Dr.

RAM MANOHAR LOHIYA NATIONAL

LAW UNIVERSITY

ACADEMIC SESSION: 2023-2024

ALTERNATIVE DISPUTE RESOLUTION

INTERPRETATION OF PATHOLOGICAL CLAUSES

Submitted to: Submitted by:

Dr. Prasenjit Kundu Saddhvi Nayak

Associate Professor (Law) 200101114

RMLNLU 7th semester (Section B)

B.A.LLB.(Hons.)

CONTENTS
S.NO. Topic Pg.NO.
1. Declaration 3
2. Acknowledgement 4

3. Introduction 5

4. Pathological Arbitration Clauses 5-7

5. Categories of Pathologies 7-8

6. Pathologies that affect the principle of 8-19

resorting to arbitration.
7. Pathologies that affect the modalities of 10-11
resorting to arbitration
8. Remedies for pathological arbitration clauses 11-13

9. India’s take on pathological arbitration 14-18

clauses
10. Conclusion 18-19

11. References 19-20

 DECLARATION

I hereby declare that the project work entitled “Interpretation

of Pathological Clauses” submitted to the Dr. Ram Manohar
Lohiya National Law University, Lucknow is a record of an
original work done by me under the guidance of Dr. Prasenjit
Kundu, faculty of law, the Dr. Ram Manohar Lohiya National
Law University and this project is submitted in the partial
fulfillment of the requirements for the award of the degree of
B.A.L.L.B (Hons.). The results embodied in this have not been
submitted to any other University or Institute for the award of
any degree or diploma.

ACKNOWLEDGEMENT
This research paper would not have been accomplished without the
generous contributions of individuals. First of all, I express my gratitude
to the Almighty, who aided me with his strength, wisdom and patience to
complete this project as a term paper.

Additionally, I express my gratitude and deep regards to my teacher Dr.

Prasenjit Kundu for giving me the freedom to work on “Interpretation
of Pathological Clauses” and also for his exemplary guidance,
monitoring and constant encouragement throughout the course of this
research paper.

I would also like to thank the authorities of Dr. Madhu Limaye Library
who provided the remote access of the library to provide the research
material.

Moreover, I also thank all my batchmates and seniors who aided me

along the way, and my family and friends for their constant
encouragement without which this assignment would not have been
possible.

I know that despite my best effort some discrepancies might have crept
in which I believe my humble professor would forgive.

THANKING YOU ALL.

Saddhvi Nayak.

INTRODUCTION
The arbitration clauses, called in doctrine and in international commercial jurisprudence
"pathological" clauses, which are drafted poorly, being likely to impede the proper conduct of
international commercial arbitration due to incomplete, imprecise, unclear or contradictory
stipulations. The remedies for the affected clauses depend on the nature and severity of the
pathology affecting each clause, and, often, the deficiencies of these clauses are removed, as
far as possible, by applying the various methods of interpretation of the contractual clauses,
which have crystallized in national legislations, uniform law and comparative jurisprudence. The
courts and arbitral tribunals give various decisions, depending on the legal regulations and the
international commercial customs that they consider applicable in the case, the jurisprudence in
this field being different. The exercise of drafting arbitration seems straight forward, the history
of arbitration has exposed the folly of humankind in failing to learn lessons from the past.
Numerous cases are reported every year relating to defective arbitration clauses. This project
provides a brief overview of defective or pathological clauses in arbitration.

PATHOLOGICAL ARBITRATION CLAUSES

A primary condition of arbitration, the arbitration clause is the contractual stipulation that
represents a procedural agreement made between the contracting parties that is the basis of
the vesting of arbitrators with the power to judge disputes referred to arbitration. The Model Law
of the United Nations Commission on International Trade Law on International Commercial
Arbitration of June 21, 1985, with the amendments as adopted 2006 defines the arbitration
convention as an agreement by the parties to submit to arbitration all or certain disputes
which have arisen or which may arise between them in respect of a defi ned legal
relationship, whether contractual or not. An arbitration agreement may be in the form of an
arbitration clause in a contract or in the form of a separate agreement (Art.7) 1.

The eminent French jurist Frédéric Eisemann, former Secretary General of the International
Arbitration Court of the International Chamber of Commerce in Paris (hereinafter –ICC),
established four functions of the arbitration clause:

1. Produces mandatory consequences for the parties;

1
UNCITRAL Model Law on International Commercial Arbitration//United Nations Document A/40/17.
[Electronic resource] // Available at: https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/
en/19-09955_e_ebook.pdf
 2. Excludes the intervention of State courts in the settlement of the disputes, at least before
the issuance of the award;
3. Gives powers to the arbitrators to resolve the disputes likely to arise between the
parties; and
4. Implements a procedure which fosters the best conditions of efficiency and speed
resulting in a final award that is susceptible to judicial enforcement. 2

Carefully drafted dispute resolution clauses in an international commercial contract are crucial to
facilitating transactions between parties, however are often neglected in the negotiation process.
Parties and their counsel invest significant time and resources to define their commercial
relationship in their agreements, but sometimes fail to give the same care when drafting a
mechanism for resolving disputes3. These clauses are also called "midnight clauses"4, because
they are usually the last clauses to be considered in contract negotiations, sometimes late at night
or in the early hours of the morning.

When the arbitration clauses are drafted improperly, being liable to disrupt smooth progress
of the arbitration, due to incomplete, imprecise, unclear or contradictory stipulations, in
doctrine and in comparative jurisprudence it is referred to as “pathological arbitration clauses”,
term introduced by Frédéric Eisemann5. Another well-known author, Professor Fernández
Rozas, states that we are in the presence of a pathological clause whenever the clause is
ambiguous in terms of the will of the parties to submit to arbitration, in the identification of the
competent arbitral institution or in terms of the certainty of waiver to the state jurisdiction 6. The
questions that arise in relation to these are mainly the following: did the parties really wish to
derogate from the jurisdiction of the state court in order to assign jurisdiction to an arbitral
tribunal? Is it possible for their agreement to be enforced?

2
Benjamin, G. D., Pathological Clauses: Frédéric Eisemann’s Still Vital Criteria, 7 ARB. INT’L 365, 366 (1991).
3
Samra Harout, J., Ramachanderan, R. A Cure for Every Ill? Remedies for “Pathological” Arbitration Clauses, 74
U. Miami L. Rev. 1111 (2020) [Electronic resource] // Available
at:https://repository.law.miami.edu/umlr/vol74/iss4/6
4
Holtz, N., Beware the Midnight Clause: Hold the Champagne?, [Electronic resource] // Available at:
https://www.jamsadr.com/publications/2016/beware-the-midnight-clause-hold-the-champagne
5
Fouchard, Ph., Gaillard, E., Goldman, B. International Commercial Arbitration, Kluwer Law International,
1999.[Electronic resource] // Available at:https://books.google.md/books?
id=3V0vsEcETPMC&lpg=PR35&ots=5I7FTKMbJm&dq=fouchard%20gaillard
%20goldman&lr&pg=PR35#v=onepage&q=fouchard%20gaillard%20goldman&f=true
6
Eisemann, F. La clause d'arbitrage pathologique. În: Commercial Arbitration Essays in Memoriam Eugenio
Minoli.Torino: Unione Tipografico-editrice Torinese, 1974,p.129-161.
 CATEGORIES OF PATHOLOGIES

Scholars and practitioners have identified several categories of pathological arbitration clauses.
For example, Frédéric Eisemann divides pathological arbitration clauses into two main
categories:

1) 1st degree pathological clauses and

2) Pathological clauses in the second degree.

1st degree pathological clauses, even though they do not directly contradict the essential
functions of the arbitration agreement, cause difficulties with regard to

 The appointment of arbitrators and

 Procedure and choice of law.

The pathological clauses in the second degree are subdivided into

(a) Arbitration agreements where the appointment of arbitrators requires a new agreement or
the intervention of the courts;
(b) Arbitration agreements that set inoperable limits to the arbitral tribunal proceedings and
(c) Agreements that have been so poorly drafted that they cannot even be designated as
arbitration agreements -"hyper pathological" clauses7.

Synthesizing the various studies carried out in the doctrine on the classification of
pathologies affecting arbitration clauses8, in general, two main categories of pathologies can be
highlighted: on the one hand, there are those in which the deficiencies refers to the very will to
resort to arbitration (pathologies that affect the very principle of resorting to arbitration),
and, on the other hand, there are those pathologies in which the will to resort to arbitration is
certain, but its implementation methods remain confused (pathologies that affect the
modalities of resorting to arbitration).

7
Fernandez Rozas, J. C.Le rôle des juridictions étatiques devant l’arbitrage commercial international,RCADI,
tome 290, 2001, p. 118.
8
Diallo, O., Le consentement des parties à l'arbitrage international. Geneve: Graduate Institute Publications, 2010.
[Electronic resource] // Available at: https://books.openedition.org/iheid/956
 PATHOLOGIES THAT AFFECT THE PRINCIPLE OF
RESORTING TO ARBITRATION.

This category includes the most "fragile" conventions, in that they call into question the very
decision of the parties to resort to arbitration. The Swiss Federal Tribunal in X Holding AG and
others v. Y Investments NV (25 October, 2010) rejected a pathological arbitration clause, holding
that it did not evidence the parties' intention to arbitrate. In the decision under appeal the lower
court came to the conclusion that the arbitration clause in dispute did not allow a clear
conclusion that the Parties wanted to rule out the jurisdiction of the state courts and to
submit the dispute brought in front of the Cantonal Court to an arbitral tribunal. Even if this
were not the case it would remain unclear which arbitral tribunal would have jurisdiction and the
arbitration clause failed to meet the requirement of precision thus rendering it an “incurably
pathological clause”.

In their contract the parties undertook “(...) to have the dispute submitted to binding arbitration
through The American Arbitration Association [hereafter: AAA] or to any other US court. (...)
The arbitration shall be conducted based upon the Rules and Regulations of the International
Chamber of Commerce (ICC 500).” The Swiss Federal Tribunal stated that “(...) this may
easily be understood as meaning that they wanted to submit disputes either to the AAA for an
arbitration (“to binding arbitration through the AAA”) or to another optional “US court” (to
any other US court). From the wording chosen it is not clear that even the “other US court” to
deal with the dispute would lead to an arbitration and not to other proceedings and that with
“other US court” another American arbitral tribunal is meant. Under “US court” within the
framework of the wording chosen a state court may anyway be understood and only a description
like “US arbitral court” would have shown with sufficient clarity that the ordinary state courts
were to be excluded”.

The Swiss Federal Tribunal also emphasized: “(...) to interpret an arbitration clause one
has to heed that the choice of an arbitral tribunal is of great consequence as arbitral
proceedings regularly lead to higher costs and judicial remedies are limited as a consequence
of renouncing the state courts. Such an intent to renounce cannot be assumed lightly and in case
of doubt restrictive interpretation is accordingly called for”9.
In arbitration jurisprudence and doctrine, the clause that provides for the submission of the
dispute to arbitration in an optional manner is also considered pathological (e.g.: “the parties
may resort to arbitration”). Although quite problematic, these clauses have sometimes been
successfully opposed to the jurisdiction of the ordinary judge seized by one of the parties. As an
example, the Court of Appeal of Ontario (Canada) referred the parties to arbitration under an
arbitration clause stating that “the parties may refer any dispute under the contract to
arbitration”10.
In the same way, the so-called combined clauses are attributed to this category -those
conventions, in which the parties combine the submission of the dispute to arbitration and the
designation of a state jurisdiction at the same time. They raise very delicate issues of
interpretation of the will of the parties, as shown by the contradictory positions of the various
jurisdictions called upon to rule on these clauses. It has sometimes been held that such clauses do
not manifest any definite intention and should therefore be considered void.
In other cases, in the presence of an apparent contradiction between an arbitration clause
and a clause assigning jurisdiction to a state court, priority was given to the first over the
second. Thus, the Paris Tribunal of First Instance, by the decision of February 1, 1979 held
that an ambiguous arbitration clause should be interpreted by considering that, if the
parties had not wished to submit their dispute to arbitration, they would simply have refrained
from mentioning the possibility of doing so; [...] by including an arbitration clause in
their contract, they demonstrated that it would be necessary to submit any disputes arising from
the contract to the arbitral tribunal to which they referred.

9
X Holding AG v Y Investments NV, 4A_279/2010 Judgment of October 25, 2010, First Civil Law Court.
[Electronic resource] // Available at: https://www.swissarbitrationdecisions.com/sites/default/files/25%20octobre
%202010%204A%20279%202010.pdf
10
Ontario Court of Appeal, July 8, 1999,Canadian National Railway Co c. Lovat Tunnel Equipment Inc. [Electronic
resource] // Available at: https://jusmundi.com/en/document/decision/en-lovat-tunnel-equipment-inc-v-canadian-
national-railway-company-and-grand-trunk-western-railroad-incorporated-judgment-of-the-ontario-court-of-appeal-
thursday-8th-july-1999
 PATHOLOGIES THAT AFFECT THE MODALITIES OF
RESORTING TO ARBITRATION
The pathological arbitration agreements in this category express a clear choice in favor of
arbitration, but in expressing their choice, the parties are often not explicit about the ad hoc or
institutional nature of the arbitration, about the ways of setting up the arbitral tribunal, about the
designation of the entity that have to ensure the running of the procedure, about the rules of
procedure, etc. Such clauses can give rise to difficulties during the implementation of arbitration,
and their destiny depends on the interpretation made by the courts (both arbitrators and judges)
in terms of clarifying the true intention of the parties.
In this vein, in the Decision of the Plenum of the Supreme Court of Justice of the Republic of
Moldova, no. 2 of 30.03.2015, “regarding the application by the courts of the legal provisions to
the resolution of some issues in the examination of disputes in which the parties concluded the
arbitration agreement” it was ruled: “in cases of an arbitration agreement, with certain
inaccuracies or omissions, but which indisputably confirms the will of the parties to settle the
dispute through arbitration, the parties are to remove these deficiencies, concretizing its content.
If the arbitration institution is not indicated in the agreement or its specification is requested, the
parties are to remove these inaccuracies”11.
The Singapore Court of Appeal explained in the famous case of Insigma v Alstom: “where
the parties have evinced a clear intention to settle any dispute by arbitration, the court
should give effect to such intention, even if certain aspects of the agreement may be
ambiguous, inconsistent, incomplete or lacking in certain particulars (...) so long as the
arbitration can be carried out without prejudice to the rights of either party and so long as giving
effect to such intention does not result in an arbitration that is not within the contemplation of
either party”12.
On the other hand, the Hamm Court of Appeal in Germany refused to uphold an arbitration
clause which provided that “[the Parties] shall proceed to litigate before the Arbitration Court of

11
Buletinul Curţii Supreme de Justiţie a Republicii Moldova, 2015, nr.6, pag.4.
12
Judgment of the Court of Appeal of Singapore [2009] SGCA 24. [Electronic resource] //
Available at: https://jusmundi.com/en/document/decision/en-alstom-technology-ltd-v-insigma-technology-co-ltd-
judgment-of-the-court-of-appeal-of-singapore-2009-sgca-24-tuesday-2nd-june-2009
the International Chamber of Commerce in Paris with these at in Zurich”. The Court held that the
clause was void because it was ambiguous as to whether the parties’ disputes should be
arbitrated under the auspices of the ICC or the Zurich Chamber of Commerce, as each had
its own competent permanent arbitration institution13.
In this context, it should be noted that comparative jurisprudence often shows a lenient
attitude towards this kind of pathological clauses. Thus, for example, Singapore is well known
for the willingness of its courts to uphold pathological arbitration clauses. The Singapore
High Court in HKL v Rizq International Holdings upheld a clause which provided that disputes
shall be “settled by the Arbitration Committee at Singapore under the rules of the International
Chamber of Commerce...”. It noted that, despite the fact that the clause specified a non-existent
institution as the administrating institution, it would be open to the parties to approach any
arbitral institution in Singapore which would be able to administer the arbitration applying the
ICC Rules. The court therefore stayed the court proceedings with the condition that the
parties obtain the agreement of the Singapore International Arbitration Center or any other
arbitral institution in Singapore to conduct a hybrid arbitration applying the ICC Rules, with
a liberty to apply should they fail to secure such agreement14.

REMEDIES FOR PATHOLOGICAL ARBITRATION CLAUSES

Deficiencies in an arbitration clause do not necessarily invalidate the agreement so constituted;
its validity depends on the nature or substance of the deficiency and whether it is remediable. In
general, arbitration clauses are held to be valid, irrevocable and enforceable, unless they are
affected by generally applicable legal defects such as fraud, duress, or unconscionability on the
ground that the dispute is not arbitrable.
As a result, when faced with a poorly drafted or defective arbitration clause, the courts must
determine whether the parties agreed to arbitrate the dispute notwithstanding the poor drafting of
the clause. In such situations, judges or arbitrators will try to remedy the defective clauses, unless
they suffer from incurable pathologies. To do so, courts analyze all the circumstances
surrounding the arbitration agreement to determine whether the parties both had or should have
had knowledge of the clause, were capable of entering into the agreement, whether the

13
SingaporeInternationalArbitrationBlog.PathologicalArbitrationClauses[Electronic resource]// Available at:
https://singaporeinternationalarbitration.com/2013/03/08/pathological-arbitration-clauses/
14
HKL Group Co. Ltd. v. Rizq Int’l Holding Pte. Ltd., [2013] SGHCR 5 [Electronic resource] // Available at:
https://www.elitigation.sg/gd/s/2013_SGHCR_8
arbitration agreement suffers unconscionability, whether the forum in the agreement is available,
etc.
Remedial of pathological arbitration clauses is most often achieved by their interpretation,
using the general rules applicable to the interpretation of contractual clauses; they are
included in national civil legislation, for example art. 1100-1107 Civil Code of the Republic of
Moldova15 (hereinafter –Civ. Code RM), as well as in the instruments of uniform law -the
Vienna Convention of April 11,1980 on Contracts of the International Sale of Goods
(hereinafter -the Vienna Convention)16, Principles of International Commercial Contracts
edited by UNIDROIT (hereinafter -the UNIDROIT Principles)17.
First of all, it should be mentioned that the interpretation of the arbitration clauses, like
the other contractual clauses, is performed according to the principle of good faith. In a decision
of the Swiss Federal Tribunal (2010), it was held:”the interpretation of an arbitration clause
follows the general rules applicable to the interpretation of private declarations of will. The
concurrent factual understanding of the parties as to the statements exchanged is decisive for the
main part. When such factual will of the parties cannot be ascertained, the arbitration
clause must be interpreted objectively, i.e. putative will of the parties is to be determined
according to that which could and should have been understood by an addressee acting in
good faith”.
Another rule of interpretation is the priority of the real will of the parties. This rule, which is
found both in national legislation and in instruments of uniform law (art. 1100 (2) Civ. Code
RM, art. 8 of the Vienna Convention and art. 4.1 -4.3 of the UNIDROIT Principles), establishes
that the interpretation of the contract is done according to the common intention of the parties,
without being limited to the literal meaning of the terms used. For example, in a ICSID decision
of 1983 it was ruled that: “like any other conventions, a convention to arbitrate is not
to be construed restrictively, nor, as a matter of fact, broadly or liberally. It is to be construed
in a way which leads to find out and to respect the common will of the parties: such a method of

15
Codul Civil al Republicii Moldova [Electronic resource] // Available at: https://www.legis.md/cautare/getResults?
doc_id=112573&lang=ro
16
United Nations Convention on Contracts for the International Sale of Goods. [Electronic resource] // Available
at: https://www.uncitral.org/pdf/english/texts/sales/cisg/V1056997-CISG-e-book.pdf
17
UNIDROIT Principles of International Commercial Contracts. [Electronic resource] // Available at:
https://www.unidroit.org/instruments/commercial-contracts/unidroit-principles-2016
interpretation is but the application of the fundamental principle pacta sunt servanda, a
principle common, indeed, to all systems of internal law and to international law”18.
In determining the intent of a party, due consideration is to be given to all relevant
circumstances of the case, including the nature and purpose of the contract; the
negotiations; any practices which the parties have established between themselves;
usages; the conduct of the parties subsequent to the conclusion of the contract; the meaning
commonly given to terms and expressions in the trade concerned. If the intention of the
parties cannot be established, such statements and other conduct shall be interpreted
according to the meaning that a reasonable person of the same kind as the other party would give
to it in the same circumstances.
One of the principles most often used in the interpretation of pathological clauses is the
principle of effective interpretation: contract terms shall be interpreted so as to give effect to all
the terms rather than to deprive some of them of effect (art. 1104(1) Civ. Code RM, art.4.5 of the
UNIDROIT Principles). In an ICC award it was mentioned:”[a] rule of interpretation
that is universally recognized provides that in case of two conflicting interpretations or two
possible meanings of the same contract term one must, in case of doubt, prefer the interpretation
which conserves a certain meaning to these words rather than following an approach which
renders them useless or even absurd”19.
Regarding the application of this principle in order to safeguard the arbitration clause, the Swiss
Federal Tribunal also ruled: “when indeed the result of the interpretation shows that the
parties wanted to, except the dispute from the state courts and submit it to an arbitral decision but
some differences remain as to the implementation of the arbitral proceedings, then the so
called Utilitätsgedanke applies, according to which an understanding of the contract must be
sought which allows the arbitration clause to subsist”.

18
Amco Asia Corporation and others v. Republic of Indonesia, ICSID Case No. ARB/81/ [Electronic resource] //
Available at: https://jusmundi.com/en/document/decision/en-amco-asia-corporation-and-others-v-republic-of-
indonesia-decision-on-jurisdiction-sunday-25th-september-1983#decision_1028
19
ICC Award No.1434, Clunet 1976, at 978 et seq.[Electronic resource] // Available at:
https://www.trans-lex.org/201434/_/icc-award-no1434-clunet-1976-at-978-et-seq/#3b
 INDIA’S TAKE ON PATHOLOGICAL ARBITRATION
CLAUSES
The Indian courts have been very forbearing when presented with a defective arbitration clause.
The courts have been mindful of the limited judicial interference permitted under the Act. They
have often corrected a defective arbitration clause by severing the illegal portion. The Supreme
Court has held that a party should not be allowed to take advantage of the inartistic drafting of
the arbitration clause as long as the intention of the parties to refer the dispute to arbitration is
clear.20 However, the courts have refused to relegate the parties to arbitration when the entire
clause was permeated with illegality. Various situations that make the arbitration clause
defective and how the Indian courts have dealt with such defects:
Unclear reference to Arbitration
One of the most essential requirements of an arbitration agreement is the intention of the parties
to be bound by the agreement. When the intention of the parties is not clear in the agreement, the
agreement is void and cannot be acted upon.
In Jagdish Chander v. Ramesh Chander,21 the clause postulated that the parties “shall be referred
to arbitration if the parties so determine”, the Supreme Court held that the clause is not a valid
arbitration agreement and only an agreement to enter into an arbitration agreement. A clause that
requires a fresh consent of the parties to enter into arbitration is not a valid arbitration
agreement.22 Use of the word “may” in a clause entails only a possibility of arbitration, the same
is not a concluded agreement.23 Similarly, a clause that only provides for an expert determination
of the issues is not an arbitration agreement.24
The High Court of Delhi, Bombay, Calcutta, Rajasthan, Punjab and Haryana, and Andhra
Pradesh, have consistently held that a clause which only provides for a possibility of arbitration
between the parties and requires fresh consent of the parties, is not a concluded arbitration
agreement, therefore, there is no arbitration agreement between the parties.

Clause providing for even number of Arbitrators

20
Visa international v. Continental Resources, (2009) 2 SCC 55.
21
(2007) 5 SCC 719.
22
Wellington Associates v. Kirit Mehta, (2004) 4 SCC 272.
23
Linde Heavy Truch Divison Ltd v. Container Corporation of India Ltd., 2012 SCC OnLine Del 5434 .
24
K.K. Modi v. K.N. Modi, (1998) 3 SCC 573; Bharat Bhusan Bansal v. U.P. Small Industries Corp., (1999) 2 SCC
166.
The Supreme Court in M.M.T.C. Ltd v. Sterlite Industries,25 held that the number of arbitrators
specified under the agreement is not a ground to invalidate the arbitration agreement. When the
agreement provides for an even number of arbitrators, the same shall be construed to be referring
to a sole arbitrator. Participation in the arbitral proceedings before a tribunal consisting of an
even number of arbitrators deprives the parties from later objecting to the constitution of the
tribunal.
Therefore, the courts have adopted a pro-arbitration approach by giving effect to the intention of
the parties to arbitrate, regardless of an issue as to the number of arbitrators specified under the
clause.
Ambiguity as to the applicable law and the rules of arbitral institutions
In Pricol Ltd. v. Johnson Controls,26 the arbitration clause made reference to one “Singapore
Chamber of Commerce” which is not an arbitral institution. The Court held that the clause is to
be given a reasonable and meaningful construction, therefore, the reference was actually to
Singapore International Arbitration Centre (SIAC).
In System for International Agencies v. Rahul Coach Builders,27 the clause provided that the
parties shall be referred to arbitration under the by-laws of Indian Companies Act. The court held
such a clause to be invalid as it made reference to a law that never existed.
Hybrid Arbitration Clause
Such clauses provide for the administration of arbitration proceedings by an arbitration
institution under the rules of another institution.
In Value Advisory Services v. ZTE Corp.,28 the High Court of Delhi considered an arbitration
clause that provided for administration of arbitration proceedings by SIAC under the ICC Rules.
The court held that such a clause would be unworkable as both institutions administer the
arbitration under their own rules. But such unworkability would not invalidate the entire
agreement and the court can sever the offending portion of the clause.

Clause restricting the right to challenge the arbitral award

25
(1996) 6 SCC 716.
26
(2015) 4 SCC 177.
27
(2015) 13 SCC 436.
28
2017 SCC OnLine Del 8933.
In Shin Satellite v. Jain Studious,29 the clause precluded the parties from filing an appeal against
the award of the tribunal. The court held that portion of the clause to be invalid. However, the
court clarified that partial invalidity would not affect the entire clause and the court could give
effect to the remaining portion by severing the void part of the clause. Similarly, in Union
Construction v. Chief Engineer,30 the court held that an arbitration clause that ousted the
jurisdiction of the ordinary courts to examine the validity of the award would be void to the
extent of such proscription.
Unilateral Option Clauses
These clauses essentially confer the right of arbitration only on one party to the agreement. The
arbitration, in such cases, becomes an option exclusively exercisable only by a party given the
right of arbitration.
The High Court of Calcutta in Kedarnath Atmaram v. Kesoram Cotton Mill,31 had to consider the
validity of a unilateral option clause. The court upheld the validity of the clause on the ground
that both parties agreed to be bound by the arbitration clause.
In New India Assurance v. Central Bank of India,32 the court held that a unilateral option in the
clause does not invalidate the agreement but only restricts its enforceability. The privilege that
one party enjoys is the result of the express consent of the other party recorded in the agreement.
A similar approach was adopted by the High Court of Madras in Castrol India Ltd. v. Apex
Tooling,33 wherein it held that there is no requirement of mutuality in the arbitration agreement
as the parties enter into such an agreement with their free consent.
In Union of India v. Bharat Engineering,34 the High Court of Delhi held a unilateral option
clause to be a ‘contract of option’ which is only enforceable after the option has been exercised.
However, the court clarified that a clause that only allows the claims of only one party to be
decided by the arbitrator would be invalid in law.

Unilateral Appointment Clauses

29
(2006) 2 SCC 628.
30
1959 SCC OnLine All 310.
31
1949 SCC OnLine Cal 382.
32
1984 SCC OnLine Cal 166.
33
2015 SCC OnLine Mad 2095.
34
1977 SCC OnLine Del 45.
Unilateral arbitration clauses confer the right of appointment of a sole arbitrator on one party.
The Courts have consistently held such a would not make the entire arbitration clause fall with
it. The Supreme Court, in its judgment in Perkins Eastman v. HCC (India) Ltd 35, construed an
arbitration clause that provided for unilateral appointment by one party and held that unilateral
appointment of sole arbitrator is impermissible in law. The Court held that a person who himself
is ineligible to be appointed as the arbitrator cannot also appoint the sole arbitrator for the
parties. However, the Court did not have the opportunity of considering the effect of such
illegality in the procedure on the entire arbitration clause as no argument to that effect was made
by either party.
In Karismaa MEP Services v. KSG Milestone 36, the High Court of Madras was facing a situation
wherein the named arbitrator was not just the director but was holding 33% shares in the
respondent company. The respondent argued that since the person named in the arbitration
agreement cannot be appointed as the arbitrator, the entire clause becomes unconscionable and
stand obliterated. The Court held that the entire arbitration clause would not fall merely because
the person specified by designation in the arbitration clause is incapable of arbitration.
The High Court of Delhi in Jyoti Swarup Mittal v. SDMC37 considered an arbitration clause that
conferred the unilateral right of appointment of arbitrator on the respondent and stipulated that
there shall be no arbitration in case the person so appointed is unable to act. The Court the entire
arbitration clause would not fall merely because it is no longer permissible to follow the
appointment procedure in the agreement.
In Ram Kripal Singh v. NTPC38 the High Court of Delhi held that an arbitration agreement has
many facets dealing with different strands of the arbitration procedure. These may include an
aspect governing the seat/venue of arbitration, procedure of arbitration, language of arbitration
etc. However, these are distinct from the core agreement i.e the consent of the parties to refer the
dispute to arbitration. Therefore, irregularity or invalidity of these aspects would not make the
core agreement unworkable.

Restrictive Arbitration Clauses

35
(2019) SCC Online SC 1517
36
2015 SCC OnLine 6849
37
2021 SCC OnLine 3674.
38
2022 SCC OnLine Del 3743
These clauses limit the scope of the arbitration agreement. In many cases, the arbitration clauses
are so restrictive that it makes arbitration a mere formality or an impossibility.
In U.P. State Food & Essential Commodities v. Astha Coal Trading,39 the Allahabad High Court
held that when a clause provided that the arbitrator shall be appointed for the purpose of
interpretation of any term of the contract, the arbitrator cannot decide any money claim of the
parties, his jurisdiction remains confined to the terms of reference only i.e., interpretation of the
contract.
Agreement excluding the applicability of the Arbitration Act, 1996.
In Hyderabad Precision v. Govt. of India, 40 the arbitration clause excluded the applicability of
the Arbitration Act, 1996 and provided for an alternate mechanism for the annulment of the
award. The Court held such a clause to be invalid and against Section 23 of the Indian Contract
Act. However, the parties intended to settle their disputes through arbitration, therefore, the court
severed the illegal portion and relegated the parties to arbitration. Similarly, a clause that made
reference to the Act of 1940 would not be entirely void, and the defect in the clause could be
corrected by the courts while appointing an arbitrator.

CONCLUSIONS
The multitude of problems caused by pathological arbitration clauses has revealed the
difficulties of drafting effective arbitration clauses and has led practice and doctrine to draw
more attention to them. The remedies for the affected clauses depend on the nature and
severity of the pathology affecting each clause, and, more often than not, the deficiencies of
these clauses are removed, as far as possible, by applying the various methods of
interpretation of the contractual clauses, which have crystallized in national legislation,
uniform law instruments and comparative jurisprudence.
The solutions adopted vary, but the general tendency is rather for the favoring by state
jurisdictions and arbitral tribunals of the validity of arbitration clauses affected by certain
pathologies, wanting to promote the jurisdictional effect of these clauses whenever possible.
However, it also happens that judges take the opposite attitude, considering that saving
pathological clauses at all costs is perhaps not the best way to encourage the parties to pay more
attention to their drafting. In this dilemma, the courts must seek a balance between the favoring

39
2019 SCC OnLine All 4417.
40
2013 SCC OnLine AP 528.
of arbitration as an alternative method of dispute resolution and the control of state
jurisdictions over the validity and effectiveness of some defective clauses, by way of
clarifying and respecting the real will of the parties expressed in their agreement on how to settle
disputes that appeared between them.
As for those who draft international commercial contracts, the recommendation is to
draw more attention to the drafting of arbitration clauses, using the various tools and sources,
such as model clauses drawn up by permanent arbitration institutions, doctrine, jurisprudence,
practical guides, etc. This would avoid the risks of such pathological clauses preventing the
proper conduct of arbitration and would contribute to the consolidation and proliferation of this
efficient way of settling international commercial disputes. However, in some situations, it is not
advisable to take over and insert mechanically model clauses into contracts; sometimes they
must be adapted to the specifics of each contract and to the circumstances in which the
relations between the contracting parties take place.

REFERNCES
CASES:
 Rapti Contractors v. Reliance Energy, 2009 SCC OnLine Del 275.
 Lucent Technologies v. ICICI Bank, 2009 SCC OnLine 3213.
 Tata Capital Housing Finance v. Shri Chand Construction, 2021 SCC OnLine Del 5091.
 Sri. Venkateshwara Construction Company v. Union of India, 2001 SCC OnLine AP
116; Rapti Contractors v. Reliance Energy Ltd., 2009 SCC OnLine Del 275; Wipro
Finance Ltd. v. Sandplast India Ltd., 2006 SCC OnLine Del 367; North East Securities
Ltd v. Sri Nageshwara Chemicals and Drugs Pvt. Ltd. (2000) 5 ALD 746; JMC Projects
v. SDMC, ARB. P. 632/2017.
 Narayan Prasad Lohia v. Nikunj Kumar Lohia, (2002) 3 SCC 572.
 Quick Heal Technologies Ltd v. NCS Computech Pvt. Ltd., 2020 SCC OnLine Bom 693.
 Jyoti Brothers v. Shree Durga Mining Co., 1956 SCC OnLine Cal 188; State Trading
Corp. v. Owners and Parties, 1998 SCC Online Cal 357; Consulting Engineering Services
v. Govt. of W.B. 2014 SCC Online Cal 22716.
 B. Gopal Das v. Kota Straw Board, 197- SCC OnLine Raj 36.
 Gajulapalli Chenchu Reddy v. Koayyana Jaya Lakshmi, 2009 SCC OnLine AP 202.
ARTICLES:

 Jae Hee Suh Associate (Singapore) at Allen & Overy and Suh, J.H. (2019)
Interpretation of pathological clauses: A cautionary tale?, Arbitration Blog.
Available at: http://arbitrationblog.practicallaw.com/interpretation-of-pathological-
clauses-a-cautionary-tale/
 (No date) View of pathological clauses in International Commercial Arbitration.
Available at: https://archive.interconf.center/index.php/2709-4685/article/view/
4086/4123
 Chandak, B. (2022) The cautionary tale of pathological clauses - arbitration &
dispute resolution - india, The Cautionary Tale Of Pathological Clauses - Arbitration
& Dispute Resolution - India. Available at:
https://www.mondaq.com/india/arbitration--dispute-resolution/1197128/the-
cautionary-tale-of-pathological-clauses
 Narang, S. (no date) Interpreting pathological arbitration clauses, BW bwlegalworld.
Available at: https://bwlegalworld.businessworld.in/article/Interpreting-Pathological-
Arbitration-Clauses/27-03-2023-470609/