|
Volume 5 - Number 26 | June 25, 2007
|
EDITOR'S NOTES
Arbitration clauses are standard in most construction contracts. But, what happens when a party argues that the contract as a whole is illegal? Does the arbitration clause still stand? Who decides if the contract is illegal—an arbitrator or the courts? In February 2006, the U.S. Supreme Court released an opinion clarifying these questions. Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006). In Buckeye, it reiterated a previous case in which it established that an arbitration clause is severable from the rest of the document. It said, “[R]egardless of whether the challenge is brought in federal or state court, a challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator.” The Buckeye decision provides the basis for this week’s first case, which involves the appeal of a payment dispute between a project owner and its contractor.
This week’s other two cases center around delay damages. Can a contractor on a non-federal project use its in-house scheduled completion date as the basis for determining delay damages? Only if it’s the date listed on the contract or the date both parties agreed upon via a contract modification, says a California appeals court. (Federal projects are governed by a different standard.) And, can a contractor assess delay damages against a subcontractor if the project owner does not also assess damages on the contractor for that portion of the work? Not unless it’s in the contract, rules a federal appeals court.
|
|
ARBITRATOR MUST RULE FIRST ON LEGALITY OF CONTRACT
A contractor gets a second look at its claim against an owner after the U.S. Supreme Court rules that an arbitration clause is severable from the rest of the contract when determining the underlying contract’s legality. In this instance, an arbitrator, not the court, has the first opportunity to determine if the contract is illegal.
|
|
