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Ukrainian National Urban Renewal Corp. v. Joseph L. Muscarelle Inc.

Decided: July 7, 1977.


Carton, Kole and Larner. The opinion of the court was delivered by Carton, P.J.A.D.


[151 NJSuper Page 389] This appeal involves a challenge to an award made pursuant to an arbitration clause in a construction contract. The general contractor, defendant

Joseph L. Muscarelle, Inc., invoked the arbitration procedure after a dispute arose between it and plaintiff Ukrainian National Urban Renewal Corporation relating to the foundation of the building defendant agreed to construct.

Although the record is an extensive one, the facts relevant to this appeal are clear and essentially undisputed. In November 1970 Muscarelle entered into a contract with Ukrainian to construct an office building on a site in Jersey City owned by plaintiff for the sum of approximately $9,610,000. In the main, the language of the general contract ("master agreement") followed the standard form used by the American Institute of Architects. Provisions in the contract under the heading of "General Conditions of the Contract for Construction" govern the present dispute.

The arbitration scheme created by the general conditions required the parties to submit all claims and disputes initially to the architect for resolution within "a reasonable time," and permitted each party to make a written demand for arbitration after the submission of the architect's decision.

Article 7.10.1 of the general conditions provided:

7.10.1 All claims, disputes and other matters in question arising out of, or relating to, this Contract or the breach thereof, except * * * with respect to the Architect's decisions on matters relating to artistic effect * * * shall be decided by arbitration * * *. This agreement to arbitrate shall be specifically enforceable under the prevailing arbitration law. The award rendered by the arbitrators shall be final, and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof.

The master agreement between the parties provided for the extension of times within which Muscarelle was required to perform work when acts of Ukrainian, its architect, another contractor, or other causes delayed progress. The agreement also obligated Ukrainian to pay additional costs, including delay expenses, incurred by Muscarelle due to changes in the work approved by Ukrainian, specifically extra work caused by "concealed conditions encountered * * *

below the surface of the ground [or] unknown physical conditions below the surface of the ground of an unusual nature, differing materially from those ordinarily encountered * * *."

The master agreement also required Muscarelle to include certain provisions in the contracts executed with any subcontractors retained by Muscarelle, particularly provisions which

In compliance with these requirements Muscarelle included in its agreements with its subcontractors the following provision:

9. If the Subcontractor shall claim compensation for any damage allegedly sustained by reason of any act or omission of the Owner, the Contractor or any other person or should the Subcontractor claim that any work required of it is not required by this Subcontract, it shall, within three days after sustaining such damage or within three days after being directed to perform such work, deliver to the Contractor a written statement of the nature and basis of its claim and, by the tenth day of the calendar month succeeding, the Subcontractor shall deliver to the Contractor a verified itemized statement of the details and amount of such damage or extra work. * * * If the provisions of this paragraph are complied with, the Contractor will, upon the Subcontractor's written request, take all steps necessary to obtain from the Owner, if possible, payment for such damage or extra work. * * *

These subcontract agreements also contained an "exculpatory" provision protecting Muscarelle from liability to the subcontractors:

10. * * * The Contractor shall not be liable, and the Subcontractor shall make no claim, for damages for any delay, suspension or interruption of the work, whether caused by the Contractor, any of the Contractor's other subcontractors, any other contractor working on the site or by the Owner. * * *

During the construction of the building's foundations Muscarelle encountered an unanticipated subsurface rock formation. Removal of this rock was not covered by the master agreement, and a dispute between plaintiff and defendant arose concerning the appropriate extension of time to be allowed for the excavation of the rock, and plaintiff's responsibility for additional costs incurred by defendant and its subcontractors both for the removal of the rock and for delays resulting from the extra work.

The excavation of this rock was greatly complicated by the location of the building's foundation directly over the Port Authority's "PATH" subway tunnels, and the Port Authority's refusal to permit the rock to be blasted out of the area. Although Muscarelle suggested that the design of the foundation be changed in lieu of removing the rock, Ukrainian's architect directed that the rock be removed by mechanical methods. According to Muscarelle, due to the hardness of the rock, and the confined working area, this excavation caused a 252-day delay in the completion of the building, and generated extra costs for both itself and its subcontractors of approximately $1,500,000.

After extended negotiations with Ukrainian to resolve the dispute over the extra work and delay costs, Muscarelle submitted claims for itself and its subcontractors for arbitration. Prior to the first arbitration hearing in December 1972 Ukrainian filed suit in the Law Division seeking a declaratory judgment that arbitration was not ripe because of Muscarelle's failure to provide Ukrainian's architect with sufficient information to render a decision on its claims, as required by the master agreement. Ukrainian's complaint made repeated references to the claims submitted by Muscarelle on behalf of the subcontractors, yet it did not challenge the arbitrability of these claims.

After the trial judge entered summary judgment ordering arbitration the parties began arbitration hearings in December 1974. 23 hearings were conducted at which 19 witnesses gave approximately 3,000 pages of testimony, and 1,500

pages of exhibits were introduced into evidence. The final hearing was ...

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