Cutler and Emmsons International, suggesting that the party's right to redress through legal procedures had been violated.
In a slight variation from earlier rulings, the Delhi High Court affirmed the legality of a unilateral choice provision in Fuerst Day Lawson Ltd. v. Jindal Exports Ltd. (MANU/DE/3204/2009). However, the significance of this ruling on the court's stance is unclear because the section was maintained under relevant English law rather than Indian law.
According to the previous judgments, the three grounds on which unilateral provisions have been successfully challenged before Indian courts include lack of mutuality, public policy, and constraint of a party's right to legal actions.
While there appears to be a greater acceptance of UACs and good arguments supporting their validity, there is still a vulnerability connected with their usage. While UACs may seem financially appealing, parties should weigh all of the risks before adding one to their contract.
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