Privy Council resolves doubts about “Optional” arbitration clauses

19 January 2016

Privy Council resolves doubts about “Optional” arbitration clauses

Privy Council holds that “optional” arbitration clause becomes binding on unequivocal request to arbitrate and/or by applying for a stay of court proceedings

In Anzen Limited and others (Appellants) v Hermes One Limited (Respondent) (British Virgin Islands) [2016] UKPC 1, 18 January 2016, the Court of Appeal of the Eastern Caribbean Supreme Court had upheld the decision of Bannister J that where an arbitration clause in a shareholders’ agreement provided that in the event of an unresolved dispute “any party may submit the dispute to binding arbitration” the appellants were not entitled to a stay of proceedings commenced by the respondent, under section 6(2) of the Arbitration Ordinance 1976, without themselves having commenced an arbitration. The Privy Council held that that the decisions below were wrong, the appeal should be allowed and a stay granted.

Lords Mance and Clarke described the appeal as raising “interesting points” on interpretation of the clause and found that there were three possible analyses:

  1. Analysis 1 – the words “any party may submit the dispute to binding arbitration” are not only permissive, but exclusive, if a party wishes to pursue the dispute by any form of legal proceedings;
  2. Analysis 2 – the words are purely permissive, leaving it open to one party to commence litigation, but giving the other party the option of submitting the dispute to binding arbitration, such option being exercisable either by commencing an ICC arbitration, as the respondent submitted and Bannister J and the Court of Appeal held;
  3. Analysis 3 – the option may be exercised by requiring the party which has commenced the litigation to submit the dispute to arbitration, by making an unequivocal request to that effect and/or by applying for a corresponding stay, as the appellants had done.

After a review of English, Commonwealth and United States authorities as well as a number of academic writings, the Privy Council held that Analyses 1 and 2 should be rejected and Analysis 3 should be preferred because it enables a party wishing for a dispute to be arbitrated, either to commence arbitration itself, or to insist on arbitration, before or after the other party commences litigation, without itself actually having to commence arbitration if it does not wish to.

Michael Black QC of XXIV Old Buildings leading Seamus Andrew of S C Andrew LLP of Tortola, BVI and London represented the successful appellant and Stephen Midwinter of Brick Court Chambers instructed by Forbes Hare LLP of Tortola, BVI and London represented the respondent