A new law, entitled the "Uniform Arbitration Act," will govern arbitration agreements & proceedings in Michigan starting on July 1, 2013.  Rationale cited for the change was the fact that, "Michigan's current arbitration law, as reflected in Chapter 50 (Arbitrations) of the Revised Judicature Act, was adopted in 1961 and was patterned after the Federal Arbitration Act adopted by the U.S. Congress in 1925.  Chapter 50 has not been substantially modified since its enactment."

The old law (Chapter 50) is very short (less than 2 pages long) and has been characterized as a "bare bones" statute with case law filling in the "gaps".  Supporting argument for the new Uniform Arbitration Act noted that it:

The new Uniform Arbitration Act takes effect and repeals the old law (Chapter 50) on July 1, 2013.  Arbitration proceedings held prior to July 1st will therefore be governed by the old law (Chapter 50).  Parties can agree in a
record to have the new Uniform Arbitration Act govern an arbitration agreement that is made and/or an arbitration proceeding that occurs prior to July 1st.  However, as of July 1, 2013, the new Uniform Arbitration Act will govern an agreement to arbitrate, regardless of when it was made.

Disclaimer

The Michigan Court of Appeals recently upheld the application of the "transactional approach" to a recoupment defense in McCoig Materials LLC v Galui Construction Inc, ___ Mich App ___, ___ NW2d ___ (2012). "Recoupment is, in effect, a counterclaim or cross action for damages." It's essentially "an equitable reason why the amount payable to the plaintiff should be reduced."

In McCoig, the plaintiff manufactured and sold concrete for use in construction projects. Defendant performed concrete construction work & reportedly purchased concrete from Plaintiff on an open account for use on various projects - two of which were relevant to the instant action.

One project was in the city of Center Line. According to the opinion, the contract required the defendant to notify the plaintiff of any defects in the contract within 15 days from receipt. Defendant didn't timely notify Plaintiff of any defects, nor did it file a lawsuit within one year after the materials were supplied.

The other project was in the City of Warren. Defendant allegedly failed to pay for the goods supplied for that project, and Plaintiff sued to compel payment for the balance that was allegedly due and owing. Defendant asserted the recoupment defense - arguing that it was entitled to an offset, back-charges and costs that it incurred to correct defective concrete on the Center Line project.

The Michigan Court of Appeals held that the defense of recoupment is applicable to "claims arising out of the same contract or transaction." It also held that "[a] party cannot accept a particular phase of construction without prompt objection, and then raise the recoupment defense."

The Court of Appeals noted that the plaintiff's claim was based upon the Warren project, while the defendant's recoupment defense was based upon the Center Line project. It also noted that although an open account contract, the transactions were treated as discrete events or separate transactions. It therefore ruled that the defendant's recoupment defense with regard to the Center Line project was inapplicable to the plaintiff's claim on the Warren project.

Disclaimer