Recent Court Decision Warns of Dangers of Using Outdated Construction Contracts

By Mark McCallum posted 02-24-2022 01:23 PM

  

By Douglas Mackin of Robinson+Cole
Published February 10, 2022


A recent decision serves as an important reminder to all in the construction industry about the dangers of using outdated contract forms. In Hillhouse v. Chris Cook Construction, LLC, 325 So. 3d 646 (Miss. 2021), the Supreme Court of Mississippi found an arbitration provision unenforceable where it designated that all claims “shall be submitted to arbitration before the Southern Arbitration and Mediation Association.” Unfortunately, not only was the Southern Arbitration and Mediation Association unavailable as a forum at the time of the underlying dispute and at the time the contract was drafted, but the organization had not in fact existed for approximately seventeen years prior. The Court ruled that the arbitration forum was a contract requirement and that the Court could not rewrite the contract to select a forum “unanticipated by either party.” Id. at 653. As such, the arbitration provision was unenforceable and the parties would have to spend the time and resources to resolve any claims before the appropriate court.

While this specific case is a homeowner case from Mississippi, it is worth noting that Mississippi has a statutory scheme similar to the Federal Arbitration Act (Miss. Code. Ann. § 11-15-101, et seq.). As such, the rationale of Hillhouse likely extends to other jurisdictions and the construction industry would be wise to heed two warnings from this case that apply generally, including to commercial construction in the northeast.

First: the contractor in Hillhouse used a form contract that was over twenty years old, serving as a good reminder to carefully review form contracts and make sure they are up to date. In addition to factual changes to contract terms, such as the status of other entities named in the contract, there are also changes in the law that may require revisions to form contracts. For example, states will periodically amend laws relating to prompt payment, indemnity, and retainage.

Second: owners, developers, contractors, and design professionals should pay particular attention to ADR provisions. Although most ADR provisions specify the American Arbitration Association (AAA) or JAMS as the forum for arbitration, it is worth making sure that arbitration provisions are up to date and do not specify a non-existent forum. Further, courts distinguish between arbitration clauses that simply require the parties “to arbitrate according to the rules of” a specified forum and those that instead require claims to be “administered by” a specific forum. The enforceability of the latter is dependent on the availability of the named forum, while the former might survive the unavailability of the named forum. As such, the precise language of ADR provisions in form contracts should be re-examined to confirm they are enforceable and serve their intended purpose.


Douglas Mackin is an Associate with Robinson+Cole and a member of the firm’s Construction Law Group. He is an experienced construction attorney who counsels owners, developers, contractors and subcontractors in all phases of a construction project from contract negotiation through to completion. He can be reached at dmackin@rc.com or 617.557.5947.







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