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Your Contract's Arbitration Claim May Not Be Optional
February 19, 2013
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Signing ContractDoes your standard contract contain an arbitration clause stating that either party to the contract “may” choose arbitration instead of litigation? If so, it may not matter that you include the word “may” to try and make arbitration optional instead of mandatory.

A case from the United States District Court for the Southern District of New York from September 2012 held exactly that. This case arose from a dispute over breach of a Distribution Agreement between Bellview Airlines Limited and Travelport Global Distribution Systems, pursuant to which Bellview was to distribute a computerized travel reservation system in Nigeria owned by Travelport. Travelport Global Distrib. Sys. B.V. v. Bellview Airlines Ltd., 2012 U.S. Dist. LEXIS 128604 (S.D.N.Y. Sept. 10, 2012).

 

The arbitration provision in the agreement stated that all disputes “shall be governed by the laws of the State of New York” and that any “dispute or controversy . . . arising out of or related to this agreement . . . may be submitted to arbitration in the United States in accordance with the UNCITRAL Arbitration rules . . . [and the] Appointing Authority shall be the United States Council of Arbitration . . . .”

Travelport sent a letter to Bellview terminating the agreement based on Bellview’s material breaches of the agreement. Bellview filed suit and Travelport sought an order compelling arbitration and seeking an injunction as to the pending lawsuit.

The Court held that the language in the agreement stating the dispute “may be submitted to arbitration” triggers mandatory arbitration. The Court noted many other courts have held that absent some separate suggestion that an arbitration provision is intended to trigger permissive arbitration, provisions with the word “may” trigger mandatory arbitration.

Travelport is a good example of how important careful drafting of arbitration clauses can be. In certain circumstances, arbitration can be a good alternative to litigation. However, it also has additional costs associated with it and some procedural differences from the traditional court system that you and your company should be aware of and consider before including an arbitration provision in your contracts.