We all do it. We all use multipart agreements, or structure transactions where multiple parties are agreeing to the same set of terms and conditions, or seek to bind remote parties to a unified set of obligations, because it makes sense to do that from any number of perspectives. In construction, the practice has existed beyond memory: use of “incorporation by reference” or “flow-down” clauses to impose consistent contractual obligations down the chain of privity is so common as to be remarkable only in its absence. When done lazily, however, problems can result, particularly in the areas of dispute resolution, as illustrated by recent court decisions concerning arbitration clauses that were “incorporated by reference”.
Effective December 1, 2015, the Commercial Division of the Supreme Court of the State of New York, County of New York amended its rules. First, home improvement construction contract disputes (one to four family homes or individual units in any residential building including cooperatives and condominiums ) will not be heard by the Commercial Division irrespective of the dispute involving $500,000 or more. Second, the Commercial Division will hear, pursuant to article 75 of New York’s Civil Practice Law and Rules, applications to stay or compel arbitration and to affirm or disaffirm awards and injunctive relief irrespective of the $500,000 monetary threshold provided the arbitration agreement requires the arbitration to be heard outside the United States.
The impact of these amendments will be to eliminate access to the Commercial Division for owners and contractors among others where the dispute involves a home improvement contract. At the same time, the Commercial Division will open its doors to arbitration proceedings conducted outside the United States thereby affording parties access to a specialized court in Manhattan. Parties are still free to agree in their arbitration agreements where issues related to arbitration will be heard. If the parties provide for these issues to be heard in New York County, then the Commercial Division will be available to them.
To read the full text of the Administrative Order, please visit the New York Courts website.
For many reasons, it’s good to be New England Patriots quarterback Tom Brady in Boston. However, in light of two recent Massachusetts trial court decisions, it may have been good for him that he was not in court in Boston over the summer when challenging the NFL’s adverse arbitration ruling. Over the space of two weeks in late November and early December, the Massachusetts Superior Court showed a markedly, if not surprising, pro-arbitration bent, as it upheld a party’s right to enforce an agreement to arbitrate, even after eight months of litigation in court, and upheld an arbitral award that applied out-of-state law in conferring multiple damages against a respondent despite a choice-of-law clause in the agreement mandating Massachusetts law. Either decision taken individually would be indicative of significant judicial deference to arbitration and arbitral awards. Together, they show the challenges that parties may face when attempting to avoid both an arbitration clause and/or a highly adverse, perhaps even peculiar, result.
Both lawyers and clients agonize over the tactical advantages and disadvantages of arbitration and litigation. Generally, the reason for the prolonged deliberation is the parties are attempting to make a reasoned and informed decision when selecting a dispute resolution provision for their contract.
Some parties prefer arbitration, because they believe arbitration is faster and provides them with a decision-maker who is experienced in the industry. Others prefer litigation, because, among other things, they want access to a trial by jury. Costs are also a decisive factor in determining whether to arbitrate or litigate.