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Relying on a narrow reading of an agreement to arbitrate "all disputes," an appellate court in the state of Washington has ruled that issues raised in a dispute between subcontractors fell outside the scope of the arbitration agreement.
The underlying dispute in Tacoma Narrows Constructors v. Nippon Steel-Kawada Bridge, Inc., 156 P.3d 293 (Wash. Ct. App. April 24, 2007) involved the alleged failure of Nippon Steel-Kawada Bridge (NSKB) to provide promised material and services to General Contractor Tacoma Narrows Constructors (TNC) in a public works project to build a second span of the Tacoma Narrows Bridge.
The arbitration issues arose in a dispute between subcontractors: Nippon Steel-Kawada Joint Venture (NSK-JV) and Samsung Heavy Industries, Ltd. (SHIL). NSK-JV signed a purchase order with SHIL to fabricate and supply materials for the project. The purchase order contained an agreement to arbitrate "all disputes, controversies, or differences" arising out of the order.
Before SHIL could fill the order, TNC made significant design changes that effectively added considerable costs to SHIL. When SHIL refused to fill the new order, NSK-JV sued and SHIL responded by trying to invoke the arbitration agreement between them.
Despite the broad wording of the arbitration clause, the Court held that the issues raised by NSK-JV were not arbitrable. While acknowledging that such a wording would generally include the issues raised, the Court pointed to language later in the purchase order that effectively limited the reach of the arbitration clause.
More specifically, the purchase order agreement stated that "if any dispute arises in connection with the TNC Contract" and NSK-JV believed that such a dispute "touches or concerns" the work of SHIL, it "shall be dealt with jointly with the dispute under the TNC Contract."
The Court determined that a current NSK-JV dispute with TNC was in fact connected with the NSK-JV dispute with SHIL, and thereby triggered the exception to the arbitration agreement. In essence, the Court found that because NSK-JV was already involved in litigation with TNC, "joint" resolution of its issues with SHIL required all parties to participate in litigation rather than arbitration.
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