Born - Cláusulas Patológicas
Born - Cláusulas Patológicas
come into play. In the majority of cases, the existence of an arbitration agreement would be
decided exclusively by consideration of what particular parties said to each other and did
with each other in a specific setting, rather than on general presumptions.
Finally, the standards of proof applicable to the existence of an international arbitration
agreement must be distinguished from those applicable to the validity of such an agreement.
As discussed elsewhere, and as Article II(3) of the New York Convention requires, the burden of
proving the invalidity of an international arbitration agreement is on the party resisting
enforcement of the agreement, not on the party relying upon the agreement. (715)
Moreover, the better view is that the party resisting enforcement of an arbitration agreement,
to which the parties have consented, bears a weighty burden of proving invalidity. That
conclusion is compelled by the presumptive validity of international arbitration agreements
P 762 under Article II(3) and by the Convention’s pro-enforcement objectives. (716) Consistent
with this, many national courts have applied a pro-enforcement validation rule to uphold the
validity of international arbitration agreements, reasoning that where the parties have
consented to international arbitration, that intention should be given effect wherever possible.
(717)
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P 765 Some national arbitration legislation or judicial decisions render arbitration clauses
invalid, at least in domestic settings, when they lack sufficient detail concerning the dispute
resolution process; that is (or was) the case, for example, in Italy (736) and France. (737)
Nonetheless, the decisive trend is to abandon such limitations, even in domestic settings; the
trend is even more pronounced in international settings. (738) This parallels pro-enforcement
decisions involving international arbitration agreements in most other developed
jurisdictions, which have repeatedly rejected arguments that arbitration agreements are void
or invalid because they fail to specify the arbitrators or lack other details (such as applicable
procedural rules). (739)
Nonetheless, as discussed above, there remain anomalous approaches in a few developing
jurisdictions, which impose onerous statutory requirements regarding the essential terms of
P 766 arbitration agreements. (740) Indeed, even some generally pro- arbitration jurisdictions
(such as Switzerland) occasionally impose requirements for particular terms in agreements to
arbitrate. (741)
The general tendency of courts to uphold putative arbitration agreements is supported by the
terms of many national arbitration statutes that contain default provisions, which address
material aspects of the arbitration agreement if the parties have not themselves done so. For
example, national law frequently contains default provisions concerning (a) the number of
arbitrators; (b) the appointment and challenge of arbitrators; (c) the arbitrators’ powers; (d)
the selection of the arbitral seat; and (e) the time limits within which the arbitration must be
conducted. (742) These provisions mitigate the adverse consequences that might otherwise
flow from vague or unelaborated arbitration clauses, thereby facilitating the enforcement of
such agreements.
[b] “Blank Clauses”
Some authorities have suggested that a clause simply providing for arbitration, without
specifying the arbitral seat or means for selecting the seat or arbitral tribunal (a so-called
“blank” clause), is invalid. (743) The asserted defect in such clauses is that they leave unclear
what national courts, if any, could appoint the arbitral tribunal or (less likely) address other
critical matters. (744)
This concern is misconceived: the possibility of jurisdictional disputes or parallel proceedings
concerning appointment of an arbitral tribunal is serious (and an excellent reason for parties
not to draft such “blank” clauses). It should not, however, raise insurmountable doubts about
the parties’ common intention to arbitrate or the enforcement of that intention. An
P 767 appropriate, and sensible, resolution is for national courts with jurisdiction over the
parties to require arbitration in a neutral arbitral seat (or, less satisfactorily, in one party’s
domicile). (745)
Consistent with this analysis, most authorities uphold arbitration clauses that fail to specify (or
that specify ambiguously) the seat of arbitration and means of selecting the arbitrations. Thus,
the Hong Kong Supreme Court upheld a clause providing for arbitration in a “third country,”
(746) reasoning that the reference to a “third country” was a reference to any country other
than one where a party was a national. Judicial decisions (747) and commentary (748) in other
developed jurisdictions generally reach similar results.
[c] Clauses With Undefined Scope
It is sometimes suggested that a definition of the scope of the arbitration clause (e.g., the
categories of disputes submitted to arbitration) is essential to a valid arbitration agreement.
(749) As discussed elsewhere, it is doubtful that an express definition of the scope of an
arbitration agreement is either necessary for the validity of an agreement to arbitrate or
imposed as a jurisdictional requirement for international arbitration conventions or national
P 768 arbitration legislation. (750) In any event, the scope of an arbitration agreement can
virtually always be readily implied from the parties’ contractual or other relations. (751)
Thus, a number of national courts and arbitral tribunals have upheld arbitration clauses that
contain no express reference to the scope of arbitrable disputes. (752) For example, an English
court rejected the argument that a charter party clause providing “arbitration to be settled in
London” was invalid because it did not specify the scope of arbitrable disputes. The Court
reasoned that the provision meant “any dispute under this charter party to be settled in
London.” (753) Another English court reached the same conclusion with respect to a clause
providing “arbitration in London – English law to apply.” (754)
U.S. courts have similarly upheld agreements to arbitrate providing only “arbitration clause,”
holding that even this “skeletal phrase” creates a binding agreement to arbitrate. (755) Swiss,
German and New Zealand authorities have also upheld clauses that are silent regarding their
scope, adopting the sensible presumption that an arbitration clause in, or attached to, a
contract governs disputes that arise in connection with that agreement. (756)
These decisions clearly reflect the better analysis. It makes no commercial sense, and is
arguably contrary to Article II of the New York Convention, to deny recognition of an agreement
to arbitrate because it fails to define expressly the scope of disputes subject to arbitration.
The scope of the agreement can virtually always be implied and, even if its scope is unlimited,
there is no satisfactory reason not to enforce an otherwise valid agreement to arbitrate. (757)
[d] Clauses With No Specification of Arbitrators
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There is no requirement under the New York Convention or most national arbitration statutes
that an international arbitration agreement either specify the identities of the arbitrators or a
means of selecting the arbitrators. Indeed, as discussed below, the UNCITRAL Model Law and
most other national arbitration statutes provide a default statutory mechanism to permit
selection of the arbitrators in the event that the parties’ agreement does not either name the
P 769 arbitrators or include a mechanism for choosing the arbitrators (such as by incorporating
institutional rules specifying an appointing authority). (758) The premise of these provisions is
that international arbitration agreements may be valid and enforceable notwithstanding the
absence of any agreement on the identity of the arbitrators. (759)
As discussed above, a few national arbitration regimes have required that arbitration
agreements include the identities of the arbitrators, or, alternatively, a mechanism for
selecting the arbitrators. (760) These requirements, which are very unusual, are likely
inconsistent with the maximum form requirement of Article II of the New York Convention and
with the prohibitions of the Convention against idiosyncratic domestic law requirements for
the substantive validity of international arbitration agreements. (761)
[e] Clauses With No Choice-of-Law Provision
It is well-settled that an arbitration agreement need not include, or be accompanied by, a
choice-of-law provision. Indeed, in a significant minority of cases, international contracts do
not contain choice-of-law provisions. (762) It is seldom even suggested, and never accepted,
that the absence of a choice-of-law provision invalidates the parties’ agreement to arbitrate.
(763)
[2] Indefinite or Uncertain Arbitration Agreements
A recurrent basis for challenging the existence of an arbitration agreement is that the terms of
the putative agreement are insufficiently definite or certain. This analysis parallels the
P 770 requirement applicable under many national contract law regimes that the terms of an
agreement be sufficiently specific or definite to constitute a binding obligation. (764)
[a] General Principles
As discussed above, an international arbitration agreement will ordinarily address a number of
important issues, including: (a) the seat of the arbitration; (b) the institutional or other rules
applicable to the arbitration; (c) number and method of appointment of the arbitrators; (d) the
language of the arbitration; and (e) the law applicable to the merits of the parties’ dispute.
(765) This is generally true of model arbitration clauses recommended by most arbitral
institutions (766) and of clauses prepared by sophisticated companies or legal advisers. (767)
Nonetheless, parties frequently agree to less detailed – and sometimes much more confused –
arbitration clauses. Indeed, it is surprising how frequently parties purport to enter into gravely
defective or “pathological” arbitration agreements. (768) In a study of 237 cases submitted to
the ICC in 1987, for example, only 1 clause adopted the precise language of the ICC model
clause, while 16 clauses (or 7% of all clauses) contained very serious defects. (769) Parties may
produce such pathological results out of haste, lack of attention, inability to reach agreement
on anything else, or simple ignorance.
Omissions or drafting errors in the specification of the arbitral seat, institutional rules, means
of selection of arbitrators and other aspects of the agreement to arbitrate often give rise to
claims that particular international arbitration clauses are unenforceably indefinite. (770)
P 771 Thus, it is sometimes said that, in drafting arbitration agreements, “[e]quivocation [is] the
cardinal sin.” (771) That is true, and such drafting mistakes are to be avoided; nonetheless, it is
also true that these errors are very often sins that are forgiven.
As discussed below, most national court decisions and arbitral awards have rejected claims
that international arbitration agreements are unenforceably uncertain or indefinite,
endeavoring to give effect to any reasonable manifestation of an intention to arbitrate. (772)
This approach can be seen as an example of a reduced standard of proof applicable to the
formation of international arbitration agreements (discussed above). (773) Among other things,
the lack of any agreement regarding the number or means of selection of the arbitrators, (774)
the arbitral seat, (775) the institutional (or other procedural) rules, (776) the applicable law,
P 772 (777) the scope of arbitrable disputes, (778) or other details regarding the arbitral process
(779) is insufficient to invalidate an international arbitration agreement.
Most national court decisions have inquired whether the parties wished to resolve their
disputes by arbitration, as opposed to other means: if arbitration was the parties’ basic or
predominant intention, then uncertainties, inconsistencies, or errors in specifying aspects of
the arbitral procedure (e.g., arbitral seat, institutional rules, choice of arbitrators) have been
disregarded. As one Swiss Federal Tribunal decision reasoned:
“Incomplete, unclear or contradictory provisions in arbitration clauses create pathological
clauses. To the extent that they do not concern mandatory elements of the arbitral agreement,
namely the binding submission of the dispute to a private arbitral tribunal, they do not
necessarily lead to invalidity. Instead, a solution must be sought by interpretation and if
necessary by supplementing the contract with reference to general contract law, which
respects the fundamental intent of the parties to submit to arbitral jurisdiction.…When
interpretation shows that the parties intended to submit the dispute to an arbitral tribunal
and to exclude state jurisdiction, but with differences as to how the arbitral proceedings
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should be carried out, the rule that a contract should be given effect applies and an
understanding of the contract must be sought which will uphold the arbitration clause.
Imprecise or flawed designation of the arbitral tribunal does not necessarily lead to invalidity
of the arbitral agreement.” (780)
Other civil law decisions are to the same effect. (781) Applying this analysis, courts seek to
P 773 harmonize apparently contradictory or inconsistent provisions (782) or to determine what
apparently uncertain provisions were intended to mean. (783) Indeed, some courts have
inquired into what the parties’ “hypothetical intention” would have been if they had been
aware of the defect in their agreement as drafted. (784)
Common law decisions adopt the same approach. A New Zealand decision expressed this
reasoning in cogent terms, invoking the
“general principle that Courts should uphold arbitration, by striving to give effect to the
intention of parties to submit disputes to arbitration, and not allow any inconsistencies or
uncertainties in the wording or operation of the arbitration clause to thwart that intention.”
(785)
Other common law courts have reached similar results. In the words of one commentator,
English courts have been prepared to give effect to “all but the most ‘pathological’ of
P 774 arbitration clauses.” (786) Similarly, U.S. courts have repeatedly upheld arbitration
agreements that contain “pathological” elements, including inadequate or uncertain
references to arbitral seats or institutions, incorrect references to arbitral institutions or rules,
inconsistencies and similar defects. (787) As one U.S. lower court reasoned, “if there is a
reading of the various agreements that permits the [a]rbitration [c]lause to remain in effect, we
must choose it.” (788) Despite this, usually in very extreme cases, a few lower U.S. court
decisions have held that a particular attempted arbitration agreement was too indefinite,
confused, or contradictory to be enforceable. (789)
These national court decisions are consistent with the definition of an agreement to arbitrate,
and the essential terms of such an agreement, as discussed above. (790) If the parties have
evinced an intention to resolve their disputes by arbitration, as opposed to by other means,
then that intention should be given effect; it constitutes an agreement to arbitrate and defects
or uncertainties in the implementation of this agreement should not preclude its enforcement.
Consistent with this analysis, courts from virtually all jurisdictions have displayed a
P 775 pronounced willingness to disregard or minimize imperfections in the parties’ arbitration
agreement, to imply missing terms and/or to adopt liberal interpretations in order to supply
omitted terms or to reconcile apparently inconsistent terms. (791)
Arbitral awards have adopted the same approach, with tribunals endeavoring to give effect to
ambiguous, badly-drafted, indefinite and otherwise dysfunctional arbitration clauses. (792) As
one award reasoned, sensibly: “when inserting an arbitration clause in their contract, the
intention of the parties must be presumed to have been willing to establish an effective
machinery for the settlement of disputes covered by the arbitration clause.” (793)
Nonetheless, some courts have held that attempted arbitration clauses are so uncertain,
confused or defective that they cannot be read, even with an avowed goal of giving meaning to
the parties’ language, to manifest a mutual intention to arbitrate. (794) On close analysis,
however, many such decisions are ill-considered, usually failing to address the dispositive
question whether the parties’ dominant intention was to arbitrate, even if they expressed that
intention in a confused or unsophisticated manner. For example, one U.S. lower court wrongly
P 776 refused to give effect to an arbitration clause providing that all disputes shall be
“determined by arbitration in the Hague under the International Arbitration Rules.” (795) These
decisions are inconsistent with the overwhelming weight of international authority, as well as
with the New York Convention’s fundamental requirement, in Articles II(1) and II(3), that
Contracting States recognize agreements to arbitrate. (796)
National courts in a few developing countries have also occasionally taken a different course
from that adopted in most jurisdictions, apparently holding that any ambiguity in the
arbitration agreement invalidates the clause. (797) Again, these conclusions are unusual and in
contradiction to the Convention’s pro-arbitration terms and policies. (798)
[b] Competence-Competence to Decide Indefiniteness Issues
Challenges to arbitration agreements based upon their alleged indefiniteness, ambiguity, or
internal inconsistency do not ordinarily implicate the separability doctrine. Rather, they are
directed specifically at the agreement to arbitrate itself. In jurisdictions such as France and
India, where jurisdictional objections are generally for initial decision by the arbitrators, these
types of issues are not the subject of interlocutory judicial resolution. (799)
Historically, most U.S. courts rejected arguments that challenges to the validity of arbitration
agreements, based upon ambiguity or inconsistency, should be resolved by the arbitrators in
the first instance, reasoning that these objections went to the existence of any valid arbitration
agreement at all. (800) More recent U.S. authorities appear to treat such issues as equivalent
to questions of arbitral procedure, to be determined by the arbitrators. (801) This conclusion
P 777
appears correct, particularly given the limited character of the essential elements of an
agreement to arbitrate, (802) leaving it appropriate for the arbitrators to resolve disputes
regarding other terms of the arbitration agreement.
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[3] Arbitration Agreements Referring to Nonexistent Arbitral Institutions, Arbitration Rules, or
Arbitrators
National courts and arbitral tribunals have also generally upheld the valid formation of
arbitration clauses which erroneously refer to nonexistent arbitral institutions or appointing
authorities. As discussed below, some courts have severed or deleted references to
nonexistent entities as surplusage, while others have sought to correct or supplement
inaccurate references. This is another example of the pro-arbitration approach of national
courts in most jurisdictions. (803)
In one leading authority, the Hong Kong Supreme Court deleted a reference to the nonexistent
“rules of procedure of the International Commercial Arbitration Association” as meaningless
surplusage, and enforced the remainder of the provision. (804) U.S. courts have adopted the
same approach, (805) reasoning, for example, that “an agreement on a nonexistent arbitration
forum is the equivalent of an agreement to arbitrate which does not specify a forum; since the
P 778 parties had the intent to arbitrate even in the absence of a properly designated forum.”
(806) One U.S. lower court explained this analysis as follows:
“In the specific context of mistakes in arbitration clauses, the courts have framed the pertinent
inquiry as whether the parties’ overarching intent to arbitrate a dispute, as evidenced by the
language of their arbitration agreement and any relevant surrounding circumstances, survives
and is severable from a particular infirmity or ambiguity within this agreement.” (807)
A decision of the Swiss Federal Tribunal adopted similar reasoning, concluding: “the
impossibility to constitute the arbitral tribunal as agreed by the parties does not necessarily
imply the nullity of the arbitration agreement to the extent that a clear intent of the parties to
submit the dispute to a private arbitral tribunal emerges therefrom.” (808)
Other civil law decisions, including French, (809) Swiss (810) and German (811) courts, have
reached similar conclusions in commercial contexts, severing or deleting mistaken,
nonsensical, or inoperative references. On some occasions, courts have formulated alternative
P 779
arbitral procedures or mechanisms where those selected by the parties have been
dysfunctional, (812) including by interpreting arbitration clauses as granting the claimant the
option of determining how to initiate arbitral proceedings. (813)
Nonetheless, a few national court decisions have invalidated clauses based upon references to
nonexistent institutions, typically reasoning (unsatisfactorily) that the parties’ agreement
could not be fulfilled as drafted and that the court would not rewrite their contract. (814) Other
courts and tribunals have construed references to nonexistent entities generously, finding ways
to equate them to institutions which do exist.
For example, a Swiss award construed a reference to the “international trade association
organization in Zurich” (there is none) to mean arbitration under the Zurich Chamber of
Commerce International Arbitration Rules. (815) Similarly, a number of awards interpret
references to the nonexistent “Paris Chamber of Commerce” as references to the ICC in Paris,
P 780 (816) and interpret references to the ICC “in” some city other than Paris as references to
ICC arbitration seated in the designated city. (817) Likewise, awards under the auspices of
various other arbitral institutions have also upheld inaccurate references by giving them a
common-sense meaning aimed at preserving the parties’ basic intention to arbitrate in a
neutral, efficient manner. (818)
[4] Arbitration Agreements Referring to Arbitral Institutions or Appointing Authorities That No
Longer Exist or Operate or Arbitrators Who Are Unavailable
Finally, a related set of problems concerns arbitration clauses that select arbitral institutions
P 781
that once existed, but have ceased operations; (819) that select arbitrators who once were
competent, but have since become incapacitated or passed away; (820) or that select
appointing authorities which refuse to fulfill the contemplated functions. (821) Again, most
national courts endeavor to preserve the parties’ basic agreement to arbitrate, even if the
particular mechanics that they have chosen to implement this agreement cannot function or
cannot function as intended.
Nonetheless, there are exceptions to this approach. For example, following German
reunification, the former Arbitration Court attached to the Chamber of Foreign Trade of the
German Democratic Republic was dissolved and its functions assumed by the German
Arbitration Institution (Deutsche Institution für Schiedsgerichtsbarkeit). The German
Bundesgerichtshof held that clauses selecting the East Germany’s former Arbitration Court
could not be interpreted as agreement to the “private” German Arbitration Institution. (822)
Other national courts have held that, where the parties’ choice of a particular arbitral
institution was an essential part of their agreement to arbitrate, the unavailability of the
designated institution will result in invalidity of the arbitration agreement. (823) In effect,
these courts (correctly) adopt a presumption that the parties’ fundamental agreement is to
arbitrate and that, absent a contrary showing, their choice of a particular institution,
arbitrator, or appointing authority is an ancillary component of that agreement which, if
inoperable, can be cured by the court or arbitral tribunal.
P 782 [5] Internally-Contradictory Arbitration Agreements
A closely-related set of issues arises from internally contradictory or inconsistent arbitration
provisions. These typically involve clauses that select two different arbitral seats, or two
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different institutions or different mechanisms for selecting arbitrators, or agreements that
appear to provide for both arbitration and litigation of disputes.
As with indefinite or ambiguous clauses, (824) arbitral tribunals and national courts have
generally found ways to enforce these provisions in commercial settings, either by deleting
language as unnecessary or reconciling apparently inconsistent terms through liberal (and
sometimes creative) interpretation. In the words of one award, “when inserting an arbitration
clause in their contract the intention of the parties must be presumed to have been willing to
establish an effective machinery for the settlement of disputes covered by the arbitration
clause.” (825)
The most frequently-encountered example of this problem is a reference to two (or more)
different arbitral seats, arbitral institutions, or sets of institutional arbitration rules. As with
other categories of defective arbitration clauses, both arbitral tribunals (826) and national
courts (827) have sought to preserve the parties’ agreement to arbitrate, either by discarding
“surplusage” or permitting parties to proceed in either of two forums at their option. As one
U.S. court reasoned, in adopting this approach: the “variance between the two arbitration
provisions is an ‘ancillary logistical concern’ which is not integral to the underlying agreement
P 783 and does not preclude arbitration.” (828) There are occasional decisions to the contrary,
but these are typically poorly-reasoned and represent exceptions to the weight of authority.
(829)
A solution that some courts have adopted to apparently contradictory arbitration provisions
(for example, specifying two different arbitral institutions) is to interpret them as granting the
claimant in a dispute the option of choosing between the available arbitral mechanisms. As
one court held, “an arbitration agreement may provide for two arbitral tribunals. This means as
a rule that the claimant in the arbitration has a choice.” (830)
A related problem arises from ill-drafted provisions that provide both an arbitration
mechanism and a choice-of-court clause. (831) In this connection, U.S. courts have repeatedly
held that a “New York Suable Clause” or “service of suit clause,” in each case providing a form
of forum selection clause, does not conflict with an arbitration agreement. (832) In one court’s
words, “[t]he…service of suit clause can…reasonably be interpreted to facilitate litigation
following arbitration, concerning the validity of enforcement of any arbitration ruling, without
curtailing the mandatory arbitration provision.” (833)
In a frequently-cited English case, Paul Smith Ltd v. H & S Int’l Holding Inc., one clause of a
contract provided that any disputes “shall be adjudicated [sic] upon” under the ICC Rules of
P 784
Arbitration, while another clause provided that the “Courts of England shall have exclusive
jurisdiction.” (834) The court reached the sensible, if somewhat inventive, conclusion that the
reference to English courts was only a designation of the courts with supervisory jurisdiction (to
appoint and remove arbitrators and entertain actions to set aside awards), thereby giving full
effect to the unhappily-worded arbitration clause. (835) A similar result was reached in another
decision where a contract contained both an exclusive forum selection clause specifying
English courts and an arbitration clause; the court interpreted the choice-of-forum clause as
only an agreement that disputes as to the applicable law would be resolved by English courts
and any other dispute was to be resolved by arbitration. (836)
Likewise, in another English case, the parties’ contracts contained a provision that disputes
would be referred to arbitration, but also providing that disputes would otherwise be referred
to the English courts. The court granted a stay of litigation in favor of arbitration, reasoning
that the arbitration clause gave either party the option to refer a dispute to arbitration, and
that, once made, that choice was binding on the opposing party, even if the opposing party
had already commenced an action in court. In the court’s view, the jurisdiction clause only
applied if neither party exercised its option to arbitrate. (837)
A French decision reached similar results in interpreting the following provision:
“Jurisdiction. In case of disputes, the parties undertake to submit them to arbitration as
provided for by the Fédération Française de la Publicité. In case of disputes, the Tribunal de la
Seine would have exclusive jurisdiction.” (838)
The court concluded that the parties had entered into a valid arbitration agreement and that
P 785 the reference to a particular French court (the Tribunal de la Seine) applied only in the
event that a matter was referred to judicial resolution. (839) Other French decisions reach the
same conclusions. (840)
Decisions by national courts in other jurisdictions (841) and arbitral awards (842) are to the
P 786 same effect, generally seeking to give effect to clauses that refer to both arbitration and
national court proceedings. In most cases, (843) courts and arbitral tribunals interpret
references to national court proceedings narrowly to include only review of the arbitral award
or some other type of judicial assistance for the arbitral process. (844)
One court has held that contradictory arbitration and jurisdiction clauses should be reconciled
by adopting the “first seized” rule, under which parties are free to choose between litigation
and arbitration, and the method chosen first prevails. (845) This approach is seldom
considered, much less adopted, and in one of the only other decisions to address the approach
was squarely rejected. (846)
As the foregoing examples suggest, national courts and arbitral tribunals have also generally
rejected challenges to arbitration agreements in commercial contexts based on other alleged
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inconsistencies or contradictions. There have been a few decisions to the contrary, but they are
P 787
exceptions to a generally pro-arbitration approach by national courts. (847) Instead, national
courts have usually inquired whether the parties’ agreement to arbitrate was their basic
commitment, such that defects in a particular additional term – regarding, for example,
selection of the arbitrators or specification of the arbitral seat – would not invalidate the
fundamental agreement to arbitrate. (848) As one U.S. court reasoned:
“Where one term of an arbitration agreement has failed, the decision between substituting a
new term for the failed provision and refusing to enforce the agreement altogether turns on the
intent of the parties at the time the agreement was executed, as determined from the
language of the contract and the surrounding circumstances.…To the extent the court can infer
that the essential term of the provision is the agreement to arbitrate, that agreement will be
enforced despite the failure of one of the terms of the bargain. If, on the other hand, it is clear
that the failed term is not an ancillary logistical concern but rather is as important a
consideration as the agreement to arbitrate itself, a court will not sever the failed term from
the rest of the agreement and the entire arbitration provision will fail.” (849)
Consistent with the essential terms of an arbitration agreement (discussed above), (850) most
courts and tribunals have held that the parties’ agreement to arbitrate was their underlying
commitment and objective, with defects in the particular modalities of this agreement not
vitiating it or rendering it invalid. (851)
[6] “Optional” or “Non-Mandatory” Arbitration Agreements
P 788
Parties sometimes agree to provisions that appear only to consider arbitration as an
alternative or optional means of dispute resolution if future disputes arise, but not to require
mandatory submission of such disputes to arbitration. Agreements of this nature would almost
always be ill-advised, because they serve virtually no meaningful purpose and often give rise
to procedural confusion.
A number of national courts and arbitral tribunals have considered whether arbitration can be
compelled under apparently “optional” provisions of this sort. The pronounced tendency of
these authorities is to treat even ambiguously-drafted provisions as “mandatory” in
commercial settings, thereby either obliging parties to submit their disputes to arbitration,
and to refrain from litigation of arbitrable disputes or granting either party the option to
initiate arbitration. (852)
In many instances, courts reason that the arbitration clause creates an option, permitting (but
not requiring) either party to initiate arbitration, and that, if the option is exercised by either
party, both parties are then bound to arbitrate. (853) The basis for this conclusion is that it
would make little or no commercial sense for parties to agree to optional arbitration in an
entirely non-mandatory sense, leaving both parties free to decide when disputes arise whether
or not they wish to arbitrate. This analysis is well-considered: a non-mandatory provision of
this sort gives the parties nothing that does not exist in the absence of any agreement; unless
there is very clear language to the contrary, this result should not be assumed.
Preliminarily, the phrase “optional” arbitration agreement is imprecise. In fact, all arbitration
agreements are “optional,” in the sense that either party has the option of commencing
arbitration or doing nothing and, when one party does commence arbitral proceedings, the
other party is bound by the agreement to arbitrate. The better descriptive term for what are
often referred to as “optional” arbitration agreements is a “non-mandatory” arbitration
agreement, which would leave both parties free, after a dispute arises and arbitration is
initiated, to decide whether or not they wish to arbitrate that dispute.
Under the U.S. FAA, U.S. courts have generally concluded that provisions drafted in what
appear to be “optional” terms constitute compulsory arbitration agreements, which permit
either party to commence arbitration, which is then mandatory for both parties. Virtually all
decisions have held that arbitration clauses providing that disputes “may” be resolved by
arbitration is a mandatory, not permissive, provision, giving either party the option of
P 789
triggering mandatory arbitration. (854) Other courts have relied on the incorporation of
institutional arbitration rules in arbitration agreements as confirming the mandatory character
of the agreement to arbitrate. (855) Nonetheless, if the language of an arbitration clause is
clearly optional, some U.S. courts will conclude that the clause is not mandatory, (856)
although it may even then be subject to the enforcement regime of the FAA. (857)
P 790 Other authorities are also generally reluctant to conclude that an agreement to arbitrate
is only “optional.” (858) An English court held that a clause providing “arbitration, if any, by ICC
rules in London,” was a mandatory arbitration agreement, because the words “if any” were
either surplusage or an abbreviated reference to “if any dispute arises.” (859)
In another English case, a provision that disputes “should be arbitrated” was sufficient to
create a binding, mandatory arbitration agreement. (860) The court reasoned that once a party
exercised an option to commence arbitration (“disputes may be dealt with”), then the other
party was bound by the arbitration agreement. Yet another English decision held that a clause
providing that “disputes may be dealt with” by arbitration was a form of mandatory arbitration
agreement. (861) The court again reasoned that once a party exercised an option to commence
arbitration (“disputes may be dealt with”), then the other party was bound by the arbitration
agreement.
A Canadian court similarly held that a clause providing that “the parties may refer any dispute
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under this agreement to arbitration” was a mandatory arbitration agreement because a
binding arbitration agreement would arise whenever one party exercised its option to invoke
arbitration. (862) Hong Kong courts have reached similar conclusions, requiring express
language to find a non-mandatory arbitration agreement. (863) Courts in other Model Law
jurisdictions have also generally reached the same results. (864)
P 791 The same approach has generally been adopted in civil law jurisdictions. The Italian Corte
di Cassazione rejected the argument that an arbitration clause was merely optional, because it
provided that parties “may” commence arbitration, correctly reasoning that: “otherwise, the
clause would be meaningless as a dispute settlement instrument as it would merely envisage
the generic option to refer the dispute to arbitration, an option that the parties would have
had also if there had been no clause.” (865) Japanese courts have reached similar conclusions,
notwithstanding the existence of ambiguous language. (866)
There are nonetheless cases where a putative agreement to arbitrate is held to be optional, in
the sense that the parties will only be required to arbitrate if they subsequently agree to do so.
For example, the Indian Supreme Court has held that a clause providing that disputes “shall be
referred to arbitration if the parties so determine” was “not an arbitration agreement but a
provision which enables arbitration only if the parties mutually decide after due consideration
as to whether the disputes should be referred to arbitration or not.” (867) Courts in other
jurisdictions have occasionally reached similar conclusions, typically when clear language
foreclosed any other interpretation. (868)
Nonetheless, such conclusions are disfavored. Commercial parties should not be presumed,
absent clear contrary language, to have merely agreed to discuss the possibility of arbitration
P 792
in the future. (869) Rather, provisions referring to arbitration are ordinarily meant to be
agreements to arbitrate, not agreements to think about arbitrating – which would serve little, if
any, commercial purpose.
In some contexts, the option provided by an arbitration agreement is asymmetrical and one
party, but not the other, is permitted to initiate arbitration. As discussed below, asymmetrical
arrangements of this sort have generally been held to constitute valid arbitration agreements
under national law, notwithstanding challenges to their validity based on lack of mutuality or
unconscionability. (870)
[7] Consent, Implied Consent and Lack of Consent
Apart from the issue of what terms are essential to an agreement to arbitrate, the question of
consent to an arbitration agreement does not generally involve complicated legal issues.
Instead, it principally concerns questions of fact: was an agreement executed or not, by whom
was the agreement signed, was a letter sent and received or not?
[a] Consent to Underlying Contract Typically Constitutes Consent to Arbitration Agreement
As discussed above, the essential issue in determining the existence of an arbitration
agreement is whether the parties have consented to that agreement (to arbitrate), as
distinguished from having consented to the underlying contract. (871) At least in principle, and
also sometimes in practice, it is entirely possible for a party to have consented to one of these
agreements, but not the other. (872) There are numerous instances where this conclusion has
been reached. (873)
Nonetheless, in many cases, the only evidence of consent to an arbitration agreement will be a
party’s consent to the underlying contract, with no separate indications of consent to the
arbitration clause specifically. In these cases, there will ordinarily be no reason to distinguish
between a party’s consent to the underlying contract and the arbitration clause.
Despite the separability presumption, it is elementary that a party’s signature on the
underlying contract constitutes consent to the arbitration clause contained within that
contract. This conclusion is so non-controversial that it is virtually never disputed. It is in any
event compelled by logic (a party’s assent to an instrument presumptively includes assent to
all the instrument’s terms) and confirmed by the definition of “arbitration agreement”
contained in leading international conventions (“an arbitral clause in a contract” (874) ).
P 793
Consequently, absent compelling contrary evidence, (875) a party’s signature of or other
consent to an underlying contract virtually always constitutes assent to the arbitration clause
contained in that contract.
Nonetheless, there are important exceptions to these generalizations. As discussed elsewhere,
one of these exceptions arises in the context of exchanges of correspondence or
offers/acceptances, which demonstrate the existence of an underlying contract, but contain
specific objections directed towards arbitration provisions. (876) Alternatively, there may be
ambiguities, irreconcilable contradictions, or other defects in the arbitration clause, which
affect its status alone, without directly impacting the underlying contract. (877)
[b] Consent to Underlying Contract Not Necessarily Required for Consent to Arbitration
Agreement
Notwithstanding the foregoing, consent to the parties’ underlying contract is not necessarily
required to establish consent to the associated agreement to arbitrate. Although rare in
practice, the separability presumption permits consent to and formation of the agreement to
arbitrate even without consent to or formation of the underlying contract. (878)
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