International arbitration awards usually have little chance of being vacated, but a recent decision by the US District Court for the Southern District of New York overturned an award because the parties did not in fact agree to arbitrate. Arbitration, the court ruled, is about consent, not coercion.

In Cooperativa Agraria Industrial Naranjillo, Ltda. v. Transmar Commodity Group Ltd., No. 16 CIV. 3356 (September 22, 2016), Arent Fox represented Naranjillo, a cooperative of cocoa farmers living and working in central Peru. The case focuses on a New Jersey-based cocoa trading house’s modified versions of purchase order forms issued by the Cocoa Merchants Association of America.

In September 2012, Transmar Commodity Group Ltd. used its customized versions of CMAA form agreements to order cocoa butter from Naranjillo. Transmar’s form was both entitled “Standard 2-A Contract” and, confusingly, “is subject to the terms and conditions of the Standard 2-A Contract” of the CMAA as well as other conditions imposed by the United States government. It nowhere mentions “arbitration.”

Transmar never sent Naranjillo the CMAA’s “Standard 2-A Contract” which contained among other terms a dispute clause invoking CMAA arbitration. The parties never discussed it. In short, the purportedly incorporated terms, including arbitration, were never expressly provided, discussed, or contemplated.

In late 2015, Transmar initiated an arbitration proceeding before the CMAA relying upon its forms, and the CMAA proceeding, which took place without Naranjillo’s participation and despite their protest, yielded a $2.6 million award against Naranjillo. Naranjillo complained to the US District Court there was no “meeting of the minds.”

The US District Court agreed with Naranjillo there was no agreement. Among its key quotes are that "Arbitration… is a matter of consent, not coercion…A dispute is arbitrable only if the parties contractually bind themselves to arbitrate it.” Here they did not because “[t]here is no showing that Naranjillo actually knew of the existence of the arbitration clauses,” that “Naranjillo was not [o]n inquiry notice that there was an arbitration provision,” and that “Naranjillo was not on notice to search for the terms of an arbitration agreement, for it was not warned that an arbitration agreement existed.” Therefore, the Court ruled, “the incorporation of the arbitration clauses was never effectively accomplished [by Transmar].”

Transmar has appealed the decision to the Second Circuit.