By Bruce Jervis
Arbitration clauses are interpreted liberally in order to give full effect to this alternative method of dispute resolution. If there is a close call on the arbitrability of an issue, including questions regarding the scope or application of the clause itself, courts generally favor arbitration. But there must be limits.
Arbitration is a creature of contract. It is binding against parties only when they have consented to arbitrate disputes arising out of or relating to the contract containing the arbitration clause. Parties should not be required to submit other disputes to arbitration. Yet this is exactly what an Ohio court recently mandated.
A construction contract called for binding arbitration. A dispute arose after completion of the work. Although the dispute could have been submitted to arbitration, the parties elected not to do so. They negotiated a settlement. They signed a settlement agreement which extinguished all rights and released all claims under the construction contract containing the arbitration clause. When a dispute arose under the settlement agreement, however, the Ohio court ruled the dispute was subject to the arbitration clause in the construction contract.
Isn’t this a judicial imposition of arbitration on a contract, the settlement agreement, which contained no arbitration clause? How could the arbitration clause in the construction contract survive when all rights under that contract had been expressly extinguished in the settlement agreement? I welcome your comments.
Featured in Next Week’s Construction Claims Advisor:
- Contractor Denied Correction of Mistaken Bid
- Contractor Recovers Mark-Up on Owner-Purchased Materials
- GAO Addresses Veterans Set-Aside Clause
The answer to your question is Yes. It seems the court looked at the issue as being one that did in fact fall under the construction agreement, thus the ruling. Just because both parties decided to alter the construction agreement with a negotiated settlement agreement, the court in this case didn't allow a party (or both) to selectively take certain 'items' out of the original agreement, only to have them 'clog' up the court system if and when a dispute arose on the negotiated item (as in this case.) Seems like they wanted the parties to solve it outside of the court jurisdiction. Arbitration is not necessarily bad- only when the arbitrator doesn't understand the case and splits the costs. I've been in arbitration cases where won and lost everything- depends on three things: 1) what is really right and wrong, 2) does your attorney present the case clearly, and 3) most importantly, do you have the documentation to accomplish 1 and 2. if the answer to 3 is yes, and you are right, you should prevail. if the answer is no, no matter what, you'll have a hard time proving anything. The moral- document the work/actions/results... and in a manner as if you're going into an unfriendly court!
Posted by: Dave Heuring | 02/24/2012 at 07:39 AM
Just curious. How did this dispute end up before the Ohio court?
Posted by: Jim Keil | 02/24/2012 at 07:41 AM
Hi All,
When the parties introduces and signed the binding arbitration agreement in the contract, they were expected to abide with it just in case a dispute arose. The option to fix the original dispute with a settlement is a welcome approach and could have gone through without a hitch. The problem here is that a settlement agreement was really never reached nor completed. Instead of coming up with a final agreement, the parties went back to square one and started another dispute, now centering in and around the stipulation of the settlement agreement. The party then chose to bring the matters to court instead of abiding with the governing contract in place. In my opinion, the court made a good call of instructing everyone to go back to the binding arbitration clause. It is the best and correct direction to go. It is in fact, what was agreed to by all in the first place.
Posted by: RUFRAN C. FRAGO, P.Eng., PMP, CCE | 02/24/2012 at 08:45 AM