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OPTIONAL ARBITRATION
Optional arbitration clauses are those which usually provide the option to one or both parties to an agreement to adjudicate their disputes either by arbitration or litigation. Such a clause is said to be symmetric if it gives both parties equal rights to exercise the option, whereas it is asymmetric if it gives such right to only one party.
Such symmetric optional clauses are usually prefixed by the terms “shall”, “will” or “may”.
Indian scenario
The current Indian legal position in this respect was set out in the 2018 judgement of the honourable Supreme Court in the case of Zhejiang Bonly Elevator Guide Rail Manufacture Co. Ltd. v. Jade Elevator Components. In Zhejiang Bonly, the Court dealt with an optional dispute resolution clause which specified as follows:
“Common processing contract disputes, the parties should be settled through consultation; consultation fails by treatment of to the arbitration body for arbitration or the court.” which simply means if amicable settlement could not be reached, the parties have both options readily available i.e, to opt for arbitration or litigation – without any further qualification.
Indian court decrees prior to the Quickheal case stated that the use of the word “may” in optional arbitration clauses indicates that there is no valid arbitration agreement at the outset and that any party electing to go for arbitration instead of litigation needs to seek fresh consent of the other.
In the Quickheal case, the relevant dispute resolution clause was discussed and it was held;
1.All disputes under this Agreement shall be thoroughly discussed for resolution by the designated personnel of each party, and if such disputes cannot be resolved within 30 days, the same may be referred to arbitration as stated below.
2.Disputes under this agreement shall be referred to arbitration as per the Arbitration and Conciliation Act, 1996 as amended from time to time.
3.Subject to the provisions of this Clause, the Courts in Pune shall have exclusive jurisdiction in dispute resolution and the parties may pursue any remedy available to them at law or equity.”
The Court interpreted the above clause to mean that there was no valid arbitration agreement as such. In doing so, the Court differentiated between clauses which grant an option to both parties to arbitrate their dispute without expressly referring to the option to litigate in the same breadth and clauses which specify that the parties “shall” resolve their dispute by either arbitration or litigation.
The effect of the Court’s order is such that in the first scenario, a party needs to obtain fresh consent of the other party before commencing arbitration. However in the second scenario, there is presumed consent granted by both the parties for arbitration as well as litigation, and a party simply needs to choose either option to make it binding on the other.
An optional arbitration clause which states that a party “may” arbitrate should not be construed as an invalid arbitration agreement. Doing so would definitely impact India’s march towards being a pro-arbitration regime.
However, till the time Indian judiciary gives a relook at this issue, parties should draft their arbitration clauses in definitive language, and if the clauses provide for any optionality, the parties should avoid the term “may” and clearly set out if any further consent of the other party is required before exercising such option.
- Meaning
- Indian scenario
- Conclusion
