19 September 2019 - Podcast
The Privy Council has rendered a notable decision on optional arbitration clauses, advising (regarding a clause which provided that ‘any party may submit the dispute to binding arbitration’) that an actual arbitration need not be commenced for a stay of legal proceedings to be granted in its favour.
The case involved shareholders in a BVI company, whose shareholders’ agreement provided that any party ‘may’ submit a dispute to binding ICC arbitration in London.
Relations between the shareholders deteriorated and Hermes One Limited commenced proceedings in the BVI against Anzen Limited, who subsequently applied to stay the proceedings pursuant to s6(2) of the BVI Arbitration Ordinance 1976. This Ordinance provided that ‘…any party to an arbitration agreement…in respect of any matter to be referred…may…apply to the court to stay the proceedings’.
The Board upheld the distinction (highlighted in other jurisprudence) between ‘shall’ or ‘should’ in an arbitration clause and ‘may’, which appeared in the clause under consideration. The Board found that the word ‘may’ was ‘permissive’ in terms of the possibility of arbitration but that it was not ‘exclusive’, since it still allowed for the possibility of litigation if no party objected. However, it was not necessary for a party to commence an arbitration before requiring the party which had commenced litigation to submit the dispute to arbitration. This meant that s6(2) of the BVI Ordinance permitted a stay, even though neither party had actually submitted the dispute to arbitration.
In reaching its decision, the Board emphasized that _the hallmark of arbitration is consent’ and that the commencement of arbitration was not necessary to that consent. The Board also invoked ‘commercial sense’ in reaching its conclusion, advising that in a situation where an optional arbitration clause was present it was unnecessary for an actual arbitration to be commenced in order to take advantage of the clause.