Arbitrability--whether a contract
creates a duty for the parties to arbitrate
(rather than litigate) a particular grievance--is ordinarily a question of law
to be decided by the court. Virginia, however, adheres to a public policy
favoring freedom to contract. If two sophisticated businesses reach a deal
providing that any arbitrability issues shall be resolved by binding
arbitration rather than decided by a court, Virginia courts will enforce that
agreement as written and defer to the arbitrator on questions of arbitrability.
An example is found in the recent case of Systems Research and Applications Corporation v. Rohde &
Schwarz Federal System, Inc. SRA, a government contractor for the United
States Agency for International Development (USAID), hired Rohde & Schwarz
as a subcontractor for a project involving telecommunication services equipment
in Lebanon. R&S did not complete its performance by the contract deadline
and SRA refused to pay its invoices. SRA took the position that the dispute was
a "Government Contract Dispute" which, under the terms of
the subcontract, could not be submitted to arbitration. R&S disagreed and
initiated arbitration proceedings. SRA responded with a declaratory judgment
action and a motion to stay the arbitration. The court denied the motion to
stay and dismissed the case.
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at the Virginia
Business Litigation Lawyer blog
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