By Louis M. Solomon
decision by the Ninth Circuit in Cape
Flattery Limited (Cape) v. Titan Maritime, LLC, et al. (Titan),
No. 09-15682 (9th Cir. July 2011) [enhanced version available to lexis.com subscribers / unenhanced version available from lexisONE Free Case Law], discusses several important issues
in international litigation practice. The suit involves claims by Cape
against Titan for gross negligence in connection with the salvage operation
done on Cape's vessel, the M/V Cape Flattery. The salvage operation
was done pursuant to a contract providing that
"Any dispute arising under this
Agreement shall be settled by arbitration in London, England, in accordance
with the English Arbitration Act 1996 and any amendments thereto, English law
and practice to apply"
Reviewing the question of whether to
compel arbitration de novo, the Ninth Circuit held:
Court of Appeals addressed the question of what law applied to determine the
arbitrability of the dispute. The Circuit followed the holding in Volt
Information Sciences, Inc. v. Board of Trustees, 489 U.S. 468 (1989) [enhanced version / unenhanced version ], holding that there was no "federal policy favoring
arbitration under a certain set of procedural rules" but rather that the
federal policy favoring arbitration "is simply to ensure the enforceability,
according to their terms, of private agreements to arbitrate". As a
result, the Court ruled that "contracting parties have the power to agree to
apply non-federal arbitrability law" and that courts should enforce them.
the Circuit observed that First Options of Chicago, Inc. v. Kaplan, 514 U.S.
938 (1995) [enhanced version / unenhanced version], required the application of ordinary state-law principles
that govern the formation of contracts but that, in determining whether parties
agreed to arbitrate, "[c]ourts should not assume that the parties agreed to
arbitrate arbitrability unless there is clear and unmistakable evidence that
they did so". Applying and extending that rule, the Circuit ruled
that "a general choice-of-law provision does not constitute an agreement to
apply non-federal arbitrability law". Said the Court:
Like the question of who should
decide arbitrability, the question of what law governs arbitrability is 'rather
arcane'. . . . We therefore conclude, following Kaplan, that
courts should apply federal arbitrability law absent 'clear and unmistakable
evidence' that the parties agreed to apply non-federal arbitrability law"
As a result, the Circuit found the
language of the agreement here, "English law and practice to apply", to be
ambiguous to answer the question whether English law should govern the issue of
arbitrability in the first place. The Circuit therefore applied
federal arbitrability law.
doing so, the Court ruled that the phrase, "any disputes arising hereunder",
was a narrow clause. Following In re Kinoshita & Co., 287 F.2d
951 (2d Cir. 1961) [enhanced version],
the Court found that the narrow clause applied only to those disputes relating
to the interpretation and performance of the contract itself". (See
generally our discussion of the issue of who decides what in the arbitration-litigation context in
our e-book, International
Practice: Topics and Trends). Recognizing that the Second Circuit
itself has "significantly narrowed" Kinoshita, the Circuit was unwilling
to ignore it altogether, went on to apply it, and held that the dispute at
issue was not arbitrable.
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