By: Scott T. Earle and Jennifer M. Horn
The recently passed and amended Delaware House Bill 109 (“HB 109”) has important implications for anyone concerned with construction law in Delaware. According to amended HB 109, any provision in a contract for construction occurring in the State of Delaware is void and unenforceable as a matter of law (1) if it requires that a dispute arising out of a Delaware construction project be subject to any law other than Delaware law, or (2) if it requires that a dispute related to a Delaware construction project be litigated outside of the State of Delaware.
The Law and Its Effect
HB 109 makes any contract provision requiring a dispute arising out of a Delaware construction project to be litigated outside of Delaware unenforceable as a matter of law. This is good news for Delaware based contractors who wish to keep their construction disputes in Delaware (regardless of what their contracts may or may not provide on the issue); bad news for companies who have contract clauses requiring that conflict resolution take place in another State. In addition, HB 109 voids construction contract provisions relating to choice of law in that any law other than Delaware’s is inapplicable, despite contractual agreements to the contrary.
After stalling out in the Delaware Senate Executive Committee during the last legislative session, the Delaware State Senate introduced Senate Amendment No. 1 (“SA 1”) to HB 109 to the floor this last legislative session. SA 1 maintained the original “Building Construction Procedures Act” (the “Act”) by striking Sections 1 and 2 of HB 109 in their entirety and amending Section 3507 of the Act. After being passed by both the Senate and House of Representatives in June, HB 109, as amended by SA 1, was signed into law by Governor Markell on June 25, 2012.
The Net Effect?
The net effect of HB 109 is to be determined. In this regard, contractors and subcontractors alike should re-visit and understand the choice of law and venue provisions of their construction contracts. The newly amended HB 109 will, among other things, preclude out-of-state construction firms from forcing Delaware based firms to incur the additional litigation costs associated with litigating outside of the State. Also, the choice-of-law aspects of HB 109 provide certainty to Delaware contractors, suppliers and subcontractors accustomed to the nuances of Delaware law.
Scott T. Earle is a Senior Associate with Cohen Seglias and a member of the Business Transactions Group.