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Clifford Chance Unilateral Option Clauses Survey 2021

Unilateral option clauses are a common feature in many transaction documents. A unilateral option clause grants one party (or a group of parties, but not all parties to the agreement) the exclusive right to decide between arbitration or litigation to resolve a dispute. This means one side can choose the forum for their dispute at the time the dispute arises, rather than at the time of negotiating the agreement.

Parties should exercise caution when considering whether to include unilateral option clauses in their agreements. Treatment of these asymmetric clauses varies between jurisdictions. The consequences of including unilateral option clauses in agreements that are connected with a jurisdiction that considers them to be invalid can be severe. They can range from the clause being declared void (potentially resulting in local courts seizing jurisdiction over a dispute) through to inability to enforce an arbitral award.

In England and Wales, the courts’ attitude towards unilateral option clauses is well-established and favours contractual autonomy. English courts consistently uphold unilateral option clauses giving one party the right to take a dispute to arbitration. They will even protect a party’s right to exercise the option through a stay of proceedings if necessary.

In NB Three Shipping v Harebell Shipping Ltd, the court upheld a unilateral option to arbitrate by granting a stay of litigation proceedings commenced by the claimant on the basis that the clause in question afforded the defendant a right to determine that a dispute be arbitrated. In Law Debenture Trust Corp v Elektrim Finance BV and others, the court granted an injunction to prevent the commencement of arbitration proceedings by one party in order to protect another party’s exclusive right to refer the matter to the English courts.

Unilateral options clauses are equally unproblematic in a variety of jurisdictions, such as Greece, Hong Kong, Malaysia, New Zealand and Singapore. Further, it is not likely that such clauses will face issues in jurisdictions which tend to be influenced by English law, such as Bermuda, the British Virgin Islands and Zambia.

The position in other jurisdictions can be dramatically different.

In France, although the courts have not yet ruled on the validity or enforceability of unilateral option clauses, recent case law regarding asymmetrical jurisdiction clauses (which provide for the exclusive jurisdiction of particular courts, but also provide one party with the right to take its disputes to any other courts with jurisdiction) has cast doubt on their likely validity. In the controversial Rothschild decision, an asymmetrical jurisdiction clause was held to be ineffective as it constituted an imposition of terms by one party on the other. Subsequent case law has since imposed various other requirements in order for such clauses to be effective. Therefore, given the lack of definitive ruling, uncertainties remain in France.

In Russia, the courts recognised unilateral option clauses as valid until 2012, when such a clause was found to be invalid on the basis that it violated the principle that parties should be afforded equal procedural rights. Since then, case law and publications by the Presidium and Plenum of the Russian Supreme Court have confirmed that dispute resolution clauses are valid if they provide the parties with equal rights to refer a dispute to arbitration or a competent court. If a dispute resolution clause provides only one party with the right to refer disputes arbitration or a court, then the other party will be afforded the same right. In short, the Russian courts have effectively converted a “unilateral option” into a “bilateral option”, giving each party to a contract the right to choose between all the options which have been provided to the ‘privileged’ party.

Similarly, in a variety of jurisdictions, unilateral option clauses have been held or are likely to be held to be invalid on the basis that they do not afford parties equal rights. See for example: Bulgaria, Democratic Republic of Congo, Lebanon and Poland.

Collaborating with 75 local counsel, we have updated and expanded our 2017 Clifford Chance Survey on the effectiveness of unilateral option clauses across the world. The 2021 edition now covers over 95 jurisdictions.

 

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