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In upholding a lower court's determination that a construction dispute was subject to arbitration, the Arizona Court of Appeals held that a specific reference to arbitration is not necessary for a contract to incorporate an arbitration agreement.
In Weatherguard Roofing Co. v. D.R. Ward Construction Co., No. 1 CA-CV 05-0247, 2007 WL 577853 (Ariz. Ct. App. Feb. 27, 2007), Ward contracted to construct a home for the Gaskins. Ward subcontracted the roofing and weatherproofing to Weatherguard.
Several years after construction, the Gaskins initiated arbitration against Ward, claiming that construction defects had caused water intrusion and mold infestation. Ward sought indemnification from Weatherguard and demanded arbitration of its indemnification claim pursuant to the "general conditions" referred to in the subcontract. The general conditions were contained in a document separate from the subcontract.
Weatherguard sought a court order staying the arbitration and ruling that Weatherguard had not agreed to arbitrate with Ward. The trial court denied the motion.
On appeal, Weatherguard argued that the general conditions never became part of the subcontract because they were not incorporated by reference. In rejecting this argument, the Court found that the following language from the subcontract incorporated the general conditions: "The attached General Conditions are part of the subcontract." This incorporation by reference made it unnecessary to attach the general conditions to the subcontract.
Alternatively, Weatherguard argued that the general conditions did not incorporate the arbitration agreement from Ward's contract with the Gaskins because there was no specific reference to arbitration. In rejecting this argument, the Court explained that a specific reference to arbitration is not necessary to incorporate an arbitration agreement.
The Court instead adopted the rule that "when a subcontractor agrees to assume the obligations imposed on the general contractor by the prime contract, and the prime contract requires arbitration of disputes between the general contractor and the owner, disputes between the contractor and the subcontractor are similarly subject to arbitration." Accordingly, the general conditions incorporated the arbitration agreement by providing that Ward would have the same rights against Weatherguard that the Gaskins enjoyed against Ward.
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