CAREFUL DRAFTING OF ARBITRATION PROVISIONS TO ENSURE THE STATUTE OF LIMITATIONS APPLIES TO CLAIMS RESOLVED THROUGH ARBITRATION

UnknownMany construction contracts include arbitration provisions as the means to resolve a dispute instead of resorting to litigation.  Certain owners prefer to resolve their disputes with contractors through arbitration and certain contractors, likewise, prefer to resolve their disputes with subcontractors through arbitration.

 

 

The case of Raymond James Financial Services, Inc. v. Phillips, 36 Fla. L. Weekly D2479a (2d DCA 2011), certified the following question to the Florida Supreme Court:

 

Does Section 95.011, Florida Statutes, apply to arbitration when the parties have not expressly included a provision in their arbitration agreement stating that it is applicable.”

 

While this case was not a construction case, the question certified to the Florida Supreme Court was a fundamental issue that applied to ALL arbitration provisions.  Section 95.011 is included in Florida Statutes Chapter 95 (“Chapter 95″) dealing with the statute of limitations for actions.  The statute of limitations requires lawsuits to be brought within the specified timeframe set forth in Chapter 95 or else the action is time-barred, meaning it cannot properly be asserted under the law.  In this case, however, the Second District found that there was nothing in the arbitration provision at-issue that required actions to be brought within the limitations periods set forth in Chapter 95 and, along these lines, nothing in Chapter 95 clarified that the statutes of limitations for actions was intended to apply to disputes resolved through arbitration.

 

This decision was crucial because if the statute of limitations is not intended to apply to disputes resolved through arbitration, and nothing in the arbitration provision clarifies that the statute of limitations periods set forth in Chapter 95 are intended to apply, then there is technically NO time period for when a dispute needs to be initiated because they could never be time-barred under the law.  The corollary of this is that it could open arbitration floodgates because parties that thought they could no longer bring an arbitration claim under the law could now assert an argument that their claim was never time-barred under the law.

 

Luckily, the Florida Supreme Court answered the Second District’s certified question in the affirmative holding that the statute of limitations DOES APPLY TO ARBITRATION PROCEEDINGS!!! See Raymond James Financial Services, Inc. v. Phillips, 126 So.3d 186 (2013).  This means that the defense of statute of limitations can be raised in an arbitration proceeding as a basis to bar an untimely filed claim.

 

With respect to construction contractors, parties that utilize the AIA Agreements (promulgated by the American Institute of Architects) that select arbitration as the dispute resolution procedure should still safely ensure the agreement contains a provision to the effect:

 

In no effect shall the demand for arbitration be made after the date when institution of legal or equitable proceedings based on such claim would be barred under the applicable statute of limitations.”

 

The AIA standard form agreements usually include this provision almost verbatim.  This provision should not be deleted.  When drafting or negotiating an AIA agreement that includes an arbitration provision, a party should ensure that language to the effect is included in the agreement and not deleted or substantially manipulated so as to render it ambiguous.  Also, parties that do not use an AIA agreement and prefer arbitration need to draft such a provision or mimic one after the provision used in the standard form AIA agreements to ensure the statute of limitations applies to claims / disputes resolved through arbitration no matter what.  

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.