Marko Hentunen Jouko Huhtala September 12 2002 Validity of Optional Arbitration Clauses Questioned Castrén & Snellman | Arbitration & ADR - Finland Marko Hentunen, Jouko Huhtala Arbitration & ADR Unilateral and Bilateral Clauses Legislation Comment The validity of an optional arbitration clause was questioned in recent arbitration proceedings at the Stockholm Chamber of Commerce Arbitration Institute. In this case the parties had included an optional arbitration clause in their agreement which gave a listed Finnish company the right to file its claims either before an arbitration tribunal or a national court. The respondent, a smaller German company, argued that the optional clause was unreasonable and should be set aside. The arbitration tribunal rejected this argument, and upheld the Finnish company's right to choose the venue for the dispute.Unilateral and Bilateral ClausesBy including an optional arbitration clause in an agreement, the parties agree to settle future disputes either in national courts or before an arbitration tribunal. Optional arbitration clauses generally fall into one of two categories, bilateral or unilateral. Bilateral clauses allow both parties to choose between national courts and an arbitral tribunal. However, a unilateral clause gives only one party the right to choose - the other party may resort only to arbitration proceedings. LegislationThe Arbitration Act 1992 governs arbitration proceedings held in Finland. The act applies to both domestic arbitration and international arbitration that takes place in Finland. Although Finnish arbitration legislation is generally considered to be comprehensive, certain questions regarding the validity of optional arbitration clauses are unresolved.Under Finnish law there is no general prohibition against optional arbitration clauses and thus such clauses are not automatically treated as invalid. Matters which are not specifically regulated in the Arbitration Act may fall within the Contracts Act's restrictions on certain types of contractual terms. According to Section 36 of the Contracts Act, contractual terms may be limited or nullified if they are found to be inequitable or if their performance would result in inequity to a party. In this analysis, the parties' relative bargaining position is also a factor in determining whether an inequity exists.Unilateral optional arbitration clauses may therefore conflict with Section 36 of the Contracts Act if the right to choose is conferred to the stronger party in the contractual relationship. While there is no Finnish Supreme Court precedent to provide guidance on this issue, the Swedish Supreme Court (NJA 1979 s. 666) has referred to inequitable consequences not foreseen by the weaker party, and set aside such a clause. Finnish legal scholars feel that this ruling carries weight in Finland.CommentOptional clauses may be useful in certain agreements, as demonstrated by their growing popularity among contract drafters. However, they give rise to certain problems. First, the unilateral or bilateral nature of an optional arbitration clause may be open to interpretation. In ambiguous cases the arbitrators will most likely assume that such a clause was intended to be bilateral.Second, the arbitrators are likely to regard unilateral clauses favouring the stronger party unenforceable. If the clause is included only in standard terms attached to a separate main agreement, unenforceability is almost certain. Third, unilateral optional clauses may be ambiguous as to which party has the right of choice. Plaintiffs will most likely be allowed to exercise the option in this case. For further information on this topic please contact Jouko Huhtala or Marko Hentunen at Castrén & Snellman by telephone (+358 9 228 581) or by fax (+358 9 601 961) or by email ([email protected] or [email protected]).