ConstructionPro Week, Volume: 3 - Issue: 28 - 07/11/2014

Are Arbitrators Required to Follow the Contract?

By Bruce Jervis

 

When parties commit to binding arbitration of their contract disputes, they assume the arbitrator or arbitrators will apply the terms of the contract in a lawful manner. But, is the arbitrator required to do so? The answer, surprisingly, is not necessarily.

 

An arbitrator in a recent case refused to enforce straightforward waiver and release language against a subcontractor. The arbitrator reasoned that the failure to submit the referenced progress payment requisition into evidence rendered the scope of the release ambiguous.

 

The Rhode Island Supreme Court said it could not substitute its interpretation of the contract language for that of the arbitrator. The arbitrator considered the language of the contract. While the arbitrator may have misconstrued the language, there was no “manifest disregard of the law.” The court ruled, “[A]n arbitrator’s misconstruction of an agreement is not a sufficient basis for vacating an award.”

 

This may come as news to many. Arbitrators are not required to understand or properly construe the contract governing the dispute submitted to arbitration. What is your reaction? Does this affect your willingness to submit your contract disputes to binding arbitration? I welcome your comments.

 

COMMENTS

May we presume that this would also apply to Umpires in appraisal matters?
Posted by: William Norman - Friday, July 11, 2014 12:28 PM


I had a very similar occurrence. My client received a favorable ruling from the arbitrator but the arbitrator refused to award attorney fees in accordance with the standard AIA A101 contract. In my discussion with a slightly unhappy client I explained that if he wanted to appeal his likely remedy would be the same as you report from Rhode Island.
Posted by: J M Taylor - Friday, July 11, 2014 12:47 PM


Arbitration started off to be a good thing in the begining but that has changed. With my case post poned for 1 month for my attorney to take a cruse.

The arbitrator requested to quite early one day so he could pick his Fantasy football players as he stated he would loose best choices.

Construction contracts are written at the desire of the author not the contractor and should be interpeted that way. I thought this was Arbitration was about (getting to the point without alot legal jargen to confuse a judge) Arbitrators should only consider the facts in front of them and not make legal alterations to the contract.
Posted by: Dennis Fleeher - Friday, July 11, 2014 12:49 PM


Wow............

What else governs the work but the contract.....?

Seems any decision should be based upon the contract and it's real meaning
Posted by: Don Godi - Friday, July 11, 2014 12:50 PM


I work for many school districts and their attorneys will not allow me to include in the Agreement Between Owner and Contractor any arbitration. The feel that if they are in the right and because it is tax payers money, they should be able to appeal any ruling up to the Supreme Court. I have been a witness in an arbitration case between a Sub-Contractor and a General Contractor. The sub-contractor did not do his work properly and it did not meet the plans and specifications. The G.C. could not get the Sub to come back an fix the mess he made. He finally got another Sub to correct the work. The Arbitrator decided to play Salomon and “split the baby” and awarded the Sub half of his contract amount even though the G.C. had more expense than the original contract to correct the work. The G.C. was 100% in the right and the Sub deserved nothing. That is why I take out of the standard A.I.A. contracts any reference to Arbitration. Arbitration can be arbitrarily. There is nothing wrong with non-binding mediation
Posted by: Johne M. Cole - Architects - Friday, July 11, 2014 1:01 PM


In Construction, we rely on contracts to cement our relationship with our clients as well as subcontractors. When in a dispute with a client over whether we are required to perform a certain task, we refer back to the contract to determine what it says (for example, they want us to provide new drywall throughout a house where the contract says just one room. The contract states when payments are due, etc. If arbitrators are going to ignore the contract, it is going to open the door to more lawsuits and less people willing to settle out of court.
Posted by: Margaret Wilson - Friday, July 11, 2014 2:04 PM


My firm has never been an advocate for arbitration. This information only strengthens our opinion that arbitration is not a preferred option for dispute resolution.
Posted by: Rich Gushman - Friday, July 11, 2014 5:29 PM


The presentation of your item and especially the concluding remark reveal an oversimplistic bias against arbitration. Few facts are presented. You do not even provide a cite to the court decision. I reserve judgment as to the correctness of the arbitrator's decision but your newsletter I regard as close to worthless.
Posted by: Richard Eastman - Friday, July 11, 2014 8:19 PM


ARBITRATION FAVORED, CASELAW, OH SUP CT., 071214

*** {¶ 18} The Ohio Arbitration Act (" OAA" ) provides: " A provision in any written contract * * * to settle by arbitration a controversy that subsequently arises out of the contract * * * shall be valid, irrevocable, and enforceable, except upon grounds that exist at law or in equity for the revocation of any contract." R.C. 2711.01(A). The language of the OAA tracks the language of the Federal Arbitration Act (" FAA" ), which provides: " [A] contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract * * * shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." Section 2, Article 9, U.S. Code. The OAA expresses Ohio's [958 N.E.2d 1210] strong public policy favoring arbitration, which is consistent with federal law supporting arbitration. Taylor Bldg. Corp. of Am. v. Benfield, 117 Ohio St.3d 352, 2008-Ohio-938, 884 N.E.2d 12, ¶ 26, fn. 1. ***

Taylor v. Ernst & Young, L.L.P., 958 N.E.2d 1203, 130 Ohio St.3d 411, 2011-Ohio-5262 (Ohio 2011).

J. Norman Stark, Attorney / Architect Emeritus, Cleveland, OH
Posted by: J. NORMAN STARK - Saturday, July 12, 2014 9:17 AM


There are pros and cons to arbitration, and I am both a construction lawyer and arbitrator (AAA and other panels).

There is no "manifest disregard of the law" in Massachusetts, so it is true that the arbitrator does not have to apply the law. That said, the reality is that most cases will not go through trial or get appealed, so the decision in a case is usually final anyway.

Advantages of arbitration:

1. You get to choose your arbitrator (who many have the construction expertise that you are looking for).

2. Arbitration is generally confidential. There is no published decision.

3. The process can be quicker and less expensive.

4. Arbitration provides finality.

Litigation:

1. It is fully appealable (again, however, most cases don’t even make it through trial and are not appealed).

2. There is a set of rules for procedure.

3. Full discovery is available prior to trial.

At this point, I don’t put arbitration clauses in my contracts. If the parties choose to arbitrate, they can override the contract.

Andrea Goldman

Goldman Law Group

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Newton, MA 02458

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“Massachusetts Builders Blog” www.buildingconfidence-llc.blogspot.com

"Home Contractor vs. Homeowner Blog" www.andreagoldmanlaw.blogspot.com

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Construction, business, employment and landlord/tenant disputes.

Litigation, arbitration, mediation and transactional services.


Posted by: Andrea Goldman - Saturday, July 12, 2014 11:51 AM


Surprised? Not at all.

In many cases, the Arbitrator is not even bound by the law nor is he/she required to be a lawyer or even understand the law. That does not mean I recommend against Arbitration...to the contrary.

Anybody who thinks their case is a shoe-in in court is pretty naive. There is a great degree of "interpretation" even in a trial, thus there is almost always one side who feels the court system is arbitrary also. What Arbitration DOES do is create some little bit of equalization between those who have the money for a protracted court case and those who don't. Sorry to be blunt, but in my opinion the legal system has become too bloated to provide equity for many people who can not afford to "pay to play" and a great many people recognize this and actively practice the threat of a long expensive trial against their victims.

If you cannot afford to spend 4 years and a couple hundred grand on a trial(or more), please consider Arbitration. And better yet, whether you agree to arbitrate of go to trial, the best thing you can do is find a good mediator for non-binding mediation first.

I am not a lawyer but have spent far to much time in a court room and this is my opinion...for what its worth.
Posted by: Dave Williams - Saturday, July 12, 2014 4:28 PM


 









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