Construction and Commercial Real Estate Law

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Arbitration is well known to construction and commercial contracts.   Pennsylvania is now among nearly 30 other states to adopt the Revised Uniform Arbitration  Act to augment the arbitration process.  These changes will become effective July 1, 2019.  Anyone using arbitration provisions in their contracts, or electing to arbitrate their disputes should be aware of how this process will now proceed under RUAA in Pennsylvania.  The changes seek to make the arbitration process a more ‘customer friendly’ experience.

First, a word on arbitration.  Arbitration is not mediation or litigation.  Arbitration requires the agreement of each party to participate.  Arbitration is a private process in which the parties have a neutral professional resolve their disputes.  Arbitration proceeds in private setting rather than public courtroom.  The filings are also private, unlike state or federal court litigation, where the filings are open to the public, unless sealed.  Finally, arbitration is different than litigation in that there is no appeals process. Unlike, state or federal court, a party unhappy with the outcome of the arbitration has very limited opportunity for redress, and must attempt to either modify or vacate the award under a very high standard.

With that said, the changes to the arbitration in Pennsylvania have been adopted to augment the process.   Generally, the Act will no make all agreements subject to the Act’s provisions, and in essence abandon’s what is known as “common law arbitration.”    Further, the Act also provides parties the opportunity to ‘customize’ their arbitration agreement by authorizing the waiver of certain requirements set forth in the Act.  However, the Act also specifies those provisions that are now non-waivable.  More significant changes are outlined below, under categories for commencing arbitration and the process to vacating or modifying an award.

  1. Notice of Arbitration:  The changes now require that parties to an arbitration must provide notice to ALL parties to the arbitration agreement, not just those parties against whom the claim is being filed.  Notice must be filed in accordance with the agreement, or where the agreement does not provide a manner of notice, notice must be sent by registered or certified mail.    FAILURE TO COMPLY WITH THIS NOTICE  THAT SUBSTANTIALLY PREJUDICES A PARTY CAN NOW BE A BASIS FOR VACATING AN AWARD, however, this lack of notice can be waived if the party appears for the arbitration.   Where other notices are required and the mode of service is silent, the Act now addresses this issue as well with standards determining when “notice” is provided or “knowledge” of notice is present.
  •  To arbitrate or Not to Arbitrate:  The question of whether an arbitration agreement exists, and its scope, shall be decided by the courts.  As to whether any condition precedent to arbitrate in that agreement has  been satisfied, the arbitrator  shall be determine  that issue. This provision is not really a change, but more a codification of how the Courts in Pennsylvania have applied the law to date.  The arbitrator shall also decide if the agreement containing arbitration provision is enforceable.  The agreement’s enforceability is also subject to the standard defenses applicable to establishing a valid contract, such as duress, fraud, meeting of the minds and other defenses.
  • New Pre-Arbitration/Provisional Remedy Process: The Act now authorizes courts to issue temporary/provisional orders to protect the interests subject to arbitration prior to the appointment of an arbitrator.   After the arbitrator is appointed, the court may also act to protect a party’s interest, if the arbitrator is unavailable to act on an emergent issue.  The court’s orders issued prior to the arbitration may be modified and/or enforced by the arbitrator.  Similarly, an arbitrator’s orders may now be enforced by the court.  Importantly, this new provision now allows equitable relief, such as preliminary injunctions and other orders to be issued by either a court or an arbitrator against parties subject to an arbitration.  Although arbitrations generally operate under more ‘relaxed’ rules of evidence and procedure, any provisional type orders must comply with the rules of court.
  • Discovery:  Arbitrators are now authorized to issue more than subpoenas to compel hearing attendance.  The Act expands the arbitrator’s powers to compel and/or order discovery, as well as the power to issue protective orders for a party’s proprietary /trade secret information.  The arbitrators orders may now also be enforced by the courts.
  • Awards:  The Act now authorizes an arbitrator to award damages to the same extent as a court of law, including punitive damages, attorneys fees, costs and other remedies to the When punitive damages  are awarded, they must include a statemen of fact and  law for such an award.  
  • Post-Award Relief:  The new Act does change some rights available for post-award relief, however the Act does not go so far as providing appellate rights that follow state and federal court judgments.  Relief unavailable to a party unhappy with an arbitration award is still very limited.  The changes that were made expand the time available for seeking relief to modify or vacate an award.  The most significant right to vacate an award is based upon the new right to assert the invalidity of an arbitration agreement during the course of the arbitration.  A party who asserts that the agreement to arbitrate is invalid at the outset of the arbitration may seek to vacate an award on this basis.  The issue can be assert if no court has prior ruled on the validity of the agreement, and/or no party has sought such ruling.   The Act also expands from 30 days to 90 days the waiting period required before an award can be confirmed at as a judgment.   Additionally, a party may now seek attorneys fees and litigation costs to a prevailing party 
  •  Additional Changes to The Arbitrator Powers: Section 7321.16 has been amended to include new provisions granting arbitrators broad discretion to manage the arbitration and disposition claims, including a new ‘summary disposition’ process, as well as pre-hearing determinations  related to the admissibility of  evidence. Arbitrators must now disclose known financial interests or personal relationships that could affect the arbitrator’s “impartiality.”  This section requires that before accepting an appointment, an arbitrator must disclose any known facts that a reasonable person would consider likely to affect the impartiality of the arbitrator, including financial or personal interests and existing and past relationships with any of the parties or their counsel.  Should an arbitrator fail to disclose an interest, or an interest is disclosed during the arbitration, showing “evident partiality,”  award will be vacated.

The above changes will take effect on July 1, 2019. The changes are designed to enhance the clarity, and certainty that was lacking to the arbitration process in the pre-revised Act.  The changes apparently will make arbitration a more ‘customer friendly’ in Pennsylvania, and therefore, increase the use among construction and other commercial parties.