The Pathological Arbitration Clause in a Joint Venture
Two Singapore companies negotiate a joint venture. The term sheet's dispute resolution clause reads: 'Any dispute shall be resolved by arbitration in London under the ICC Rules, seated in New York, governed by Delaware law, and either party may instead bring proceedings in the courts of Singapore.' The contract is signed. The joint venture performs for 18 months, then a dispute over $7m in milestone payments arises. One party commences ICC arbitration in London; the other files suit in Singapore and seeks an anti-arbitration injunction, arguing the clause is void for uncertainty because it permits litigation. The ICC Court has received the Request; the seat designation is contested, and the tribunal has not yet been constituted. The contract contains a severability clause and a separate clause stating 'the arbitration agreement survives termination.' The parties ask whether to challenge or proceed.
1. Identify the principal drafting defects and assess whether the arbitration agreement is likely to be upheld. Address separability, competence-competence and the New York Convention.
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Separate three questions: whether an arbitration agreement exists, what it covers, and who decides validity. The clause records a written intention to arbitrate, but it contains contradictory seats ('arbitration in London' and 'seated in New York') and an optional litigation route. The litigation wording is not automatically fatal. Courts often read 'may' as preserving a right to litigate, which can make the arbitration undertaking non-exclusive and arguably 'inoperative' under Article II(3) of the New York Convention. The stronger commercial analysis is that the clause still evidences an intention to arbitrate; the contradiction over seat is a defect that the institution or tribunal can resolve, not necessarily a destruction of consent.
Separability preserves the arbitration clause if the main contract is challenged. Competence-competence allows the tribunal to rule on its own jurisdiction, subject to later review at the seat. A Singapore court asked to stay its own proceedings should refer the parties to arbitration unless the agreement is null and void, inoperative or incapable of being performed. An anti-arbitration injunction is unlikely because the applicant cannot show the clause is clearly void; it also risks costs and delay. Practically, the claimant should proceed with the ICC Request, ask the ICC Court to fix the seat, and meet the Singapore action with a stay application rather than ignoring it.
2. Which body should decide the seat and validity, and what should each party do in the first 30 days to avoid waiving its position?
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The ICC Court has authority to fix the place of arbitration where the parties have not made a workable agreement; it will usually respect a clear choice but must resolve a contradictory one. The tribunal, once constituted, can rule on its own jurisdiction. The courts at the eventual seat have supervisory authority over the award and may review jurisdiction at the setting-aside stage. The Singapore court has separate authority over whether its own proceedings must be stayed.
The claimant should file the Request promptly, pay the advance on costs, nominate its arbitrator, apply to the ICC Court for a seat determination, and seek a stay in Singapore under the international arbitration statute. It should avoid taking steps in the litigation that affirm the court's jurisdiction, such as filing a substantive defence without a reservation. The defendant should preserve its objection to the clause but also consider whether its anti-arbitration application is consistent with the dispute-resolution history. Both sides should document reservations, avoid ex parte correspondence with the tribunal, and consider whether an emergency arbitrator is needed. The first 30 days should focus on constituting the tribunal and obtaining a stay, not on winning the clause-validity argument in the abstract.
3. Redraft the dispute resolution clause for the joint venture. Include a tiered process, a fixed seat, rules, tribunal composition and governing law, and explain each choice.
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A workable clause would read: 'Any dispute arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall first be referred to the senior executives of the parties, who shall meet within 14 days of a written notice of dispute and attempt in good faith to resolve it. If the dispute is not resolved within 30 days of that notice, either party may refer it to mediation administered by the Singapore Mediation Centre. If the mediation is not concluded within 45 days of the request, or if either party declines mediation in writing, the dispute shall be finally resolved by arbitration administered by the Singapore International Arbitration Centre under the SIAC Rules in force at the time the Notice of Arbitration is submitted. The seat of arbitration shall be Singapore. The tribunal shall consist of three arbitrators. The language of the arbitration shall be English. The governing law of this Agreement shall be the law of Singapore. The arbitration agreement shall survive termination.'
The fixed seat gives a single supervisory court. SIAC provides institutional administration and a default appointment mechanism. Three arbitrators suit a $7m joint-venture dispute. The tiered steps create a cooling-off period but need clear time limits so they do not become an obstacle to arbitration. The carve-out for urgent relief should be added: 'Nothing in this clause prevents either party from seeking urgent interim relief from a competent court or an emergency arbitrator.'
4. The defendant argues that the optional litigation wording makes the arbitration clause merely a non-binding agreement to agree. How should the tribunal analyse that argument?
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The tribunal should ask what the parties objectively intended, not whether the drafting is elegant. Words such as 'may instead bring proceedings' can create a unilateral option: one party may choose litigation, but the other may still insist on arbitration, or the option may be exercisable only in limited circumstances. The clause does not say that arbitration is non-binding or that either party may ignore an arbitration once commenced. The phrase 'shall be resolved by arbitration' is mandatory language, while the litigation words are permissive.
The tribunal should also consider the commercial context: a Singapore joint venture with a New York seat and English-style arbitration language suggests sophisticated parties who intended a neutral forum. The severability clause and survival clause reinforce that intention. Under most pro-arbitration laws, a court or tribunal should strive to give effect to the arbitration agreement if a reasonable construction is available. The optional wording may affect the scope of the obligation, but it does not necessarily make the clause void. The tribunal should record its reasoning on jurisdiction in a preliminary award or procedural order so that the losing party cannot later claim surprise.