Opinions regarding whether arbitration of project disputes is better than litigation really are like noses—everyone has one and they all seem to be different. There are certainly benefits and drawbacks to both forms of dispute resolution. But prudent contractors should decide which forum is appropriate based on the project and make sure all contracts within that project are consistent. Otherwise, you run the risk of having to fight the same battle in both litigation and arbitration at the same time.
For example, in a current case involving a local residential community, the general contractor entered into subcontracts that contained arbitration clauses that either gave the general contractor the election of dispute resolution forums or were ambiguous regarding dispute resolution. At the same time, the general contractor issued purchase contracts to the homeowners that require arbitration for dispute resolution, but some of the contracts allowed consolidated arbitration—more than one homeowner can participate in the arbitration proceedings—and some contained non-consolidation clauses—every arbitration must be separate and distinct.
When some of the homeowners brought claims for alleged construction defects in their homes, the error of the general contractor’s failure to maintain consistent contracts was uncovered. Some of the cases are in a consolidated arbitration, but more than 60 are lined up for separate non-consolidated arbitrations. And even more subsequent purchasers—who have no contract with the general contractor—have brought claims in Superior Court.
Additionally, the homeowners are arguing that, based on their contracts with the general contractor, the subcontractors are not allowed to participate in their arbitrations. The general contractor, on the other hand, claims that the subcontractors will be bound by the arbitrator(s)’ rulings, which could spawn yet more separate litigation in another county.
All of this could have been avoided by good planning at the contracting stage. Contractors—and their lawyers—should keep a close eye on the dispute resolution forums in their contracts. If the contract is silent on this issue, then that means any dispute will be traditionally litigated through the courts. If there is a valid arbitration agreement, then any disputes will likely be arbitrated.
To prevent being dragged into both arbitration and litigation at the same time, make sure all of your contracts on every project are consistent regarding the dispute resolution forum. If one contract has an arbitration clause, make sure all your contracts contain a consistently-similar provision. Conversely, if the "upstream contract" makes no mention of arbitration (meaning litigation would be the dispute resolution forum), keep your "downstream contracts" silent as well.
As with any construction project, the key is good advance planning. An ounce of prevention will help avoid being sued in multiple forums later should disputes arise.
For more information contact Jared M. Scarbrough at jscarbrough@holmwright.com or (480) 477-8589.
For example, in a current case involving a local residential community, the general contractor entered into subcontracts that contained arbitration clauses that either gave the general contractor the election of dispute resolution forums or were ambiguous regarding dispute resolution. At the same time, the general contractor issued purchase contracts to the homeowners that require arbitration for dispute resolution, but some of the contracts allowed consolidated arbitration—more than one homeowner can participate in the arbitration proceedings—and some contained non-consolidation clauses—every arbitration must be separate and distinct.
When some of the homeowners brought claims for alleged construction defects in their homes, the error of the general contractor’s failure to maintain consistent contracts was uncovered. Some of the cases are in a consolidated arbitration, but more than 60 are lined up for separate non-consolidated arbitrations. And even more subsequent purchasers—who have no contract with the general contractor—have brought claims in Superior Court.
Additionally, the homeowners are arguing that, based on their contracts with the general contractor, the subcontractors are not allowed to participate in their arbitrations. The general contractor, on the other hand, claims that the subcontractors will be bound by the arbitrator(s)’ rulings, which could spawn yet more separate litigation in another county.
All of this could have been avoided by good planning at the contracting stage. Contractors—and their lawyers—should keep a close eye on the dispute resolution forums in their contracts. If the contract is silent on this issue, then that means any dispute will be traditionally litigated through the courts. If there is a valid arbitration agreement, then any disputes will likely be arbitrated.
To prevent being dragged into both arbitration and litigation at the same time, make sure all of your contracts on every project are consistent regarding the dispute resolution forum. If one contract has an arbitration clause, make sure all your contracts contain a consistently-similar provision. Conversely, if the "upstream contract" makes no mention of arbitration (meaning litigation would be the dispute resolution forum), keep your "downstream contracts" silent as well.
As with any construction project, the key is good advance planning. An ounce of prevention will help avoid being sued in multiple forums later should disputes arise.
For more information contact Jared M. Scarbrough at jscarbrough@holmwright.com or (480) 477-8589.
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