When Is An Arbitration Clause In An Aircraft Purchase Agreement Enforceable?

As with many legal questions, the lawyerly answer is "it depends."  However, generally speaking, yes, arbitration clauses in aircraft purchase agreements are enforceable.  Here's why.

Courts favor arbitration.  Whether a claim is subject to arbitration will depend on the contractual language in the purchase agreement.  A court will presume a claim is subject to arbitration if an aircraft purchase agreement has an arbitration clause and an interpretation of the clause covers the claim. But that presumption may be rebutted.

When Does This Issue Come Up?

If a party to an agreement containing an arbitration clause is sued in court by the other party, the party being sued may ask the court to force the other party to submit its claims to arbitration. The court must then determine (1) whether an agreement to arbitrate was entered into and (2) whether the dispute falls within the scope of the arbitration provision.

Did The Parties Agree To Arbitrate?

Typically, a court will find that the parties agreed to arbitrate if the aircraft purchase agreement contains an arbitration clause or provision.  However, this may not be the case if the arbitration provision itself was fraudulently induced, which will be addressed in more detail below.

What Issues Did The Parties Agree To Arbitrate?

Assuming the first factor has been satisfied, the court will look at the language of the parties' agreement to determine what issues they intended to arbitrate. The language must either specifically state the issues subject to arbitration, or it must be sufficiently broad to cover the claims alleged.  If the court determines that it is "reasonably debatable" whether a dispute is subject to arbitration, it will require that the dispute be arbitrated.

Examples Of Arbitration Language.

An arbitration clause in an aircraft purchase agreement that states

“any controversy or claim arising out of or relating to this agreement, or the alleged breach thereof”

will likely be considered broad enough to encompass most claims relating to the agreement.  In that instance, a general attack on the purchase agreement alleging that it is void because it was fraudulently induced or the result of mutual mistake would still be subject to arbitration.

Conversely, an arbitration clause stating that it covers

“any claim arising out of or relating to the physical condition of the aircraft”

will only include claims with respect to the condition of the aircraft but not issues of whether the parties actually agreed to arbitrate.  Without some evidence of the parties' intent to arbitrate them, claims of fraud in the inducement of the agreement to arbitrate, rather than claims of fraud with respect to the aircraft purchase agreement as a whole or the condition of the aircraft, would be decided by the court rather than an arbitrator.

To put it another way, the court will not consider claims of fraud in the inducement of the aircraft purchase agreement generally.  Those claims will have to be arbitrated.  Only where the claim of fraud in the inducement goes specifically to the arbitration provision itself will the claim be decided by the court rather than the arbitrator.

Conclusion

If you have an arbitration clause in your aircraft purchase agreement, you will need to carefully review the language and compare it to the claims at issue.  Broad language means all claims will likely have to be arbitrated, including claims that the agreement to arbitrate was fraudulently induced.  Anything less than that broad language and claims may or may not be subject to arbitration.