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Liens As Security For Arbitration Awards

Saturday, July 09, 2005 03:19 pm


Private construction projects frequently call for resolution of claims and disputes through binding arbitration. This, of course, is a non-judicial proceeding. But a contractor's most effective form of payment security on a private project is usually a perfected mechanic's lien. And that can be accomplished only through the judicial system.

Project owners sometimes argue that a contractor's assertion of mechanic's lien rights in the judicial system is inconsistent with the intent to arbitrate disputes and constitutes a waiver of that contractual right. In other words, a contractor can lien the project or the contractor can demand arbitration, but the contractor cannot do both.

Fortunately for contractors, the prevailing rule does not treat mechanic's liens and arbitration as mutually exclusive. This article does not purport to be a comprehensive state-by-state survey of the law on this issue. And each state mechanic's lien statute contains its own nuances. But a sampling of the case law indicates that in most cases a cautious contractor may perfect a mechanic's lien in order to secure payment of any eventual arbitration award without waiving the right to have the underlying dispute heard in arbitration.

In one case, an owner argued that a contractor had waived the right to arbitration when it filed a mechanic's lien and resorted to the judicial system to perfect that lien. A Georgia court disagreed. "The contractor is entitled to protect its rights to a materialman's lien by filing a claim of lien and by filing a petition to foreclose said lien at the same time it is pursuing its arbitration rights under the contract."H. R. H. Pr [...]

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