Contractual Arbitration Provisions

Arbitration is an alternative to litigation where the parties agree to submit the dispute to an arbitrator to make a binding decision related to the underlying claims. Typically, if it is the parties’ intention to submit any dispute to arbitration the contract between the parties includes an arbitration provision. With the continuing court backlog, more consideration should be given to including an arbitration provision in construction contracts as well as reviewing the arbitration provision contained in any contract to ensure it complies with recent developments in New Jersey Law.

For consumer/residential agreements it is important that the provision clearly state that the parties are agreeing to submit the dispute to arbitration, that the consumer is giving up their right to seek relief in court as well as their right to a jury trial, explain what arbitration is and how arbitration is different than proceeding in court and clearly state that the consumer is agreeing to submit any statutory claims to arbitration. If the arbitration provision in a consumer/residential agreement does not meet these requirements, it may be unenforceable. Therefore, contractors should carefully review contractual arbitration provisions with an attorney to ensure they meet this standard.

Another interesting and recent development is which arbitration rules apply to various disputes. If the parties designate the American Arbitration Association as the arbitral institution but do not designate specific rules to apply and the action involves a residential construction project the American Arbitration Association will default the matter to the Home Construction Arbitration Rules. While these rules are similar to the Construction Industry Rules, the Home Construction Arbitration Rules require that the contractor contribute towards the initial filing fee even if it is not asserting a counterclaim and provides for an expedited discovery and hearing schedule. Depending on the type of residential project a contractor is working on some consideration should be given to designating which rules apply.

Tesser & Cohen is available to review the arbitration provision currently included in your contract or assist with the drafting of an arbitration provision.