Saturday, August 6, 2005
A party who terminates a contract and is sued by the other party may not be able to rely on an arbitration clause in the agreement, according to a recent 2-1 decision by the Florida Court of Appeals, because the termination of the contract may terminate the contractual obligation to arbitrate.
In the case, the owner of the Aberdeen Golf & Country Club hired Bliss Construction to build a $2 million clubhouse. After a dispute arose, the owner fired Bliss, terminated the contract, and refused to pay. Bliss sued. The contract contained an alternative dispute resolution clause that required resort first to a decision by the architect, then to mediation, and finally to arbitration. But language in the agreement, noted the court,suggested that not all disputes were supposed to be subject to arbitration:
One section [of the agreement] requires any dispute to be initiated by notice to the architect within 21 days after it has occurred and, in any event, not later than 30 days before the final payment. This is obviously meant to insure that all disputes will be resolved before completion, or laid on the table when it comes time for the owner to make the final payment on the contract price, perhaps with an adjustment for any unresolved dispute. Another section emphasizes that "pending final resolution of a claim . . . the Contractor shall proceed diligently with performance of the Contract and the Owner shall continue to make payments in accordance with the Contract documents." In short, the contract requires both sides to continue to perform through disputes, with the goal that most things will be resolved as they arise or with the final payment. Critically, another section of the contract expressly limits the grounds for either party terminating the entire contract before completion. Essentially [Bliss] may terminate if the owner fails to make a draw payment certified as due by the architect. The owner may terminate if [Bliss] and the subs fail to carry on construction diligently.
Thus, said the court, it appears that the arbitration clause was only designed to deal with disputes that took place while construction was in progress. After termination of the agreement, construction stopped. The owner therefore could not compel arbitration of Bliss’s claim.
Aberdeen Golf & Country Club v. Bliss Construction, Inc., 2005 Fla. App. LEXIS 11092 (4th Dist., July 20, 2005).