NAB Construction Corp. v. City of New York, 75 N.Y.2d 164 (1990)
An engineer’s determination clause in a construction contract is only binding on factual disputes within the engineer’s expertise, not on legal matters of contract interpretation, unless the contract explicitly and unequivocally states otherwise.
Summary
NAB Construction Corp. sued the City of New York and the New York City Transit Authority for breach of contract, seeking damages for additional expenses incurred due to unanticipated subsurface conditions and disputed work. The contract contained Article 24, which stated that the Transit Authority’s chief engineer’s determinations would be final and conclusive. The City argued that this provision precluded judicial review of the engineer’s decisions. The New York Court of Appeals held that Article 24 was not an explicit and unequivocal agreement for alternate dispute resolution on legal matters, and therefore, the engineer’s determinations were not binding on legal issues of contract interpretation.
Facts
NAB Construction entered into a contract with the City of New York and the Transit Authority in 1973 to construct a section of the Second Avenue Subway. Article 24 of the contract stipulated that the Transit Authority’s chief engineer would determine various aspects of the work and that their decisions would be final. During construction, NAB Construction encountered unanticipated subsurface conditions, leading to claims for additional compensation, which the chief engineer denied. NAB Construction then commenced an action for breach of contract to recover damages for the disallowed claims.
Procedural History
NAB Construction filed suit in 1979. In 1980, the defendants answered the complaint. More than five years later, the defendants sought to amend their answer to assert that the chief engineer’s determinations were final and precluded further litigation. The trial court initially denied the motion, citing prejudice to NAB Construction due to the delay. Upon renewal, the trial court again denied the motion, holding that the proposed defense was insufficient as a matter of law. The Appellate Division affirmed this conclusion, and the City appealed to the New York Court of Appeals.
Issue(s)
Whether Article 24 of the construction contract constituted an alternate dispute resolution agreement that bound the contractor to the chief engineer’s determinations on legal issues of contract interpretation, precluding judicial review.
Holding
No, because Article 24 did not explicitly and unequivocally state that the chief engineer’s determinations would be binding on legal matters of contract interpretation.
Court’s Reasoning
The court reasoned that an alternate dispute resolution agreement, like an arbitration agreement, must be clear, explicit, and unequivocal. Referencing Matter of Waldron [Goddess], 61 NY2d 181, 183-184, the Court emphasized that parties consenting to arbitration surrender many normal rights under the law. The Court found that Article 24, read in the context of the entire contract and its historical application, did not meet this standard. The court noted that similar clauses had been interpreted as binding only on factual disputes within the engineer’s expertise, such as measurement, quantity, and quality of materials, but not on legal matters. Additionally, the contract contained provisions, particularly in Chapter Five, which governed “Payments to Contractor”, contemplated the possibility of the contractor bringing a breach of contract claim in court, further undermining the City’s interpretation of Article 24. The court quoted Rentways, Inc. v O’Neill Milk & Cream Co., 308 NY 342, 347 to emphasize the importance of reading the clause in the context of the entire contract. The court concluded that it was a “natural and unstrained reading” that the courts would have jurisdiction over a breach of contract claim. The Court referenced O’Brien v Mayor of City of N. Y., 139 NY 543, observing that the language in Article 24 has been found in city contracts for over a century. The fact that the city, the drafter of the contract, did not initially assert this interpretation for over five years after the litigation began also weighed against the city’s argument. Because the court found Article 24 not to be an explicit and unequivocal agreement for alternate dispute resolution, it did not address whether such a procedure would be enforceable as a matter of public policy.