Footprint Power Salem Harbor Dev., L.P. v. Iberdrola Energy Products, Inc., Index No. 651963/2018 (NY Sup. Ct. May 1, 2018) [click for opinion]

Footprint Power Salem Harbor Development, LP (“Footprint”) entered into an Engineering, Procurement and Construction Contract (the “EPC Contract”) with Iberdrola Energy Products, Inc. (“Iberdrola”) for the construction of a power station in Massachusetts. Footprint later terminated the EPC Contract for cause. Iberdrola began an arbitration proceeding before the International Centre for Dispute Resolution (“ICDR”) to dispute certain actions taken by Footprint.

Footprint filed a temporary restraining order with the New York Supreme Court to stay the pending arbitration. Footprint argued that completion of the Project was a condition precedent to arbitration, emphasizing a provision within the EPC Contract. Footprint also argued that only courts should have the authority to determine whether a condition precedent to an arbitration agreement has been satisfied. In response, Iberdrola argued the arbitration agreement was enforceable, and that the parties’ reference to the arbitral rules of the ICDR in the EPC Contract vests the arbitrator with the power to determine whether the dispute is currently arbitrable.

The court sided with Iberdrola. The arbitration provision within the EPC Contract stated that arbitrations shall be administered by the ICDR “in accordance with its International Arbitration Rules in effect at the time of the arbitration, except as they may be modified herein or by mutual agreement of the Parties.” While Footprint argued the parties modified the rules by adding language to the EPC Contract which stated that the parties agreed “to the jurisdiction of the United States District Court for the Southern District of New York for the limited purpose of enforcing [the] agreement to arbitrate,” and that this provision demonstrated the parties wanted the New York courts to determine whether an issue was arbitrable, the courts were not persuaded. The court found that this language did not modify the clear ICDR Rules that gave the ICDR authority to decide which issues are arbitrable.

The court also reviewed precedent to support its interpretation of the rules. In Life Receivables Trust v. Goshawk Syndicate 102 at Lloyd’s, a New York appellate court interpreted a provision of the American Arbitration Association Rules which, similar to the ICDR Rules at issue, empowered the arbitral tribunal to rule on its own jurisdiction, and found that when a parties’ agreement specifically incorporates or references arbitration rules that give the arbitrator the authority to rule on its own jurisdiction, courts should allow the arbitrators to decide the arbitrability of validity issues.

The New York Supreme Court therefore held that even if the court agreed with Footprint’s argument that the arbitration was premature, that determination was completely within the discretion of the arbitrator

A version of this post originally appeared in the July 2018 edition of Baker McKenzie’s International Litigation & Arbitration Newsletter, which is edited by David Zaslowsky and Grant Hanessian.

 

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