Anu Srivastava writes about validity of Unilateral Arbitration clauses and its developments under English and Indian law.

Abstract

Unilateral arbitration clauses are being rapidly used in various financial contracts to provide one of the parties a unilateral option to choose between arbitration and court proceedings. However, it may not always be prudent for the parties to include such clauses in their contracts because of the various issues relating to enforcement and validity of such clauses. While most jurisdictions have upheld the validity of such clauses, there have been instances where such clauses have been declared as being invalid on the grounds of non-mutuality, unconscionability, procedural inequality and potestativité.

The essay aims at analyzing the issues relating to the validity of such clauses in various jurisdictions focusing on the developments under English law and Indian law followed by two controversial decisions given by the French and the Russian Courts. While the position of such clauses is far from reaching a conclusion with respect to validity, it depends on the facts and circumstances, position of the parties, the jurisdictions to which the parties are amenable to, the proper law of the contract and the law of the seat which need to be considered while drafting such clauses.

The position in India poses further complications due to conflicting opinions of High Courts on the validity of such clauses. The question of public policy also creates problems while looking at domestic and international arbitrations. It therefore becomes imperative for parties to consider such arbitration clauses carefully with reference to India as a seat of arbitration or as a place of enforcement.