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An explicit mutual obligation that both parties arbitrate all disputes can be rendered ambiguous, illusory, and unenforceable by a reference to court costs in one party's remedy provision, according to the Arkansas Court of Appeals.
In Richard Harp Homes, Inc. v. Van Wyk, No. CA 06-1446, 2007 WL 2660213 (Ark. Ct. App. Sept. 12, 2007), Harp and Van Wyk entered into a construction agreement, which included provisions requiring that disputes or claims be resolved through arbitration, and specifying the types of remedies available to each party upon a successful claim. A dispute arose as to whether the construction project complied with certain setback requirements. A third party filed suit against both Van Wyk and Harp for allegedly violating the setback requirements; Van Wyk and Harp then asserted cross-claims against one another.
Harp responded to Van Wyk's cross-claim by moving to compel arbitration of the matter in accordance with the construction contract. Van Wyk opposed the motion, alleging that the arbitration provision lacked mutuality and that some claims were outside the scope of the provision. The trial court held that the arbitration provision contained mutuality of obligation, but that mutuality was rendered illusory when read with remedy provisions that suggested Harp was entitled to certain costs that could only arise within a court action. Harp appealed the trial court finding, claiming that the agreement clearly bound both parties to pursue any claims through arbitration.
The Court affirmed the trial court holding, finding that the agreement, when read in its entirety, did not clearly and specifically limit Harp to resolution of claims within arbitration. The Court acknowledged that the agreement's arbitration provision seemed to require that both parties submit all disputes to arbitration, but found that the remedy provision rendered Harp's obligation to arbitrate ambiguous and illusory.
Specifically, the Court noted that the agreement provided that Harp could pursue remedies associated with court actions, including "court costs and expenses of litigation." The Court observed that this language could indicate the intent that Harp retained a right to pursue claims through litigation, despite the explicit language of the arbitration provision.
The Court noted that it could find an unambiguous mutual obligation to arbitrate if it could strike the court-related cost language of the remedy provision, but declined to do so, stating that it was required to give effect to all provisions of the agreement as written.
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