Polimaster Ltd. and RAE Systems, Inc. were parties to an agreement that required disputes between the parties to be “settled by means of arbitration at the defendant’s si[t]e.” After a dispute arose between the parties, Polimaster commenced arbitration in California (RAE’s principal place of business). RAE answered the arbitration demand, asserting certain affirmative defenses, and also counterclaimed against Polimaster. Polimaster then moved to dismiss the counterclaims on the grounds that the arbitration agreement required that those claims be brought at Polimaster’s “site” (i.e., domicile or principal places of business), which was Belarus.
The arbitrator rejected Polimaster’s position and instead addressed both parties’ claims as part of the pending arbitration in California. The arbitrator reasoned that the arbitration agreement did not specify where counterclaims were to be brought, and that it would be inefficient to pursue a claim with affirmative defenses in one venue while simultaneously pursuing the counterclaims in another. The arbitrator ultimately issued an award in RAE’s favor, and Polimaster moved to vacate on the grounds that the arbitrator failed to employ the procedure required by the parties’ agreement. After district court ruled against Polimaster and confirmed the award, it appealed to the Ninth Circuit.
The parties’ arbitration agreement was governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). Construing the agreement, the court held that all requests for affirmative relief, including counterclaims, must be arbitrated at the defendant’s “site,” i.e., its domicile or principal place of business. Moreover, the court found that the term “defendant” referred to any party to a dispute which had a claim asserted against it, regardless of whether that party was the plaintiff or defendant. Accordingly, the court vacated the award on the grounds that the arbitrator failed to enforce the agreement’s forum selection clause by allowing RAE to pursue its counterclaims against Polimaster in a California arbitration.
The Ninth Circuit also rejected RAE’s argument that permitting parallel arbitrations would lead to an inefficient result. First, the court noted that underlying policy favoring arbitration was to enforce private contractual arrangements. Second, the court recognized the importance of forum selection clauses in international commercial arbitrations, and that certain non-efficiency concerns such as avoiding hostile forums, were important to international contracts.
Click here to review a copy of the court’s decision captioned Polimaster Ltd. v. RAE Systems, Inc., No. 08-15708 (9th Cir. 2010).