Q: Recently, our firm and a client got into a dispute involving portions of our work. To make a long story short, the dispute was eventually arbitrated pursuant to our written contract. The arbitrator decided against us. We believe the arbitrator did not enforce a material portion of the written contract and made a clear error in favor of our client. We were told that we could not appeal the arbitrator’s decision. Is an arbitrator’s decision something that can be appealed?

A: Let me say up front that this question may depend upon the law in your particular jurisdiction. Notwithstanding this statement, the intent of arbitration is to bypass the judicial system by agreement and has at its core a component of finality pursuant to the agreement between the parties. Traditionally, the only basis to challenge an arbitration decision has been to claim that the arbitrator exceeded the scope of authority to decide the matter submitted into the arbitration. Generally speaking, arbitrators are not necessarily required to follow the law.

A proper analysis requires a close reading of the arbitration provision that was at issue between the client and the firm. If the parties agreed that the arbitrator had no power to modify, change, or excuse the performance of a material term of the contract, then the arbitrator acted outside the scope of his or her authority. Under these circumstances, the award may be vacated or modified by the courts, depending on the jurisdiction and the contract.

Note, the parties can choose to include in their contracts to allow for specific review by a court of competent jurisdiction in the event one party is dissatisfied with an arbitrator’s award. The courts have enforced judicial review of arbitration awards where the parties’ intent is clear to permit such a review. It is recommended that the arbitration clause at least contain language that states the arbitrator shall not have the power to commit errors of law or legal reasoning and that such an award based upon an error of law or error of legal reasoning may be vacated or corrected on appeal to a court of competent jurisdiction.

Q: Our office provides structural engineering services. We typically contract with a general contractor or the developer, not the ultimate user of the property. We make use of a limitation of liability clause in our standard contract agreement. If a complaint was to arise due to a problem with our structural engineering services it would very likely come from the ultimate owner of the property, not necessarily the party with whom we have a contract. Does the limit of liability clause offer any protection from the ultimate owner who is not a party to our original contract?

A: If your firm’s services are below the standard of care, or substandard, it is likely that the firm could be sued for breach of contract or professional negligence. In the case of breach of contract, only the party with whom you have the contract can sue for the performance under the contract. In that case, the limitation of liability clause would be offered into evidence and likely be enforced. However, unless the ultimate user was assigned rights under that contract, the ultimate user could only sue and recover damages. The ultimate user could not sue for breach of contract because there is no contract between your firm and the ultimate user. The ultimate user will be able to sue for a claim based upon professional negligence as long as your jurisdiction recognizes a legal duty owed by the engineer to the ultimate user of the property.

Most jurisdictions recognize a legal duty involving cases of property damage or personal bodily injury. It is uncertain if the court would find a professional duty in the case of purely economic losses absent a contract between the parties or some other special relationship. Ultimately, if a third party sues the engineer, the contractual limitation of liability will generally not be applicable because the third party suing was not a party to the contract and did not agree to such. Your firm may want to consider other risk management contractual tools such as indemnity for loss and defense.