When will a court enforce arbitration provisions in construction contracts?
A court will enforce arbitration provisions in construction contracts only when the provision is mandatory and not permissive.
In Advance Industrial Coating, LLC v. Westfield Insurance Company, the Middle District of Florida, answered the above question on Westfield’s motion to stay pending arbitration. 2015 WL 1822510 (M.D. Fla. Apr. 16, 2015). Advance Industrial sued Westfield Insurance to recover on a 255.05 public construction bond relating to a construction project. Westfield was the surety for the project’s general contractor, RTD Construction. The Westfield bond secured all of RTD Construction’s required payments to its subcontractors and suppliers on the project.
RTD Construction entered into a subcontract with Advance Industrial to provide surface preparation work on the project. Advance Industrial finished its work and RTD Construction breached the subcontract by failing to make payment. Advance Industrial sued Westfield, and Westfield moved to stay the case pending the resolution of arbitration.
The court looked to Florida law to determine whether the arbitration agreement was valid. The following three questions must be answered: (1) whether a valid written agreement to arbitrate exists; (2) whether an arbitrable issue exists; and (3) whether the right to arbitration has been waived.
Westfield argues that the subcontract between Advance Industrial and RTD Construction contained an arbitration provision. Westfield states that since determination of its liability to Advance Industrial is dependent on whether RTD Construction is liable to Advance Industrial, any arbitration award as to this issue will resolve the claims against Westfield. Advance Industrial argues that Westfield, as surety, is not a party to the subcontract and cannot invoke the arbitration provision.
The court reviewed the subcontract, which stated that “[a]ny controversy of dispute arising out of this Contract, or the breach thereof, may be decided by arbitration…” The court held that this is a permissive arbitration provision and not a mandatory provision. Since arbitration was not required by RTD Construction and Advance Industrial, Westfield is not entitled to a stay of the case.