Dynamic Int'l Airways, LLC v. Air India Ltd., No. 15-cv-7054 (S.D.N.Y. Jul. 8, 2016) [click for opinion]
Plaintiff Dynamic International Airways ("Dynamic") sued Air India Limited ("Air India") in the Southern District of New York for breach of contract in connection with two agreements to provide air transportation services for the 2013 and 2014 Hajj, the annual Islamic pilgrimage to Mecca. Dynamic claimed that Air India failed to pay approximately $8.8 million for the air transportation Dynamic provided to Indian citizens to and from Saudi Arabia.
The agreements included a clause ("Clause 9") providing that any dispute that the parties could not amicably resolve would be "finally resolved by a designated Authority determined by the Ministry of Civil Aviation, whose decision shall be final and binding on both the parties." Air India filed a pre-motion letter with the district court acknowledging an agreement to arbitrate and requesting an adjournment of the proceedings to allow the parties time to agree upon the location, forum and terms of the arbitration (the "Letter"). That request was granted. When the parties were unable to agree upon the terms of arbitration, Air India moved to compel arbitration in India pursuant to the contract. Dynamic cross-moved to compel arbitration in New York based on the Letter.
Air India presented two arguments in support of arbitration under the terms of Clause 9 in the agreements. First, it asserted that the threshold question of whether the clause was enforceable was a question for the arbitrator to decide, not the court. Second, Air India argued that even if the court concluded that it should decide the threshold question, Clause 9 was a binding arbitration clause providing for arbitration in India with an arbitrator appointed by India's Ministry of Civil Aviation. Dynamic countered that Clause 9 was not an enforceable arbitration clause and that, instead, the Letter submitted by Air India constituted a separate "ex post agreement" to arbitrate in New York under the terms set by court.
As an initial matter, the court held that the Letter was not an enforceable arbitration agreement because the parties did not agree on any material terms of the arbitration. The Letter provided only that the parties agreed to arbitrate and that the Defendant would provide its proposed location, forum and terms of arbitration. Because the parties did not agree to those terms upfront, but rather agreed to negotiate those terms in the future, the court held that the Letter did not constitute a completed and enforceable contract under New York law.
The court then held that Clause 9 was an enforceable arbitration clause. The plain language of Clause 9 and its broad grant of power to a third-part authority to issue a final and binding decision demonstrated a "clear, explicit and unequivocal agreement to arbitrate." The court concluded that, although Clause 9 did not explicitly use the words "arbitration" or "arbitrator," the only reasonable interpretation of its language is the requirement of a final and binding dispute resolution before a designated third party in India. The court noted that Dynamic was not able to provide an alternative explanation for the meaning of Clause 9 and effectively sought to read this clause out of the contract. The court found that such an interpretation ignored an essential principle of contract construction: that a contract should be construed to give full meaning and effect to all of its provisions.
The court granted Air India's motion to compel arbitration and denied Dynamic's cross-motion to compel arbitration under the Letter. The lawsuit was stayed pending the final decision in the arbitration.