Bechtel do Brasil Contruções Ltda. v. UEG Araucária Ltda.

Issue Discussed: Statute of Limitations

Submitted by Elizabeth V. Kniffen, Dennis Anderson

Date Promulgated: March 22, 2011

Bechtel do Brasil Construções Ltda. v. UEG Araucária Ltda., 638 F.3d 150 (2d Cir. 2011)

Court: United States Court of Appeals, Second Circuit

Issue Decided: When a contract includes competing provisions on the arbitrability of statute of limitation issues, should such issues be decided by an arbitrator, or by a court?

In 2000, three Bechtel companies (collectively “Bechtel”), agreed to build a power plant in Araucária, Brazil for UEG Araucária Ltda. (“UEGA”). The agreement was memorialized in three contracts, each of which contained an identical arbitration provision stating:

Any dispute, controversy, or claim arising out of or relating to the Contract, or the breach, termination or validity thereof . . . shall be finally settled by arbitration in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce (the “ICC”) then in effect (the “Rules”), except as these rules may be modified herein.

Each contract also included a “Law and Procedure” section providing that the contract would be construed under New York law, and that “[t]he law governing the procedure and administration of any arbitration . . . is the law of the State of New York.”

Bechtel completed mechanical work on the power plant on September 16, 2002. On January 13, 2008, the plant’s steam-turbine generator failed.

On September 29, 2008, UEGA filed a Request for Arbitration before the International Chamber of Commerce asserting breach of contract and other claims. Despite the arbitration agreement, Bechtel filed suit in a New York state court seeking a permanent stay of arbitration. Bechtel pointed to the contract’s selection of New York law to govern procedure and administration of arbitration, and to section 7502(b) of the New York Civil Practice Law and Rules, which states:

If, at the time that a demand for arbitration was made or notice of intention to arbitrate was served, the claim sought to be arbitrated would have been barred by limitation of time had it been asserted in a court of the state, a party may assert the limitation as a bar to the arbitration on an application to the court….

Bechtel argued that (1) the contracts allowed statute of limitations issues to be decided by a New York court applying New York law, and (2) pursuant to C.P.L.R. 7502(b), UEGA’s claims were time-barred by New York’s six-year statute of limitations, which began to run at substantial completion on September 16, 2002, and ended on September 16, 2008, thirteen days before UEGA demanded arbitration.

UEGA removed to federal court and sought to compel arbitration, arguing that timeliness of its arbitration claims was a question for the arbitrator. But the U.S. District Court for the Southern District of New York agreed with Bechtel, and issued a permanent stay of arbitration. UEGA appealed.

The Second Circuit undertook a painstaking analysis of the contract language, noting the tension between the arbitration clause, which provides for arbitration of “[a]ny dispute, controversy, or claim” by arbitration “except as these rules may be modified herein,” and the provision that procedure and administration of any arbitration would be governed by New York law. The court also analyzed its previous decisions in similar cases. Finding no clear statement that the statute of limitations defense should be withheld from the arbitrator, the court concluded:

In sum, our own reading of the language and our prior decision[s] lead us to the conclusion that contracts between UEGA and Bechtel are ambiguous as to whether or not timeliness disputes can be decided by a court. As Bechtel conceded at oral argument, such ambiguities must be resolved in favor of arbitration. We therefore conclude that the district court erred in holding that it, rather than the arbitrator, was authorized under the contract to decide the timeliness of UEGA’s claims.

Applying the presumption in favor or arbitration, the Second Circuit reversed and remanded the case to the district court.