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An Endemic Problem in Arbitration, or (with apologies to Freud) The Psychopathology of Every Day Commercial Life
Simon Winter | Ghaffari Fussell.
1. Fifty-one years (the author’s entire lifetime) have passed since 1974, when Frédéric Eisemann first diagnosed what he called “pathological clauses” in commercial agreements¹. Such clauses referred – or, perhaps more accurately, attempted to refer – disputes under those agreements to arbitration.
2. While it is not clear Eisemann was being entirely serious in his choice of words (his essay goes on to give examples of such clauses, which he describes as “pearls” he has extracted from his “dark museum”), the phrase has gained common currency. That is no doubt because, despite the passage of those fifty-one years, the pathology which Eisemann diagnosed appears incurable: such clauses continue to appear regularly in practice. This firm has encountered two such clauses in 2025 alone.²
Eisemann’s Four Criteria
3. In a less anecdotal and more analytical vein, Eisemann also set out four criteria³ which any arbitration clause must meet:-
(1) It should produce mandatory consequences for the parties to the agreement. In other words, it must oblige the parties to arbitrate rather than simply give them the option. Some clauses mistakenly use the word “may” when the word “shall” should have been used: if a party “may” do something, it may equally not do it.
(2) It should exclude the intervention of state courts from the resolution of the dispute – at least before any award is made, in which case enforcement by national courts might be required. Surprisingly often, parties simply add an arbitration clause (or even a throwaway reference to arbitration) to a pre-existing form of contract which contains a standard jurisdiction clause referring to a national legal system. This raises significant doubt as to any arbitral panel’s jurisdiction over the dispute.
(3) It should give powers to the arbitral panel to resolve the disputes likely to arise between the parties. Parties sometimes appear to provide that some kinds of dispute will be heard by arbitrators and others by judges. Quite apart from the practical difficulties of drafting such a clause, it is beyond anybody’s ability to anticipate every kind of dispute which might arise. The safest approach is “all or nothing”: all disputes go before an arbitral panel or they all go before a judge.
(4) It should permit a procedure which results in an enforceable award. In other words, a party to the agreement should be able to start the process of arbitration and see it through to a conclusion without difficulty. Difficulties arise in practice when an agreement provides no procedure at all, even perhaps failing to specify how to appoint an arbitral panel, or provides only for inadequate procedures.⁴ The safest course is to appoint a well-known arbitration body which will provide an appointment mechanism and rules of procedure.
4. All these criteria still hold good today. Any clause which does not comply with these requirements invites serious dispute and the inevitable intervention of national courts, which in turn means delay and additional expense in a process of dispute resolution which is intended to avoid both.
The Inconsistent Approaches of National Courts
5. Thus far, this article has given advice on pitfalls to avoid in drafting. But what should a party do when the pathological clause has already been agreed?
6. In-house counsel often (and understandably) struggle with these clauses and may be given differing and inconsistent advice by external advisers. Recalcitrant defendants can – and often do – exploit them to their advantage.
7. The difficulty rarely lies in legislation. Most nation state arbitration laws are based on the UNCITRAL Model law (with a variety of local reservations or amendments). The difficulty which arises in practice is whether the national Courts concerned with supervising arbitration in their own jurisdictions will uphold the parties’ apparent – if not perfectly expressed – desire to refer disputes to arbitration and the approaches taken by those Courts vary widely.
8. Some jurisdictions will simply find a pathological clause is unenforceable for one (or more) of the reasons suggested by Eisemann’s four criteria. But others are renowned for their pro-arbitration stance.
Pro-Arbitration Jurisdictions
9. England and Wales is one such jurisdiction. For example, so long ago as 1991, Steyn J held in Paul Smith Limited v. H&S International Holding Inc that an agreement containing both an arbitration provision and a standard form jurisdiction clause – a pathology of the kind identified at paragraph 3(2) above – should be interpreted as providing clearly for arbitration.⁵
10. Other jurisdictions also take a commercial and pro-arbitration approach, including the Courts of Singapore and Hong Kong. Case law from both jurisdictions suggests a judiciary keen to cure such pathological clauses and uphold the parties’ apparent agreement to refer disputes to arbitration:-
(1) In HKL Group Co Limited v. Rizq International Holdings Pte Limited, for example, the High Court of Singapore upheld an arbitration clause which purported to refer disputes to the non-existent “Arbitration Committee at Singapore”.⁶
(2) In the case of Lucky-Goldstar International (H.K.) Limited v. Ng Moo Kee Engineering Limited, the Supreme Court of Hong Kong upheld an arbitration clause which provided for arbitration in an unspecified (and impossible to determine) “3rd COUNTRY” under the rules of the non-existent “International Commercial Arbitration Association”.⁷
11. It will be noted that both these clauses were pathological in the sense noted at paragraph 3(4) above. It was impossible to appoint a panel because the body named did not exist.
12. States which are keen to encourage inward investment have taken more innovative approaches. For example, Bahrain has entered into a bilateral treaty with Singapore, which has established not only a new Bahrain International Commercial Court in Bahrain but also a designated body in Singapore to hear appeals from that Court.⁸ It is very likely – and it appears to be the clear intention – that this appeal body will build up a body of jurisprudence favourable to arbitration.
Conclusions
13. What conclusions can we draw from these issues?
(1) First, draft your arbitration agreements with care.
(2) Second, choose your supervising jurisdiction with an equal amount of care.
(3) Third, in the event of any dispute, choose a firm which has experience of these issues and can diagnose and cure the pathology quickly.
Simon Winter is a partner at Ghaffari Fussell LLP (Simon@ghaffarifussell.com)
¹The usual English translation: Eisemann wrote in French and so referred to “les clause pathologiques” in La clause d'arbitrage pathologique, Commercial Arbitration Essays in Memoriam Eugenio Minoli (Torino: Unione Tipografico-editrice Torinese, 1974).
²As late as 2020, Global Arbitration News could publish an article entitled “The Dream of a World Free of Pathological Clauses”. The critical word in that title is “Dream”.
³The following translation of Eisemann’s four criteria derives from Benjamin G Davis’s translations in Pathological Clauses: Frédéric Eisemann’s Still Vital Criteria (1991) 7 Arb Int 365.
⁴The case law even provides examples of parties purporting to appoint bodies who will not accept such appointments and will not nominate arbitrators, such as the UN’s World Health Organization.
⁵[1991] 2 Lloyd's Rep 127. The Court’s reasoning was that both clauses were valid, the first being a self-contained agreement which provided for the resolution of disputes by arbitration and the second specifying the law which would apply to the particular arbitration. This involves limiting the scope of the jurisdiction clause in favour of the arbitration clause.
⁶[2013] SGHCR 5. The Court pointed out that “When faced with a pathological arbitration clause, the court generally seeks to give effect to that clause, preferring an interpretation which does so over one which does not.”
⁷HCA000094/1993. At para 17, the Court found: “I believe that the correct approach in this case is to satisfy myself that the parties have clearly expressed the intention to arbitrate any dispute which may arise under this contract. … As to the reference to the non-existent arbitration institution and rules, I believe that the correct approach is simply to ignore it.”
⁸See https://www.mlaw.gov.sg/news/press-releases/singapore-bahrain-sign-treaty-on-appeals-from-bicc/. Part of this article notes the involvement of the Singapore International Commercial Court (“SICC”) and refers expressly to “arbitration in litigation”: “the SICC combines the best practices of international arbitration with the substantive principles of international commercial law, to offer procedures compatible with, and responsive to, the fast-changing needs and realities of international commerce.”
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