Paul Peter Nicolai
MUDDY CONTRACT MEANS YEARS IN COURT
Updated: Feb 15, 2022
Two parties entered into a contract that had an arbitration clause. About 10 years later they entered into a second contract which did not have an arbitration provision. That contract arguably (although not clearly) terminated and superseded the first contract. The parties then got into a dispute.
When one party sued in court, the other argued the court should send the case to arbitration because of the arbitration clause in the first contract. The court agreed and did so. The other party appealed and that court ruled it was unclear whether the second contract actually superseded and terminated the first contract. Since the second contract had no arbitration clause, the lower court needed to decide whether or not the parties were bound to arbitrate. It sent the case back.
Why This Is Important... The parties bargained for the benefit of arbitration in the original contract. Because the second contract wasn't clear about whether it terminated the first contract and did not have any reference to arbitration, the parties are now stuck with years of litigation over whether they have to arbitrate without making progress on resolving their dispute. Parties need to be clear about these things or suffer needless cost.