Option to litigate

Where keeping maximum flexibility in the forum in which a dispute is heard is of importance to you, and you are in an appropriately strong enough bargaining position, you may wish to consider an arbitration clause, but with an option to commence court proceedings in your chosen jurisdiction (for example, the English courts) for your benefit only.

In the decision of The Law Debenture Trust Corporation PLC v Elektrim Finance BV and others [2005] EWHC 1412, the English High Court upheld the effectiveness of the exercise by Law Debenture of a unilateral contractual option to have a dispute referred to litigation before the High Court in London, notwithstanding an otherwise comprehensive arbitration agreement. If Law Debenture had started an arbitration the court considered that it would have waived its option to refer the dispute to litigation. Similarly, if it had participated sufficiently in the arbitration that Elektrim had started, it might well have waived its right to exercise its option.

Although the Elektrim case shows that the English courts will recognise the effect of such a clause when governed by English law, the use of such clauses remains a complex area where other laws and jurisdictions become involved. These may not, on the basis that such a clause lacks mutuality or is unduly oppressive, look on them as favourably. Beforehand, it may therefore well be necessary to check with local lawyers whether deployment of such a clause would affect any actions that you may wish to take in any other relevant jurisdiction (for example later enforcement of a judgment/award or the commencement of court proceedings pursuant to the option). Also note that although such clauses have been blessed by the English courts applying English law to the clause, in the event that a contract is not subject to English law or the seat of the arbitration is not in England then the validity of such clauses under the chosen law or before the courts of the chosen seat may need to be investigated.

In addition, in situations involving a number of parties, the structuring of such a clause becomes more complex and the degree to which its use may carry the potential for creating multiple, parallel proceedings could become a consideration.

See below for an example of an arbitration clause with an option to litigate.

"[Subject to [ADR],] all the parties irrevocably agree that any dispute arising out of or connected with this Agreement, including a dispute as to the validity or existence of this Agreement and/or this clause [number], shall be resolved:

(a) by arbitration with seat (or legal place) in [insert choice of seat] conducted in the [Language] by a single arbitrator [see Number of Arbitrators]; or

(b) at the sole option of [contracting party having the benefit] by proceedings brought in the courts of [England], which courts are to have exclusive jurisdiction.

For the avoidance of doubt, clause [[number](b)] is for the benefit of [the contracting party having the benefit] alone."

For more on the operation of the choice of court element of such a clause, assuming the arbitration clause with option to litigate otherwise works, see Which Jurisdiction Clause? and the examples thereunder.