E-Alert Case Updates
Virginia Federal Court holds that parties to requirements contract agreed to confer the issue of arbitrability to the arbitrator.
Innospec Ltd. v. Ethyl Corp.
In Innospec Ltd. v. Ethyl Corp., the United States District Court for the Eastern District of Virginia held that parties to a contract agree to arbitrate the issue of arbitrability when incorporating specific rules allowing for the arbitration of arbitrability into an agreement to arbitrate. Writing for the Court, District Judge John A. Gibney, Jr. held that an American manufacturer of tetraethyl lead (“TEL”) would have to arbitrate its declaratory judgment action seeking a declaration that it could terminate a requirements contract with a British buyer. As a matter of first impression in the Fourth Circuit, the Court held that the incorporation of the Rules of the London Court of International Arbitration in the arbitration provision of the parties’ supply contract offered clear and convincing evidence that the parties intended to arbitrate the issue of arbitrability.
Innospec, Ltd. (“Innospec”) is an American company engaged in the business of manufacturing and selling TEL. Innospec entered into a requirements contract (the “Contract”) with the British company Ethyl Corporation. The Contract contained an arbitration provision that, in pertinent part, stated: “Any dispute between the parties with respect to this Agreement . . . may be submitted by either party for arbitration in London in accordance with the Rules of the London Court of International Arbitration by one arbitrator to be appointed by agreement between the parties.” Innospec filed a declaratory judgment action in the United States District Court for the Eastern District of Virginia seeking a declaration that it had a right to unilaterally terminate the Contract due to unforeseeable economic conditions; namely, the weakening of the global appetite for leaded motor fuel. Ethyl moved to compel the matter to arbitration and either stay proceedings or dismiss the claim outright. Additionally, Ethyl asked the Court to determine the arbitrability of Innospec's claim.
The Court granted Ethyl’s Motion to Compel Arbitration, but declined to decide the issue of arbitrability. In declining to reach the issue of arbitrability, the Court stated that it must determine from the terms of the Contract whether the parties intended to arbitrate the issue of arbitrability. While acknowledging a general presumption in favor of arbitration, the Court stated that there is also a presumption against assuming that parties agreed to arbitrate the issue of arbitrability. In order to overcome that presumption, parties must show a “clear and unmistakable” intent to arbitrate the issue of arbitrability. The Court held that the Contract met the “clear and unmistakable” standard by incorporating the Rules of the London Court of International Arbitration, which confers upon the arbitrator jurisdiction to determine arbitrability. The Court acknowledged that this issue had yet to be ruled upon by the Fourth Circuit, but found that a majority of circuit courts have held that the incorporation of specific rules that allow arbitrators to determine arbitrability meets the “clear and unmistakable” standard. Therefore, the Court compelled arbitration of this matter, dismissing Innospec’s action without prejudice.
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