Tag Archives: business dispute

Contributory Negligence on the construction project (law note)

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scale of justiceI’m sometimes asked if the percentage of “fault” is something that a client can rely on to reduce the amount of money they may owe on construction project gone bad.  The short answer:  no.   As I mentioned in my post on joint & several liability, if you are even 1% liable for the damages on a project, you can be hit with 100% of the damages. 

 This is not true in many other jurisdictions, where proportional fault (called comparative negligence) is often allowed.  In those states, if you are found 20% liable, you only have to pay 20% of the damages. Not so in North Carolina.  Here, unless you are entirely passively negligent (a concept we’ll discuss next week), you may be on the hook for the full amount.

That’s not fair!

Perhaps.  But, that’s life on a North Carolina construction project.  One concept that helps to reduce the unfairness factor is the concept of contributory negligence.  In North Carolina (but few other states), if a party is negligent at all (even 1%), they cannot recover from another negligent party.  

For example:  the owner of a project sues its general contractor on a project for a late project delivery which costs the owner money.  While almost all of the delay was the contractor’s fault, the owner also caused delay by failing to deliver owner-furnished equipment in time to meet the critical path of the project.  The owner’s own failure means that the owner itself is contributorily negligent and, under North Carolina law, the owner cannot recover the rest of its damages from the contractor.

But wait! There’s more.

Before you get too excited about contributory negligence, you need to understand the concept of  jury nullification.  When contributory negligence is explained to a jury, the jury may sometimes decide not to find fault where they might otherwise apportion fault, to avoid what they perceive as an unjust result. 

In the above example, the jury might decide the owner’s failure was not really contributing to the delay after all, and therefore award the owner damages.  This is called jury nullification, and it can take the sting out of contributory negligence.

Change to NC’s Contributory Negligence law?

The concept of contributory negligence (and its complete bar to any recovery) is one which many would like to change.  There has been legislation in the NC General Assembly in recent years to abolish contributory negligence in favor of a comparative-fault  negligence, as is common in most states.  So far, this has not happened.  As they say, however, the jury is still out on whether such a change will occur.  

Do you have an opinion on contributory negligence vs. comparative negligence? Think NC’s law should change to one based on percentage of fault?  Share in the comments below.

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Photo “Scale—Image”  by Matthias Kulka/Corbis via Picasa/Creative Commons License. 



Arbitrators are not King Solomon?

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whoa signAfter my recent post on the pros and cons of court vs. arbitration, I was contacted by the American Arbitration Association (AAA).    They told me that, contrary to what is a widely held belief about panels “splitting the baby,” their internal studies actually show that is not, in fact, the case.   The summary of their findings is worth reading.

Now, I don’t know the particulars of their study protocol, and AAA is certainly not a disinterested party, but the numbers are impressive.  Perhaps AAA arbitration panels, at least, are not King Solomon.

Do you have a AAA arbitration experience?  Share it in the comments below.

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Photo “whoa” by stgermh via Flickr/Creative Commons license.

The Attorney on your Shoulder (Tues Tip)

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cat on shoulderI once had a rather abrasive (okay, mean) driver’s education teacher.  He had to drive around all day, risking life and limb, with student drivers who had no clue what they were doing.  I think that would make anyone a little abrasive, so really, I don’t find fault.  However, one tip that he taught me was truly one of those “tips you remember”.  He told all his students that, no matter what else they took away from his class, they should imagine that he was always hovering at their shoulder, and they should drive accordingly. 

How does my drivers’ education teacher relate to construction law issues?

Just like my driver’s ed teacher’s tip for safe driving, today’s Tip is a simple one.  Indeed, perhaps you might even find it a bit silly.  But picture your attorney (and you do have one, right?) hovering over your shoulder when you go about the business of your work. 

Should I really write that offensive reply email while I’m so hot I could scream? Will this one day be used against me in a court of law?  Did I make sure to have a written contract before we started this project?  What should I do to avoid that costly mistake, and get that attorney off my shoulder?  If I set up documentation systems now, at the start of the project, and follow them consistently, will the attorney knock off the nagging?  You get the picture.  Plan for the worst and hope for the best, as they say. 

No one plans to be in a lawsuit.  But it happens.  Make sure that if it happens to you, you have the best chance of a favorable outcome.

If you would like to continue receiving these tips, please sign up for email delivery direct to your inbox.

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Photo “Shoulder cat sitting” by Oceanic (Drew Robinson) via Flickr/Creative Commons License.

Should I stay or should I go now? (Court vs. Arbitration)- Updated

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gavelShould I stay or should I go now?
If I go there will be trouble
And if I stay it will be double
So come on and let me know!

Are you wondering whether Court or Arbitration should be made a standard part of your construction contracts?  With apologies in advance to The Clash, there is “trouble” to be found in either venue.

Some companies, and their lawyers, insist that American Aribtration Association (AAA) Arbitration is the only way to go.  Others prefer to take their chances in a local state court.  Who is right?  Neither, and both.  As with anything, there is a cost-benefit analysis that you should go through prior to making either a standard part of your construction contract.

Pluses and Minuses of Going to Court

If a dispute is brought in court, there is a standard, fully vetted set of statutes, case law, court rules, and procedures already in place.  A judge, unlike the typical arbitration panel, is generally more willing to consider defenses based on statue, such as the statute of limitations or the statute of repose.  Summary Judgment, in which a judge will (on occasion) grant a judgment for or against  a party without the necessity of the full blown jury trial, is possible.  Such dispositive, procedural rulings are extremely unlikely to be granted by an arbitration panel.

On the other hand, a court trial means a jury verdict.  Unless the parties agree to waive their right to a jury trial, your case will be decided by true laymen who may have never set foot on a construction site before, and who will not understand the RFI, change order, and pay app process.  Terms like “substantial completion,” “critical path,” and “standard of care” will be foreign to them.

I’ve seen some juries get it right, and I’ve seen some get it wrong.  Most jurors take their responsibilities extremely seriously and will try to apply the law as the judge instructs them.  But at the end of the day, you have people unfamiliar with industry standards determining your case.

Pluses and Minuses of Arbitration

Many standard construction contracts contain arbitration provisions, generally AAA Arbitration.  The typical arbitration includes a three member panel of experts (construction professionals, designers, construction attorneys) who hear the evidence and make a ruling.  That ruling has the full force of law.The reasoning behind such arbitration clauses is that industry professionals better understand the construction process, standards of care, and interrelationships on a complex construction project.  Theoretically, therefore, they are better able to determine the true root cause of damages or delay.

Arbitration is sometimes considered to be less expensive and less time consuming than a court trial.  The arbitration panel generally sets fairly loose procedural and evidentiary boundaries, and tends to allow into evidence things that might not meet the strict Rules of Evidence that a court would apply.  Some of these generalities, however, have not proven to be true in practice.  AAA Arbitration can be costly– the filing of a claim alone is costlier than typical court fees.  Case managers add a layer of bureaucracy to the process.   Arbitration panels also generally are more prone to “split the baby” in a close case.

Which is Better?

The answer to that question is a clear and concise, “it depends.”  It depends on the facts of your particular case, the jurisdiction you are in, the type of panel you may get, and numerous other things completely out of your control.  Consult with a lawyer in your jurisdiction to discuss the pros and cons of each, and which may be right for your particular situation.

Do you have experience with court or arbitration?  Personal preference?  I’d love to hear your thoughts on the subject in the comment section below.

UPDATE 10/13/2010:  The AAA responded to this article citing their internal studies showing arbitration panels do not often “split the baby”.  See more here. 

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Photo “Courtroom One Gavel” by Joe Gratz via Flickr/Creative Commons license.

Liquidated Damages: what, when, & why

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water dropWhat are Liquidated Damages?

Liquidated Damages are a sum which a party to a contract agrees to pay or a deposit he agrees to forfeit, if he breaks some promise.  In the construction realm, liquidated damages (or “LDs”) usually involve money damages for time delays on a construction project.    Typically, a contract will state that time is “of the essence” and that for every day past the scheduled completion date (as modified by change orders & directives) a set amount is due from the contractor to the owner.

When can you get liquidated damages? (or, when must you pay liquidated damages?)

Liquidated damages must be specified in the contract up front.  They should reflect the reasonable estimate of likely damages that will be incurred if the contractor fails to complete the project timely.

To be enforceable, the amount must have been arrived at by a good-faith effort to estimate in advance the actual damage that would likely ensue from the breach, and they cannot be deemed “penalties.”  Eastern Carolina Internal Medicine, P.A. v. Faidas,  149 N.C.App. 940,  564 S.E.2d 53 (2002).

Why?

The purpose of liquidated damages is to reasonably compensate the non-breaching party (typically, the owner for construction delays) which it will likely incur as a result of the breach (e.g., the extended completion date results in lost rent and increase finance charges).  Without the liquidated damages provision, the parties would be forced to argue about each alleged cost the owner incurred because of the delay.  With liquidated damages, the amount is known ahead of time which should (theoretically) lead to fewer arguments later.

When doesn’t the provision work?

Two words—concurrent delay.  If the owner is delaying the project (through, for example, failure to deliver/install owner-provided equipment), but the contractor is also behind on completion, the two delays may run at the same time—hence “concurrent delay”.  In such a situation it becomes difficult if not altogether impossible to separate delays and delay damages.  Of course, if the entire delay is owner-related, no liquidated damages can be assessed.

Take-away message

Liquidated damage provisions, if carefully and properly drafted, are enforced in North Carolina.  You should know your schedule requirements prior to signing on the dotted line and, if necessary, accelerate your work to complete on time.  If you are the owner, however, you also have responsibilities not to interfere with the schedule if you hope to have a chance at recovering liquidated damages from a contractor who delivers a project late.

Questions?  Comments?  Experience with the joys (and sorrows) of LDs?  Share in the comments below.

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Photo “Water drop bouncing off the water surface” by konradc via Picasa/Creative Commons License.