Dispute Resolution | Proceed with caution: What to include and avoid in arbitration agreements

Equivocate at your own risk

The decision to arbitrate is a matter of contractual agreement. Courts and tribunals often interpret an agreement to arbitrate as a waiver of the right to access the domestic court system. As access to court is commonly deemed a fundamental right of parties, the language used to demonstrate a true intention to remove a dispute from the purview of the court system needs to be unequivocal and unambiguous.

In some jurisdictions, such as England and Singapore, a distinction is made between mandatory references to arbitration and those which are merely permissive. This comes down to the specific use of words in the arbitration agreement. The UK Privy Council has interpreted the phrase “any party may submit a dispute to arbitration” as merely permissive and creating an option to arbitrate, meaning that either party is free to commence litigation in the domestic courts up until and only unless a party exercises its option to ventilate the dispute in arbitration.[i]

In some other jurisdictions, such as in US federal courts and Hong Kong, case law has developed to interpret the use of the permissive word “may” as a mandatory reference to arbitration,[ii] although opposing outcomes have been reached in some cases in those jurisdictions. One should be aware that the question of whether such optional clauses are valid arbitration agreements varies across jurisdictions, and one should always obtain advice as to the idiosyncrasies of a given legal system on this point. It should also be noted that many jurisdictions’ courts have not yet considered the question of whether such optional clauses constitute valid and enforceable arbitration agreements.

The Norwegian Supreme Court has adopted a threshold for assessing the validity and enforceability of arbitration agreements through the lens of basic Norwegian contract law principles. The key question as a matter of Norwegian law is whether the arbitration agreement is formulated in terms of having “final and binding effect”.[iii] It is thus critical that parties include language that clarifies the final and binding effect of the arbitration agreement and consequent arbitration.

The solution to this issue is simple in theory: use mandatory language such as “shall” if you intend to submit all disputes to arbitration with no exception and be extremely cautious when adopting permissive language such as “may”, as this may be considered merely an option to arbitrate or an invalid reference to arbitration. In our experience, parties are generally well-served by providing for mandatory arbitration, thus avoiding potential satellite disputes concerning what role parties intended arbitration would play.

Be clear on the governing law, even at the risk of repeating yourself

Governing law clauses are ubiquitous and are familiar to commercial parties. However, parties do not often appreciate the limitations of the governing law clause as it relates to the arbitration agreement. International arbitration contains a principle known as the “doctrine of separability”. Embodied most famously in the UNCITRAL Model Law,[iv] it provides that an arbitration agreement is treated as a distinct and separate agreement in circumstances when the validity of the main contract is challenged. The upshot of this is that an arbitration agreement, being a separate agreement, could be governed by a law that is different to the law of the main contract in accordance with applicable choice of law rules, especially when the governing law of the main contract is different than the seat of arbitration. Some jurisdictions’ courts, such as England’s, have determined that the governing law of the arbitration agreement is impliedly that of the main contract,[v] whereas other jurisdictions’ courts, such as France’s Cour de cassation, have determined that the governing law of arbitration is impliedly that of the seat of arbitration.[vi] We have written about developments of the English law on this point in previous newsletters.[vii]

This question might seem academic, but it has potentially serious practical consequences. For example, the background to the Cour de cassation’s decision involved a dispute as to whether French or English law governed an arbitration agreement providing for French seat contained in a main contract providing for English governing law. This was important because, applying French law, a party that had not signed the arbitration agreement would be deemed to be bound by the arbitration agreement and the arbitral award, whereas applying English law would lead to the opposite outcome. The English and French courts came to different conclusions on the issue of governing law of the arbitration agreement,[viii] leading to significant complications.

More broadly, we often see parties raise the argument that the law governing the arbitration agreement is different than that governing the main contract as a way of delaying the arbitration or claiming the arbitration agreement is invalid to frustrate a claimant’s ability to obtain timely relief. When drafting arbitration clauses, it is thus always helpful to specify the governing law of the arbitration clause to avoid this problem, even if this essentially repeats the governing law clause of the main contract.

Although the Norwegian courts have not expressed a view on the debate outlined above, the Norwegian Arbitration Act recognises the doctrine of separability,[ix] thus making the above dilemma a possibility in the Norwegian context. As we cannot predict how a Norwegian court would determine this issue, it is never a bad idea to expressly provide for the governing law of the arbitration agreement itself.

Be consistent across your agreements

In recent years, international arbitration has witnessed the introduction of several tools to make arbitration more efficient and cost-effective. One such development relates to the conduct of arbitrations arising under several related agreements.

Arbitration proceedings are generally tied to the specific, single contract under which the dispute arises. However, this does not adequately mirror commercial practice. Commercial parties often enter into a multitude of agreements with respect to a single deal or transaction. Disputes that arise in such contexts often touch upon multiple contracts. Historically, parties would need to commence separate arbitration proceedings for each contract under which the dispute arose, often needing to constitute multiple, separate tribunals comprised of different arbitrators. Naturally, this was frustrating and could often potentially derail proceedings. Party-demand materialised for a more elegant means of determining multiple disputes across related contracts.

In response to this, several arbitral institutions have introduced rules allowing for the consolidation of disputes arising across multiple contracts.[x] Although the specific requirements for allowing consolidation varies across the different rules, the rulesets of the major global institutions incorporate in some capacity the requirement that the arbitration clauses across the multiple contracts must be compatible. Thus, to take advantage of this useful tool in arbitration, contracting parties should ensure that each of the arbitration agreements in their related contracts is compatible with the others — preferably identical.

One should be aware that the two main local/regional arbitral institutions in Norway, the Oslo Chamber of Commerce and the Nordic Offshore & Maritime Arbitration Association, do not currently offer default consolidation provisions in their rules. Thus, it is necessary for parties to specifically agree to the option of consolidation in multi-contract contexts.

Keep it secret, and make sure the other side does too

The popularity of arbitration stems in part from the fact that arbitration proceedings are generally confidential. However, there are some issues to bear in mind in this regard. First, although most major global institutions provide for some form of confidentiality obligation in their rules, not all impose an obligation on the parties to keep the arbitration confidential.[xi] Second, confidentiality obligations vary across jurisdictions. Third, the ability to agree to confidentiality may be limited by local law. For example, the Norwegian Arbitration Act provides that any standing agreement on the confidentiality of arbitration is unenforceable, requiring instead that parties agree to confidentiality for each arbitration individually as and when it arises.[xii]

Thus, we often recommend that parties consider specific needs concerning confidentiality when drafting arbitration agreements. This often means drafting a suitable confidentiality clause as part of the arbitration agreement. Of course, in the Norwegian context, parties will need to consider confidentiality obligations as and when a dispute arises on a case-by-case basis. Parties in Norway might also consider entering into an “agreement to agree” that obliges parties to enter into a confidentiality agreement when each arbitration arises. However, the validity of such “agreements to agree” in Norway is unclear.

[i] Anzen Ltd & ors v Hermes One Ltd [2016] UKPC 1 (18 January 2016).

[ii] United States v. Bankers Insurance Company, 245 F.3d 315 (4th Cir. 2001); Kinli Civil Engineering Limited v Geotech Engineering Limited [2021] HKCFI 2503 (26 August 2021).

[iii] Rt-2010-748 (38).

[iv] United Nations Commission on International Trade Law Model Law on International Commercial Arbitration 1985 (with amendments as adopted in 2006), Art. 16(1).

[v] Enka Insaat Ve Sanayi A.S. v OOO Insurance Company Chubb [2020] UKSC 38.

[vi] Kout Food Group v Kabab-Ji Sal, Cass., 1e civ., Arrêt nº 679 FS-B (22 September 2022).

[vii] “The Rare Choice – Governing Law of Arbitration Clauses”, BAHR (2 April 2020), available at https://bahr.no/newsletter/the-rare-choice-governing-law-of-arbitration-clauses-2; “Choice of law of arbitration agreement”, BAHR (10 June 2020), available at https://bahr.no/newsletter/choice-of-law-of-arbitration-agreement; “Arbitration: Determining the Governing Law of an Arbitration Agreement”, BAHR (October 14, 2020), available at https://bahr.no/newsletter/arbitration-determining-the-governing-law-of-an-arbitration-agreement; “Governing Law of Arbitration Agreements: ENKA v Chubb Revisited”, BAHR (16 November 2021), available at https://bahr.no/newsletter/governing-law-of-arbitration-agreements-enka-v-chubb-revisited;

[viii] Id.; Kabab-Ji SAL v Kout Food Group [2021] UKSC 48 (27 October 2021).

[ix] Lov om voldgift § 18.

[x][x] See e.g., Hong Kong International Arbitration Centre Administered Arbitration Rules 2018, Art. 28; International Chamber of Commerce Arbitration Rules 2021, Art. 10; London Court of International Arbitration Arbitration Rules 2020, Art. 22A; Stockholm Chamber of Commerce Arbitration Rules 2023, Art. 15; Singapore International Arbitration Centre Arbitration Rules 2016, Rule 8.

[xi] See e.g., International Chamber of Commerce Arbitration Rules 2021, Art. 8; Stockholm Chamber of Commerce Arbitration Rules 2023, Art. 3.

[xii] Lov om voldgift § 5.