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Spell Out The Scope Of Your Intent To Arbitrate

Tuesday, June 14, 2011 07:08 am


A U.S. circuit court recently highlighted a common contract error: ambiguous and conflicting arbitration agreement language. Even a seemingly straightforward, blanket statement that "any dispute be settled by arbitration" can be undercut by other provisions in the agreement.

Choice-of-law clause introduces ambiguity

In Bechtel Do Brasil Construções LTDA. v. UEG Araucária LTDA, 2011 U.S. App. Lexis 5840 (2nd Cir. March 22, 2011), the court considered the timeliness of the project owner's arbitration request (on a contract breach and negligence claim) filed six years after project completion. The parties could not agree on what law governed the statute of limitations on the owner's claim. The contract provisions on the topic were in conflict. On the one hand, a blanket statement provided that "any dispute, controversy, or claim arising out of or relating to the Contract, or the breach, termination or validity thereof ... shall be finally settled by arbitration." But another provision stated that "the validity, effect, and interpretation of this agreement to arbitrate shall be governed by the laws of the State of New York."

So, the blanket arbitration provision required that any disagreement--including disputes about whether a relevant statute of limitations barred arbitration--be decided by arbitration. And the second provision contradicted that. Because under New York law a party can assert a statute of limitations in court as a bar to arbitration, the second provision suggested a court could decide timeliness issues.

Exception doesn't negate blanket statement

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