By: Thomas S. Tripodianos Published: September 2008

Timely Objection to Arbitration

Question. Does an untimely petition to permanently stay arbitration brought by Subcontractor fall under the exception to the statutory limitation period where the contract containing the parties' agreement to arbitrate was rescinded?

Answer. It does not; thus, the petition is time-barred and the parties' dispute must be submitted to arbitration.

Contractor entered into two virtually identical agreements with Subcontractor. The parties agreed to arbitrate Ò[a]ny controversy, dispute or claim arising out of, or relating to [the agreements] ... or the execution, validity or breach thereof.Ó

Disputes over performance arose and Contractor served Subcontractor with a demand for arbitration, alleging that the Subcontractor breached the contracts.

More than three months later, Subcontractor commenced an action in Court seeking to permanently stay the arbitration. Subcontractor alleged that the contracts had been rescinded and therefore the arbitration clause contained therein was of no effect. In response, Contractor argues that the petition was time-barred since pursuant to the applicable statute, any proceeding to stay arbitration must be commenced within 20 days of the arbitration demand. Contractor further argued that, as required by the contracts' arbitration clause, the issue of whether the rescission was proper was a question for the arbitrator.

According to a New York Court of Appeals decision, a court may consider an untimely petition to stay arbitration where Òthe parties never agreed to arbitrateÓ. Subcontractor primarily argues that, despite its untimely petition under the statute, arbitration should nevertheless be stayed pursuant to the exception articulated by the Court of Appeals because it demonstrated that the contracts containing the agreement to arbitrate were rescinded.

The Court's long-standing rule is that Òan arbitration clause in a written agreement is enforceable when it is evident that the parties intended to be bound by the contract. Indeed, it is well settled that a party to an agreement may not be compelled to arbitrate its dispute with another unless the evidence establishes the parties' clear, explicit and unequivocal agreement to arbitrate.
Generally, whether there is a clear, unequivocal and extant agreement to arbitrate the claims is for the court and not the arbitrator to determine. Pursuant to the statute, however, a party served with a proper demand for arbitration must apply to stay arbitration within 20 days after service of the demand or it will be precluded from objecting that a valid agreement was not made or has not been complied with and from asserting in court the bar of a limitation of time.

The exception to the statutory rule prohibiting courts from considering untimely objections to arbitration says that an untimely application may be entertained where its basis is that the parties never agreed to arbitrate, as distinct from situations in which there is an arbitration agreement which is nevertheless claimed to be invalid or unenforceable because its conditions have not been complied with. In situations where the parties never agreed to arbitrate, it was clear that the Legislature did not intend to bind persons to the arbitral process by their mere inaction for 20 days where no agreement to arbitrate has ever been made.

Here, Subcontractor commenced this proceeding to permanently stay arbitration well beyond the 20-day time period to object to arbitration. As such, the petition is time-barred unless the basis for Subcontractor's objection falls within the exception. Because the contracts at issue in this case contain an arbitration provision, it cannot be said that the parties never agreed to arbitrate or that no agreement to arbitrate has ever been made. Indeed, Subcontractor does not assert that the parties never entered into an arbitration agreement; rather, it simply attacks the present viability of the contracts containing the agreement to arbitrate. Thus, the exception is inapplicable under the circumstances of this case.

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