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Arbitration clause at issue in construction litigation

Many contracts in the construction industry include a clause that allows either party to compel the other to go to arbitration should a business dispute ever arise between them. But when a dispute actually occurs, sometimes one party objects to arbitration and wishes to go to court instead.

When this happens, whether or not the objecting party must go to arbitration can be a contentious legal dispute itself.

A case from outside of Illinois illustrates this point. A construction company, architectural firm and developer are locked in a legal battle over whether their dispute over a failed condominium project can proceed in court, or must go through the arbitration process.

The three businesses were involved in the construction of a condo complex that was destroyed by a hurricane before it was completed. The builder allegedly allowed the insurance coverage of the project to lapse.

The developer, Sapphire VP, sued the builder for breach of contract and negligence. It later sued the architectural firm as well. The suit ended up involving several construction defendants as well.

The builder, G.T. Leach Builders, attempted to demand the case be transferred to arbitration, based on a contract provision. Sapphire responded that the statute of limitations on the provision had expired; that G.T. Leach’s conduct while preparing for trial had caused the company to waive arbitration; and that the clause applied to G.T Leach only, not the other parties now included in the suit.

The case has reached the state Supreme Court, which has agreed to decide whether the arbitration clause is enforceable or not.

Source: Mediate.com, “Texas Supreme Court Agrees to Decide Whether Construction Dispute Should be Arbitrated,” Beth Graham, September 2014

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