Unilateral Option Clause: OYL Case －Contractual Right or Arbitration Agreement?－

This article examines the validity of unilateral Option Clauses (UOCs) in international commercial contracts, with a specific focus on Korean jurisprudence, the 1985 United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration (Model Law), and the UNIDROIT Principles of International Commercial Contracts (UPICC). The objective is to commence discussions and analyze the complexities of UOCs and their function, given the increasing prevalence of these clauses in commercial agreements. Currently, there has been little or no discussions as to the unilateral option clause in Korea. This article examines a Korean Court of Appeals case where a UOC was brought before the court. However, the court did not recognize the use of the UOC and the interpretation that followed was for exclusive jurisdiction and whether the arbitration agreement was valid. Through a detailed analysis of the case, uncertainty as to the validity of the UOC is demonstrated and explicates the preference of the court for arbitration over litigation. Furthermore, analysis of the validity of UOCs is undertaken through the Model Law. Critique is provided as to the lack of explicit regulation on the validity and enforceability of UOCs, despite its broad scope on arbitration agreements. The article scrutinizes the potential application of Article 18 of the Model Law, which advocates equal treatment of parties, to UOCs. It highlights the debate around the principle of equal treatment and the extent of its applicability to the drafting of arbitration agreements and UOCs. Additionally, the article explores the validity of UOCs under the UPICC. Here, the principle of freedom to contract and the potential for gross disparity under Article 3.2.7 of the UPICC are analyzed in the context of UOCs. The study emphasizes the high threshold for gross disparity under the UPICC, making it challenging to invalidate a UOC based on this principle. This article concludes by acknowledging the complexities in determining the validity of UOCs across different jurisdictions, given the absence of a universally accepted standpoint. While acknowledging the flexibility that UOCs offer, careful drafting of these clauses to avoid potential enforcement difficulties is encouraged. This articles argues for the necessity of an internationally recognized stance on UOCs to guide its regulation, particularly in jurisdictions like Korea, where the validity of UOCs remains uncertain. This examination of UOCs aims to stimulate further discussion and provide a valuable contribution to the ongoing dialogue on the interaction between UOCs and commercial dispute mechanisms.