Troubled Waters of Unilateral Arbitration Clauses

Commercial relations have gained an international character by crossing state borders today, as a result: the arbitration practice has increased globally in recent years. This situation brought up new discussions in many aspects such as the question of the validity of unilateral (“asymmetric”) arbitration agreements.

What is an Asymmetric Arbitration Clause?

According to the mutuality doctrine, what is expected from the arbitration is that the parties should have equal rights and obligations and the balance does not deteriorate in favor of either party during the arbitral proceedings. In other words; it is essential that disputes arising from legal relations of arbitration agreements can be transferred to arbitration without any discrimination, superiority or priority between the parties[1].

Arbitration agreements, which only allow one of the parties to apply for arbitration, are referred as asymmetric arbitration agreements as per international arbitration law[2]. The most common examples of asymmetric arbitration agreements are the ones which give the right to choose an arbitrator to one party, while the counter party is not given this opportunity; or the right to apply for arbitration is granted only to one party and the arbitration path to the other party is closed. In this case, the party who is granted the right to go to arbitration proceedings can choose whatever way and the counter party mandatorily has to follow it[3].

Asymmetric Arbitration Clauses Under Turkish Law

There is no provision in Turkish Law directly prohibiting asymmetric arbitration agreements; however, this does not result that these records will always be considered valid. In the event that only one of the parties has the right to choose an arbitrator, the arbitration contract will be deemed void on the reason that the violation of the principles of right to legal remedies and fair trial[4]. However, as stated in a Court of Cassation decision, the fact that the right to choose the arbitrator was granted to “the claimant” rather than to “the party” indicates that this right was actually granted to both parties; therefore, it cannot be accepted that it is against public order[5].

Currently, asymmetric arbitration clauses are only accepted regarding the disputes related to Insurance Law in Turkey. As per the Insurance Law No. 5684 article 30, any dispute arising from an insurance contract with an insurance company that is member of the Insurance Arbitration System can be resolved through insurance arbitration even though the insurance contract does not contain any arbitration clause. According to the mentioned provision, only those who have a dispute with the insurance institution have the option go to the Insurance Arbitration Commission for arbitration, and the insurance institution has no right to apply for arbitration[6].

In addition, with a new ruling by the Court of Appeal, a new approach is emerged under Turkish Law. The Court ruled an asymmetric jurisdiction clause which gives one of the parties the right to bring proceedings before a foreign court as well as before the courts of the counter party’s place of business is valid[7]. This ruling has the potential of indicating positive treatment of unilateral arbitration clauses by Turkish courts in the future. But for now, these clauses should be approached with caution.

Asymmetric Arbitration Clauses in Other Jurisdictions

Existence of asymmetrical clauses in a contract does not necessarily render a clause unenforceable unless it contradicts the mandatory legal rules. The main issue here is the limit of the freedom of contract and, consequently, which cases the asymmetric arbitration agreement will be valid and in which cases it will be invalid. Consequently, different jurisdictions adopted different approaches regarding the asymmetric arbitration clauses.

United Kingdom: In a decision made in 1947, the British Court of Appeals held in favor of an asymmetric arbitration agreement in a contract that closed the road to apply for the arbitration of the warehouse owner while allowing the consumer to apply for arbitration, on the grounds that there was no provision affecting the general conditions of the arbitration. Likewise, in the case of Pittalis v. Sherefettin of 1986, it was stated that the contract, which allowed only one of the parties to apply for arbitration, cannot be deemed invalid according to the Arbitration Act 1950[8]. Consequently, it is shown that English courts will give effect to the parties’ chosen dispute resolution method irrespective of whether the agreement is asymmetric[9]. By linking asymmetric arbitration agreements with the principle of freedom in their current judgments, the British courts emphasize that there is no hesitation in the validity of these agreements in the UK anymore[10].

Australia: In the case PMT Partners Pty. Ltd. vs. Australian National Parks & Wildlife Service in reference to British jurisprudence, the Court has ruled the validity of arbitration agreements which gave only one of the parties the right to apply for arbitration[11].

Singapore: Just like United Kingdom, The Singapore Court of Appeal’s recent rulings shows that the asymmetric arbitration agreement is valid under Singapore Law[12]. This is the first time that the Court of Appeal has ruled on the validity of an asymmetric and optional arbitration clause under Singapore law[13].

Germany: In countries where the civil law legal system is dominant, there is no uniform practice regarding the validity of asymmetric arbitration agreements. Countries such as France, Russia, Bulgaria and Poland have a negative attitude towards asymmetric arbitration agreements while Italy, Spain, Luxemburg and partly Germany have a more positive perspective.

In a decision by the German Federal Supreme Court in 1989 it is stated that there was no obstacle on the right of choice to either party or to only one of the parties to apply to the arbitration unless there is an immense superiority such as the right to choose an arbitrator for only one of the parties according to Section 307(1) of the German Civil Code[14].

Switzerland: As per the Swiss arbitration practice, it has been accepted that the right to application for arbitration can be arranged selectively, in other words, the plaintiff can be given the right to pursue the dispute either in arbitration or in state courts[15]. In Swiss law, it is generally accepted that such an electoral right, as an asymmetric arbitration clause, can be granted to one of the parties, unless there is an unfair asymmetrical arbitration clause which abuses the negotiating power of the weak side[16].

Italy: The Italian Supreme Court concludes that asymmetric arbitration agreements are valid on the grounds that the parties are in principle free to determine how to resolve disputes between them, including allowing only one party to apply for arbitration[17].  In another case, the Court ruled that the asymmetric clause in the arbitration agreement is valid which stated one of the parties was entitled to file a claim only within the court of Washington, while the other party had additional option to refer to Italian courts[18].

Author: Deniz Çelikkaya