Choice Of Law Determines Arbitrability; 'Clear And Unmistakable' Standard Adopted; 'Arising Under' Deemed A Narrow Arbitration Clause

Cape Flattery Limited (Cape) v. Titan Maritime, LLC, et al.(Titan), No. 09-15682 (9th Cir. July 2011), discusses several important issues in international litigation practice. The suit involves claims by Cape against Titan for gross negligence in connection with the salvage operation done on Cape's vessel, the M/V Cape Flattery. The salvage operation was done pursuant to a contract providing that

"Any dispute arising under this Agreement shall be settled by arbitration in London, England, in accordance with the English Arbitration Act 1996 and any amendments thereto, English law and practice to apply"

Reviewing the question of whether to compel arbitration de novo, the Ninth Circuit held:

First, the Court of Appeals addressed the question of what law applied to determine the arbitrability of the dispute. The Circuit followed the holding in Volt Information Sciences, Inc. v. Board of Trustees, 489 U.S. 468 (1989), holding that there was no "federal policy favoring arbitration under a certain set of procedural rules" but rather that the federal policy favoring arbitration "is simply to ensure the enforceability, according to their terms, of private agreements to arbitrate". As a result, the Court ruled that "contracting parties have the power to agree to apply non-federal arbitrability law" and that courts should enforce them.

Second, the Circuit observed that First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995), required the application of ordinary state-law principles that govern the formation of contracts but that, in determining whether parties agreed to arbitrate, "[c]ourts should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so". Applying and extending that rule, the Circuit ruled that "a general choice-of-law provision does not constitute an agreement to apply non-federal arbitrability law". Said the Court:

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