In a recent decision of the United States District Court for the Eastern District of New York, Apple & Eve, LLC v. Yantai North Andre Juice Co., Ltd., No. 07-CV-745 (JFB)(WDW) (E.D.N.Y. April 27, 2009), the Court found that the defendant had waived its right to arbitration, thereby rendering the arbitration clause null and void under Article II of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”).

Plaintiff Apple & Eve, LLC (“Apple & Eve”), a Delaware limited liability company in the business of purchasing and distributing apple juice, originally commenced an action in the Supreme Court of New York against Yantai North Andre Juice Co., Ltd. (“Yantai”), a producer of juice concentrate organized under the laws of the People’s Republic of China. Yantai removed the action to the Court and later a filed a motion to compel arbitration (to take place in China). Enforcing the plain language of the parties’ agreement and “in accordance with the strong principles favoring arbitration in international disputes,” the Court granted Yantai’s motion to compel arbitration and stayed the action pending arbitration.

In early 2008, Apple & Eve filed a motion to vacate the stay based on Yantai’s alleged refusal to arbitrate before the Hong Kong International Arbitration Commission (“HKIAC”) because it was not located in mainland China. The Eastern District denied the motion as premature because of the absence of a ruling by a Chinese court or arbitration commission as to the enforceability of the arbitration provision. On November 24, 2008 Apple & Eve filed a second motion to vacate the stay based upon newly discovered evidence that Yantai had filed a petition before the Intermediate People’s Court of Yantai in China almost a year earlier seeking to have the arbitration clause declared invalid by a Chinese court.

Yantai represented to the Court that it had instructed its Chinese counsel to withdraw the petition seeking a declaration that the arbitration provision was “invalid and unenforceable” and consented unconditionally to arbitrating plaintiff’s claims before the HKIAC. Nonetheless, in granting Adam & Eve’s motion to vacate the stay, the Court ruled that because of Yantai’s “unilateral and stealth action in filing the…petition and seeking the invalidation of the arbitration clause in China, the arbitration clause falls within the Convention’s limited exception of being declared ‘null and void’.” The court stated that Yantai had acted in a manner “completely inconsistent with the preservation of its right to arbitrate” and a finding of waiver of its right to arbitrate the proceeding was justified.