The Arbitration Clause in your construction contract – what does it mean?
As often happens on construction projects, disputes arise between the contracting parties. One party may claim they have not been paid. The other party may claim the work has not been done or was improperly done. What happens when the parties are unable to amicably resolve their differences and their contract has an arbitration clause? Must the parties arbitrate their dispute or can their dispute be decided in a court of law?
Florida courts generally find arbitration provisions enforceable. Public policy considerations favor arbitration. When practical, all doubts regarding the scope of an arbitration clause should be resolved in favor of arbitration. In determining whether there should be arbitration in a particular case, courts generally consider three matters: (1) whether a valid written agreement to arbitrate exists; (2) whether an arbitrable issue exists; and (3) whether the right to arbitration was waived.
Whether a valid agreement to arbitrate exists will typically be determined by the terms of the parties’ contract. In this respect, the parties should ensure the contract makes clear that arbitration shall be the legal mechanism to resolve their disputes.
Whether an arbitrable issue exists will also typically be determined by the language in the contract; including what matters are defined to be subject to arbitration. For example, is the arbitration agreement limited to claims arising out of alleged breaches of the contract? Are tort-type claims within the scope of the arbitration agreement? The parties should be mindful of fully indentifying the scope of issues they wish to have arbitrated.
Whether the right to arbitration was waived is generally examined in the totality of the circumstances, and whether a party has acted inconsistently with its right to arbitrate. Filing an answer in a lawsuit without seeking arbitration, or active participation in a lawsuit, may be viewed as inconsistent with and act as a waiver of the right to arbitrate.
In sum, a carefully worded arbitration provision will go a long way toward defining what types of disputes will and will not be subject to arbitration. The party seeking arbitration also needs to be mindful that it does not take any actions that are inconsistent with their arbitration rights.