Three-Year Delay in Invoking Arbitration Clause in Contract and Active Pursuit of Litigation Leads to Waiver of Right to Arbitrate and to Invoke English Law

The World in U.S. Courts: Summer 2017 - Arbitration | May.04.2017

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NV Petrus SA v. LPG Trading corp., US District Court for the Eastern District of New York, May 4, 2007

The parties in this breach of contract action entered into agreements that provided for disputes to be resolved by arbitration in the London Court of International Arbitration under English law. The plaintiffs, ignoring the arbitration clause, filed suit in District Court in Brooklyn. The case proceeded through discovery and mediation for almost three years, and on the eve of trial the defendants, citing the arbitration clause, sought a dismissal on forum non conveniens grounds.

The Court concluded that the defendants waived their right to take the issue to arbitration. It stated that an analysis of potential waiver required consideration of three factors: “(1) the time elapsed from when litigation was commenced until the request for arbitration; (2) the amount of litigation to date, including motion practice and discovery; and (3) proof of prejudice.” Each of these factors pointed to waiver, with the most important fact being the defendants’ own active pursuit of the litigation in a manner inconsistent with a later claim that litigation was inappropriate. Prejudice was shown by the defendants having “engaged in discovery procedures not available in arbitration,” made motions going to the merits of the claims, and delayed invoking arbitration rights while the plaintiff incurred needless delay and expense. The Court found that the defendants’ conduct—including their reliance on New York law—also had the effect of waiving the applicability of English law, which would have governed had the dispute resolution clause applied.

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