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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: May 5, 2018

Court Declines to Interpret Arbitration Agreement Where Agreement Leaves That Decision to Arbitrators

On May 1, 2018, Justice Ostrager of the New York County Commercial Division issued a decision in Footprint Power Salem Harbor Development, L.P. v. Iberdrola Energy Products, Inc., 2018 NY Slip Op. 30794(U), denying a motion to stay an arbitration, ruling that under the arbitration agreement, it was for the arbitrators, not the court, to interpret the scope of the arbitration agreement, explaining:

Section 17.2 of the EPC Contract states that “arbitration shall be administered by the International Centre for Dispute Resolution (ICDR) of the American Arbitration Association (“AAA”) in accordance with its International Arbitration Rules in effect at the time of the arbitration, except as they may be modified herein or by mutual agreement of the Parties.” There is no indication that the parties subsequently modified this arbitration provision by agreement, nor is there any other provision of the EPC Contract that can be interpreted as modifying the relevant ICDR Rules.

Petitioner argues that this “modifying” language can be found in Section 17.2 of the EPC Contract which states that the parties agreed “to the jurisdiction of the United States District Court for the Southern District of New York for the limited purpose of enforcing the agreement to arbitrate.” Petitioner argues that this language demonstrates that the parties agreed that New York courts, and not the arbitral panel, would determine issues of enforceability relating to the arbitration agreement. This is not so. This language merely enables either party to move to compel arbitration or enforce an arbitral award in New York courts; it does nothing to modify the clear ICDR Rules which vest arbitrability issues with the arbitrator.

Article 19 of the ICDR Rules provides: “The arbitral tribunal shall have the power to rule on its own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement(s)” and that “[i]ssues regarding arbitral jurisdiction raised prior to the constitution of the tribunal shall not preclude the Administrator from proceeding with administration and shall be referred to the tribunal for determination once constituted.” On this point, the decision by the First Department in Life Receivables Trust v Goshawk Syndicate J 02 at Lloyd’s, 66 A.D.3d 495 (2009) is instructive. The Appellate Division in the Life Receivables case was interpreting a provision in the American Arbitration Association Rules which, like the ICDR Rules at issue here, empowered the arbitration tribunal to rule on its own jurisdiction. The Court stated: “Although the question of arbitrability is generally an issue for judicial determination, when the parties’ agreement specifically incorporates by reference the AAA rules, which provide that ‘[t]he tribunal shall have the power to rule on its own jurisdiction, including objections with respect to the existence, scope or validity of the arbitration agreement,’ and employs language referring ‘all disputes’ to arbitration, courts will ‘leave the question of arbitrability to the arbitrators’.” Thus, even if this Court were to accept Petitioner’s assertion that the arbitration agreement is not valid because a condition precedent to arbitrate has not occurred, such an issue would necessarily be within the purview of the arbitrator to determine given the arbitration agreement’s incorporation of ICDR Rules regarding the arbitrability of validity issues.

(Internal citations omitted).

Commercial litigation involves more than courts. Disputes often are–by agreement–decided by private arbitrators. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding a dispute that is subject to an arbitration agreement.

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