When Arbitration is Governed by ICC Rules, It is For Arbitrator, Not the Court, to Decide Whether a Dispute is Arbitrable

On September 25, 2020, Justice Friedman of the New York County Commercial Division issued a decision in Lamorna Invs. Ltd. S.A. v. MG Capital Mgt. Residential Fund III L.P., 2020 NY Slip Op. 33162(U), holding that when an arbitration is governed by the ICC rules, it is for the arbitrator, not the court, to decide whether a dispute is arbitrable, explaining:

The New York courts have held that generally, whether there is a clear, unequivocal and extant agreement to arbitrate the claims is for the court and not the arbitrator to determine. Courts applying New York law will, however, enforce an arbitration agreement that clearly and unmistakably provides that the arbitrator will decide the arbitrability of a dispute. Under the FAA, similarly, courts should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so. The Supreme Court has, however, consistently held that parties may delegate threshold arbitrability questions to the arbitrator, so long as the parties’ agreement does so by clear and unmistakable evidence. When the parties’ agreement both specifically incorporates by reference the rules of an arbitration organization that permit the arbitrator to decide the scope of the arbitration agreement and employs language referring all disputes to arbitration, courts applying the FAA will leave the issue of arbitrability to the arbitrators. Similarly, in holding that the issue of arbitrability is for the arbitrator to decide, the New York courts and the Delaware courts require not only that the arbitration clause incorporate rules of an arbitral forum that empower the arbitrator to decide issues of arbitrability but also that the arbitration clause provide broadly for submission of disputes to the arbitrator. Delaware law is to the same effect.

Here, the court holds that the parties’ agreements evidence a clear and unmistakable intent to delegate arbitrability questions to the arbitrator. As noted above, the Limited Partnership Agreement provides that any dispute, controversy, or claim arising out of or relating to this Agreement shall be resolved by arbitration under the Rules of the International Chamber of Commerce. The ICC rules provide:

If any party raises one or more pleas concerning the existence, validity or scope of the arbitration agreement or concerning whether all of the claims made in the arbitration may be determined together in a single arbitration, the arbitration shall proceed and any question of jurisdiction or of whether the claims may be determined together in that arbitration shall be decided directly by the arbitral tribunal, unless the Secretary General refers the matter to the Court for its decision pursuant to Article 6(4).

The Limited Partnership Agreement also provides that the arbitral tribunal appointed under that Agreement may exercise jurisdiction with respect to both this Agreement and the Related Agreements, which are defined to include any Subscription Agreement and/or side letter pertaining to the Partnership between the General Partner and/or the Partnership on the one-hand, and a Limited Partner on the other hand. The Subscription Agreement expressly provides that it is made by and among the Fund, MG GP as general partner, and the investor (as relevant here, Lamorna), who is hereby applying to become a limited partner of the Partnership, on the terms and conditions set forth in this Subscription Agreement and in the Amended and Restated Agreement of Limited Partnership of the partnership.

Based on the terms of the Subscription Agreement and the Limited Partnership Agreement, the court cannot find as a matter of law that plaintiff’s claims in this action arise solely under the Subscription Agreement or that the two Agreements are entirely unrelated. Rather, it is for the arbitrator to decide the applicability of the Limited Partnership Agreement, including the arbitration provision of that Agreement or, put another way, whether plaintiff's claims fall within the scope of that provision.

(Internal quotations and citations omitted).

Commercial litigation involves more than courts. Disputes often are--by agreement--decided by private arbitrators. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding a dispute that is subject to an arbitration agreement.