Subcontractor’s Arbitration Action Stayed by Supreme Court

The Supreme Court, New York County, recently clarified the impact of contractual language specifying litigation as the forum for resolution in the subcontract, and impact of New York’s Prompt Payment, providing for arbitration of disputes where it applies.

Again discussing the Prompt Payment Act, but this time in the context of a subcontractor’s attempt to refer a contract dispute to binding arbitration as provided for by the Prompt Payment Act, the New York County Supreme Court recently reaffirmed the validity of alternative dispute resolution clauses in construction contracts, even where the Prompt Payment Act applies. In Turner Construction Co. v. J & A Concrete Corporation,[1] a construction contractor asked the court to permanently stay an arbitration which its subcontractor had initiated under the Prompt Payment Act.

In that case, the subcontract provided that disputes that could not be resolved through voluntary and non-binding Alternative Dispute Resolution (ADR) would be resolved at the contractor’s sole option “according to law”. The subcontract also provided that the subcontractor would waive its right to a trial by jury in the event that the contractor chose litigation as the means of dispute resolution.

Although the language “according to law” suggested that the Prompt Payment Act, which allows for arbitration, would apply, the court found that the language which mentioned the contractor electing to resolve the dispute in litigation provided context.

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Applying rules of contract interpretation, the court found that allowing the subcontractor to unilaterally decide to refer the dispute to arbitration would rob the litigation provision of any effect. Additionally, the court observed that the Prompt Payment Act allows “the terms and conditions of a construction contract [to] supersede the provisions of [the Prompt Payment Act]” unless the Act otherwise provides so, so there was no reason to refuse to enforce the contract provision in question. The court found that the arbitration provisions of the Prompt Payment Act could be superseded by contract and stayed the arbitration.

[1] 44 Misc. 3d 217, 984 N.Y.S.2d 579 (Sup. Ct. N.Y. Co. 2014)

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John Caravella, construction attorneyThe author, John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: [email protected] or (516) 462-7051.

This is a general information article and should not be construed as legal advice or a legal opinion.  Readers are encouraged to seek counsel from a construction lawyer for advice.

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