• Journal of Arbitration Studies
• /
• v.19 no.3
• /
• pp.161-178
• /
• 2009

This article focuses on the enforceability of arbitration agreements m the dispute of standby letter of credit, especially with the case analysis of the leading case from the U.S. Bankruptcy Court. In Nova Hut a.s. v. Kaiser Group International Inc. case, while the underlying contract contained an arbitration clause, a guarantee to assure contractor's performance did not contain an arbitration clause. Nova Hut drew on the standby for the Contractor's failure to deliver contractual obligations. Against the Kaiser's action under US Bankruptcy law, Nova Hut moved to stay the proceedings pending arbitration, to compel arbitration, and to dismiss the complaint. The US Bankruptcy Court for the District of Delaware denied Nova Hut's motions. On appeal, Kaiser argued that it was not subject to arbitration since it was not a party to the contract. It also argued that Nova Hut had waived its right to arbitration by filing a proof of claim in the bankruptcy proceeding and commencing legal actions in other countries. The appeals court noted that in order to avoid arbitration on those grounds prejudice must be shown. It indicated that because there was no long delay in requesting arbitration and no discovery conducted m the course of litigation, the Kaiser could not demonstrate actual prejudice on the part of Owner. In light of public policy favoring arbitration, the nature of the claims in the parties' agreements, Kaiser's conduct in embracing the agreements, and their expectation of benefit, the appeals court ruled that the doctrine of equitable estoppel applied in requiring the Parent to arbitrate.