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A dispute arising from work described through oral modification of a contract will be subject to arbitration, if the original contract contained a broadly worded arbitration provision encompassing "any dispute" arising between the parties, according to the U.S. District Court for the Southern District of New York.
In U.S. v. J. Kokolakis Contracting, Inc., No. 05 Civ. 9097(WCC), 2007 WL 1771561 (S.D.N.Y. June 19, 2007), contractor Kokolakis sought to compel arbitration of a dispute with subcontractor Mathusek over payments due for remedial work not contemplated at the time of original contracting. Mathusek challenged the motion to compel, maintaining that the remedial work was not part of the original agreement containing the arbitration provision, but was a the subject of a separate oral agreement between the parties and not subject to an obligation to arbitrate.
The Court compelled arbitration, finding that the agreement between the parties for remedial work "constituted a modification of the original Subcontract and not a separate remediation subcontract." The Court noted that the arbitration clause within the original agreement was "broadly-phrased," and "clearly state[d] that the parties agreed to arbitrate 'any dispute between Contractor and Subcontractor."
The Court was also persuaded by evidence that the agreement to perform remedial work was considered a modification of the original subcontract. The Court reasoned that modification, and not a new agreement, had taken place, because "invoices reflecting [remedial] work done… [were] entitled "Change Orders," "[n]o mention [was] made of a new agreement," directions on the orders stated to "make the following changes in this Contract," and the same contract number was used on correspondence regarding the remedial work as was used on the original work.
Therefore, since the remedial work was a modification of the original contract, and the original contract contained an arbitration clause, the Court held that it was "indisputable that the parties' subsequent modification of the Subcontract to add the remedial work… incorporated the obligation to arbitrate."
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