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Commercial Division Permanently Stays International Arbitration

Earlier this year, in In re New York State Dept. of Health (Rusi Tech. Co., Ltd.),[1] Albany County Commercial Division Justice Richard Platkin issued a decision to permanently stay the arbitration before the China International Economic and Trade Arbitration Commission ("CIETAC") brought by a Chinese company (“Rusi”) against the New York State Department of Health (“DOH”) regarding a purchase contract for KN-95 masks. This decision, which harkens back to the chaotic early days of the pandemic,  provides a good reminder for practitioners regarding the “meeting of the minds” requirement of a contract.

Background

The underlying purchase contract consisted of three written instruments: (1) the contract that was drafted, in both English and Chinese, by Rusi (the “Contract”), (2) the subsequent purchase order that was draft by DOH (the “Purchase Order”), and (3) the written amendment to the contract (the “Amendment”). 

The English version of the Contract provides that it “shall prevail” if there are “any discrepancies between the two versions [English and Chinese]”, and that disputes “shall be settled through friendly consultation.”[2]  If a dispute cannot be resolved through friendly consultation, the Purchase Order provides that the dispute shall be resolved through binding arbitration in New York administered by the International Chamber of Commerce.  Further, the Purchase Order states that the Contract “shall be governed by and construed in accordance with the law of the State of New York[.]”[3]

Conversely, the Chinese version of the Contract provides that if there is a discrepancy between the versions, the Chinese version shall prevail and disputes not resolved through friendly consultation shall be resolved by binding arbitration administered by CIETAC.  Additionally, the Chinese version further provides that the Contract shall be governed by Chinese law and the United Nations Convention on Contracts for the International Sale of Goods (Vienna 1980) (“CISG”) shall not apply. 

After DOH rejected the delivery of the masks for not complying with the standards specified in the Contract, Rusi commenced an arbitration before CIETAC.  DOH commenced a special proceeding under CPLR 7503 (b)[4] to permanently stay the CIETAC arbitration.

Analysis

Choice of Law

First, the Court addressed which substantive laws would govern the dispute.  The Court noted that both the United States and China have adopted the CISG, which establishes provisions that govern international sales contracts.  While parties can choose to exclude the CISG, Justice Platkin explained that such an election must be “clearly and unequivocally”[5] expressed in the contract to establish mutual agreement.  Rusi argued that the dispute is governed by Chinese law and that the parties elected not to be governed by the CISG because the Chinese version of the Contract expressly states where there is a conflict between the versions, the Chinese version shall prevail.  The Court rejected this argument, finding that there was not “clear mutual intent” to exclude the CISG.[6]  Moreover, Justice Platkin found that there was not even express agreement on which version of the Contract would be controlling.  Therefore, the Court ruled that the CISG principles would apply because any reasonable purchaser under the same circumstances would intend for the English version of the Contract to control—especially since Rusi proposed to draft the Contract in both English and Chinese.

Arbitration

Next, the Court turned to the question of whether the parties agreed to binding arbitration before CIETAC. Similarly to its reasoning regarding the choice of law, the Court concluded that there was no meeting of the minds between the parties regarding the Chinese text being controlling.  Justice Platkin explained that by proposing to draft parallel versions of the Contract, Rusi knew (or should have known) that DOH’s intentions would be formed based on the English version. Furthermore, DOH’s actions were consistent with the parties’ prior course of dealing.  Therefore, having determined that the English version of the Contract controlled, and consequently, that New York law applied, the Court ruled to permanently stay the arbitration, as DOH did not agree to binding arbitration before the CIETAC.

*  *  *  *  *

The Court’s decision—beyond perhaps being a warning to always obtain an independent translation of agreements drafted in another language—is a reminder to practitioners that parties wishing to waive certain legal protections must unequivocally state those intentions in the contract. Doing so will eliminate any doubts of their intentions and save their clients the unnecessary burden of an avoidable litigation. 


[1] No. 907022/2021 (Sup. Ct. Albany Cty. Jan. 25, 2022).

[2] Id. at *2.

[3] Id.

[4] CPLR 7503 (b) permits "a party who has not participated in the arbitration and who has not made or been served with an application to compel arbitration" to "apply to stay arbitration on the ground that a valid agreement [to arbitrate] was not made." Id. at *4. 

[5] in Matter of New York State Dept. of Health at *3 (quoting Hanwha Corp. v. Cedar Petrochemicals, Inc., 760 F. Supp. 2d 426, 430-431 (S.D.N.Y. 2011)).

[6] Id. at *4.