Waterfront Marine Construction, Inc. v. North End 49ers Sandbridge Bulkhead Groups A, B and C

Present: All the Justices

WATERFRONT MARINE CONSTRUCTION, INC.

v. Record No. 951218 OPINION BY JUSTICE ELIZABETH B. LACY
April 19, 1996
NORTH END 49ERS SANDBRIDGE BULKHEAD
GROUPS A, B AND C

FROM THE CIRCUIT COURT OF THE CITY OF VIRGINIA BEACH
Thomas S. Shadrick, Judge

In this appeal we consider whether the trial court's

confirmation of an arbitration award was erroneous because the

claims in the demand for arbitration either were not arbitrable

or were barred by the doctrine of res judicata.
North End 49ers Sandbridge Bulkhead Groups A, B, and C

(49ers) is an unincorporated association of 22 landowners in

the Sandbridge section of Virginia Beach. In 1988, the 49ers

sought bids for the construction of a bulkhead along their

property. Waterfront Marine Construction, Inc. (WMC) presented

a bid to construct sheet steel bulkheads with tiebacks rather

than the wooden bulkheads previously used in the Sandbridge

area. The 49ers accepted WMC's bid and entered into an

agreement with WMC for the construction of the bulkhead at a
1
price of $850,740.00. The construction contract included a

provision providing for arbitration of any controversy or claim

"arising out of or relating to the Contract or the breach

thereof."

In 1989, the 49ers hired an engineering firm to inspect

the bulkhead WMC had installed after a bulkhead of similar

1
The agreement was contained in three separate contracts
which were identical in content but executed separately by the
landowners in Group A, B, or C respectively. For purposes of
this appeal, the three contracts are considered as a single
contract.
design had failed during a storm. At that point, the 49ers'

bulkhead had not been completely backfilled. The inspection

report concluded that the bulkhead design and construction were

defective. Following the receipt of this report, the 49ers

filed a demand for arbitration with the American Arbitration

Association (AAA). The 49ers sought damages of $1,212,282.00,

based on bids they received for work they contended was

necessary to correct deficiencies in the bulkhead. WMC also

filed a demand with the AAA seeking to recover $127,382.44 --

the unpaid balance of the construction price, plus interest and

arbitration costs.
An arbitration panel comprised of three engineers was

appointed by the AAA. Following a hearing, the panel entered

an award on March 7, 1991, denying the 49ers' claim and

granting WMC's claim. The arbitrators also ordered WMC to

perform certain work relating to the tie rod connections and

anchor piles within 60 days. According to the terms of the

award, the work had to be performed to the satisfaction of an

independent engineer jointly hired and paid by the 49ers and
WMC. The award required WMC to guarantee the work done for one

year from the date the independent engineer determined that the

work was completed.

Despite numerous attempts, WMC and the 49ers could not

agree on the independent engineer and, consequently, WMC did

not perform the work required under the first arbitration

award. During this time, the spring and summer of 1991, the

parties engaged in settlement discussions. On October 31,

1991, an unusually strong northeaster hit the 49ers' property,
but the bulkhead did not collapse. A second storm hit five

days later, damaging approximately 600 feet of the 2,340-foot

bulkhead.

On January 16, 1992, the 49ers filed a second demand for

arbitration with the AAA, characterizing it as "a continuation"

of the previous arbitration case, and requesting that the same

panel be assembled to hear the demand. They also sought

punitive damages. The AAA determined, however, that the matter

was "filed as a new matter" and that reconvening the members of

the original arbitration panel required agreement of the

parties. The AAA also noted that WMC had raised an issue of

"arbitrability" and stated "[a]s a nonjudicial body, the

Association cannot determine whether or not an issue is

arbitrable. Therefore, we will proceed with further

administration of this case, unless otherwise requested by both

parties, or unless the moving party is stayed by court order."
WMC filed a motion in the trial court seeking a temporary

injunction to stay the pending arbitration proceeding. In its

pleadings, WMC also sought a declaratory judgment that the
49ers' second arbitration demand was barred by collateral

estoppel and res judicata. The trial court entered an ex parte

order on September 4, 1992, enjoining the arbitration

proceedings. Following a hearing on March 18, 1993, the trial

court ruled from the bench that the first arbitration award was

final, that it could be "recognized in the form of a judgment,"

and that it could be enforced. The court found that there was

no agreement to "arbitrate the arbitration award."

The 49ers filed a motion to reconsider and, after further
consideration of memoranda and argument of counsel, the trial

court reversed its prior position and vacated its September 4

order enjoining further arbitration proceedings. The court

entered an order on September 30, 1993, referring the following

matters to arbitration: 1) whether the dispute involving the

first arbitration award was arbitrable; 2) whether res judicata

was applicable to the claim; and 3) whether the 49ers were

entitled to punitive damages.

The arbitration panel determined that the dispute

centering on enforcement of the first arbitration award was

arbitrable. After a two-day hearing, the panel issued a second

arbitration award on July 8, 1994. That award required the

49ers to pay WMC the balance due from the first arbitration

award and required WMC to pay a total of $491,795.00 to the

49ers for repair and replacement of the bulkhead and tie-back

system, pre-arbitration costs, and property damage.
Pursuant to Code § 8.01-581.09, the 49ers filed a motion

in the trial court to confirm the second arbitration award.

WMC filed a motion seeking to vacate the award pursuant to Code
§ 8.01-581.10 based on allegations, inter alia, that the
arbitrators exceeded their authority by addressing issues that

should have been resolved by the court and resolving issues

that were not arbitrable. WMC also sought a modification of

the award pursuant to Code § 8.01-581.011. After considering

memoranda and argument of counsel, the trial court entered an

order on March 30, 1995, denying WMC's motion to vacate,

granting WMC's motion to modify by removing approximately

$17,000 in pre-arbitration costs from the amount owed to the
49ers, and confirming the award as modified. We awarded WMC an

appeal.

WMC raises a number of issues in its challenge to the

trial court's action confirming the second arbitration award.

These issues include whether the trial court's reference of the

second demand for arbitration to the arbitration panel was

erroneous because the claims in the demand either were not

arbitrable or were barred by the doctrine of res judicata,

whether the trial court used the proper standard of review in

confirming the second arbitration award, and whether compulsory

arbitration is available to current members of the 49ers who

were not signatories to the 1988 contract which contained the

arbitration agreement. We begin by considering a threshold

issue raised by WMC: whether the trial court erred in its

determination that the arbitration panel should decide the

arbitrability of the claims contained in the 49ers' second

demand for arbitration.
I. DECIDING ARBITRABILITY

WMC argues that the court, not the arbitrators, should
determine whether a dispute is arbitrable. Therefore, it

contends, the trial court erred when it referred to the

arbitration panel the issue whether the compliance dispute was

arbitrable. The 49ers maintain that Code § 8.01-581.02(B)

restricts the trial court's role to considering only whether

there is an agreement to arbitrate and that, in the absence of

a specific agreement to the contrary, the arbitrators have the

authority to resolve the issue of arbitrability. Because the

existence of an arbitration agreement is not contested here,
the 49ers conclude that the trial court properly referred the

issue whether a dispute over the enforcement of the first award

was arbitrable to the arbitration panel for resolution.

A. THE STATUTE

Contrary to the 49ers' assertion, Code § 8.01-581.02(B)

authorizes the court to determine issues of arbitrability.

That subsection provides in pertinent part:
On application, the court may stay an arbitration
proceeding commenced or threatened on a showing that
there is no agreement to arbitrate. Such an issue,
when in substantial and bona fide dispute, shall be
forthwith and summarily tried and the stay ordered if
found for the moving party.

(Emphasis added). The 49ers contend that the phrase "agreement

to arbitrate" in the subsection means that once a party shows

that there is a valid contract between the parties and that the

contract provides for arbitration of disputes, the court must

order arbitration, leaving to the arbitrators issues of

specific claim arbitrability. The statute, however, has not

been applied to limit the trial court's authority in the manner

suggested.
In two recent cases subject to the Uniform Arbitration

Act, Code §§ 8.01-581.01 through -581.016, we have recognized

the power of trial courts to resolve issues of arbitrability.

In Trustees v. Taylor & Parrish, 249 Va. 144, 452 S.E.2d 847

(1995), the trial court ruled that the arbitration clause in

the parties' contract encompassed a dispute over a change order

and that the issues in an amended demand for arbitration were

arbitrable. Id. at 148-49, 452 S.E.2d at 849-50. Likewise, in

McMullin v. Union Land & Management Co., 242 Va. 337, 410

S.E.2d 636 (1991), the trial court ruled that a disputed claim
for compensation was outside the scope of the arbitration

clause. Id. at 341, 410 S.E.2d at 638. While this Court

reversed the trial courts' conclusions, the reversals were not

based on the trial courts' lack of jurisdiction to decide the

arbitrability issues. Rather, in those cases, the trial courts

erred in their conclusions regarding arbitrability. Trustees,

249 Va. at 155, 452 S.E.2d at 853; McMullin, 242 Va. at 342,

410 S.E.2d at 639. Thus, we state explicitly what was implicit

in those cases: Code § 8.01-581.02(B) authorizes the court to

determine whether there is an agreement to arbitrate the

specific controversy before the court, that is, to decide

questions of arbitrability.
Although the trial court is authorized by statute to

resolve issues of arbitrability, the parties by their contract

can agree that those issues be decided by the arbitrator.

Thus, we must look to the parties' contract to see if such an

agreement exists in the present case.

B. THE CONTRACT

The arbitration provision in the parties' contract in this
case does not address the specific issue of who--the court or

the arbitrator--shall determine arbitrability. In Doyle &

Russell, Inc. v. Roanoke Hospital Ass'n, 213 Va. 489, 193

S.E.2d 662 (1973), we concluded that "it is the province of the

courts to determine the threshold question of arbitrability,

given the terms of the contract between the parties." Id. at

494, 193 S.E.2d at 666. See also United Paperworkers v. Chase

Bag Co., 222 Va. 324, 327 n.1, 281 S.E.2d 807, 809 n.1 (1981).

We have also held that an arbitration clause which encompasses
all controversies "arising out of" or "related to" the contract

is very broad in its coverage. McMullin, 242 Va. at 341, 410

S.E.2d at 639. This case, however, presents an issue of first

impression: whether the absence of specific language

addressing who decides arbitrability reflects the parties'

intent to include or exclude arbitrability determinations from

the arbitrator's authority.

The 49ers assert that the general policy favoring

arbitration reflected in AT&T Technologies v. Communications
Workers of America, 475 U.S. 643, 650 (1986), and Moses H. Cone

Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1,

24-25 (1983), supports the conclusion that, in the absence of

any clear expression in an arbitration agreement to the

contrary, the issue of arbitrability is itself arbitrable and

to be resolved by the arbitrators.

In a recent case concerning the application of the Federal

Arbitration Act, 9 U.S.C. §§ 1 through 14 (1982), however, the

United States Supreme Court held that in deciding who

determines questions of arbitrability, contractual silence or
ambiguity is considered insufficient to give that authority to

the arbitrators. First Options of Chicago, Inc. v. Kaplan, ___

U.S. ___, ___, 115 S.Ct. 1920, 1924-25 (1995). As the Supreme

Court pointed out, when entering into an agreement to

arbitrate, the parties surrender the right to have a court

determine the merits of a controversy. Id. at ___, 115 S.Ct.

at 1923. Although a court may review the arbitration award

when confirmation, modification, or vacation is sought, the

grounds for such relief are limited and do not include the
merits of the award itself. Thus, whether the court or the

arbitrator decides the question of arbitrability of a dispute

"makes a critical difference" to the parties. Id.

Furthermore, the Supreme Court observed that the parties to the

contract "likely gave at least some thought to the scope of

arbitration," id. at 1924, but may not have focused on either

the "rather arcane" question of who would make that decision or

the "significance of having arbitrators decide the scope of

their own powers," id. at 1925. In light of these

considerations, and because parties cannot be compelled to

arbitrate those issues which they did not agree to submit to

arbitration, the Supreme Court concluded that, in the absence

of a clear agreement, parties should not be forced to submit

matters to arbitration which they may have contemplated would

be decided by a court. Id.

We agree with the Supreme Court's rationale and conclusion

in this regard. Furthermore, it is consistent with the

principle enunciated in Doyle & Russell that a party "cannot be

compelled to arbitrate a question which, under his agreement is
not arbitrable." 213 Va. at 494, 193 S.E.2d at 666. Thus we

hold that, in the absence of a clear agreement showing that the

parties intended that the arbitrator decide questions of

arbitrability, that question is to be resolved by the court.

Accordingly, the trial court erred in declining to resolve the

controversy relating to the arbitrability of the 49ers' second

arbitration demand and in referring that matter to the

arbitration panel for resolution. 2

2
Relying on statements made by the trial court at the May
7, 1993 hearing and in the letter opinion of the court
 Although the trial court erred, WMC suggests that this

Court need not remand the case to the trial court to make a

determination on arbitrability. Rather, it contends, and we

agree, that we can determine this issue on the record before

us. Both parties agree that the issue was briefed and argued

before the trial court and the arbitration panel. The record

before us includes all necessary arbitration and trial court

proceedings. The issue has also been fully briefed in this

appeal. Accordingly, we will proceed to determine whether the

claims contained in the 49ers' second demand for arbitration

are arbitrable.
II. THE SECOND ARBITRATION DEMAND

In their second demand for arbitration, the 49ers

described the nature of the dispute as follows:
Cost of repair necessary to bring the bulkhead
to the condition demanded by the arbitrators in its
Award dated February 12, 1991.
Respondent performed none of the work, nor
supplied the Bond required by the Arbitrators . . .
On November 11, 1991, sections of the bulkhead
collapsed.
Failure to perform is breach of the contract
containing an arbitration clause, breach of
contractual warranty and breach of the guarantee in
the Award.

referring to that hearing, the 49ers maintain that the trial
court did decide the issue of arbitrability. However, a court
speaks through its orders and we presume that the orders
accurately reflect what transpired. Stamper v. Commonwealth,
220 Va. 260, 280-81, 257 S.E.2d 808, 822 (1979), cert. denied,
445 U.S. 972 (1980). The order of the trial court entered on
September 20, 1993, specifically stated that "the issue of a
failure to comply with the arbitration award is a matter for
the arbitrators who will determine the arbitrability of that
issue." Moreover, in submitting language to the court for
inclusion in its order, WMC was not "inviting error" as the
49ers assert. WMC only sought to have the trial court's ruling
accurately portrayed in the order. The trial court
subsequently chose this language as its holding.
The 49ers sought to recover the cost of repair "to bring the

structure in compliance" with the previous arbitration award,

the cost of emergency repair, property damage, and attorneys'

fees. Elaborating on their demand, the 49ers claim that WMC

breached Paragraph 3.5.1 of the construction contract which

contains the contractor's warranties against defective

construction and design of the bulkhead. The 49ers also claim

that WMC's failure to comply with the first arbitration award

breached the guarantee contained in the award and was "in and

of itself, a breach of the Contract, which required the parties

to submit their disputes to arbitration." We begin with the

consideration of the 49ers' claims regarding the breach of the

first arbitration award based on WMC's failure to comply with

its terms.
A. FAILURE TO COMPLY

Although the parties could have agreed that disputes over

the compliance with a final arbitration award would be subject

to arbitration, the contract does not expressly address the

arbitrability of such controversies. See Menorah Ins. Co. v.
INX Reinsurance Corp., 72 F.3d 218, 222 (1st Cir. 1995).

Nevertheless, the contract does describe certain attributes of

the award itself. According to the terms of the contract, the

parties agreed that the award was to be "final," and that

judgment "may be entered" on the award by a court. By allowing

a judgment to be entered on the award, it is reasonable to

assume that the parties were aware of the statutory provisions

regarding court confirmation of the award, Code § 8.01-581.09,

and providing that the court's order confirming the award can
be enforced as "any other judgment or decree," Code § 8.01-

581.012. 3 Additionally, the parties presumably knew that an

arbitrator has no power to enforce the award rendered. The

statute provides a limited time within which the parties may

ask the arbitrator to reconsider or modify the award. Code

§ 8.01-581.08. After that time, the arbitrator has no further

authority over the award and, in absence of agreement of the

parties, the arbitrator becomes functus officio. Home Oil Co.
of Hot Springs, Virginia v. Home Oil Co., 240 Va. 5, 8-9, 393

S.E.2d 188, 189-90 (1990).
We do not dispute the 49ers' assertion that ambiguity in

the scope of an arbitrability clause should be resolved in

favor of arbitrating the claim. Considering the above factors,

however, we conclude that the contract reflects the parties'

understanding that the arbitration process would end with the

arbitration award. Any further consideration of the award or

action regarding compliance with it would be undertaken in a

different forum.

The 49ers also argue that the failure to comply with the
first arbitration award is a breach of the construction

contract because the parties agreed that an arbitration award

would be binding. We reject this argument. We agree that the

purpose of compulsory arbitration is that, in lieu of taking

the matter to court, the parties will accept the arbitrators'

award as a final resolution of the controversy. That

understanding, however, does not anticipate that the only

3
While the first arbitration award at issue here was not
confirmed by a court, that fact is irrelevant to the parties'
intent at the time the contract was executed.
action a party may take is to comply with the award. The Act

clearly contemplates that a party who disagrees with an award

can file a pleading with a court to have it vacated or

modified, albeit that the grounds for doing so are limited.

Under the 49ers' reasoning, such a pleading would be a breach

of the contract because by it the parties would be seeking to

escape a binding award.

We also reject the 49ers' assertion that we should

interpret the clause, "claim or controversy arising out of or

related to" broadly as we did in McMullin, and hold that the
noncompliance with the award qualifies as a "claim or

controversy" under the contract in this case. We do not

retreat from our prior statements that an arbitration clause

like the one in issue here is very broad; however, such clauses

are not unlimited. In McMullin, we determined that the

controversy proposed for arbitration was "related to" the

agreement, and therefore arbitrable, because the litigants had

to refer to a provision of the contract to resolve the

controversy. 242 Va. at 342, 410 S.E.2d at 639.
McMullin, however, is distinguishable from the instant

case. Here, the controversy regarding WMC's noncompliance

relates solely to the terms of the first arbitration award; no

provision of the construction contract need be construed or

applied to resolve the controversy over noncompliance. Thus,

we decline to adopt the construction of the phrase "arising out

of or related to" urged by the 49ers because such a

construction is far broader than any we have previously applied

to the clause.
 The 49ers' claim in their second demand for arbitration,

based on WMC's failure to comply with the terms of the first

arbitration award, is nothing more than an action seeking

compliance with the first arbitration award and damages for the

failure to comply with that award. We conclude that such an

action was not contemplated as an arbitrable controversy in the

agreement between the parties.

B. BREACH OF WARRANTY

In their second demand for arbitration, the 49ers also

claim that WMC breached the warranties contained in Paragraph

3.5.1 of the contract. In that provision, the contractor

warrants that the material and equipment furnished will be of

good quality, that the work will be free from defects, and that

the work will conform to the requirements of the contract

documents. WMC does not dispute the arbitrability of this

claim; however, WMC asserts that further arbitration of this

claim is barred by the principle of res judicata because the
49ers made the same claim in their first demand for arbitration

which was denied by the arbitrators.
Res judicata is a judicially developed doctrine designed

to end litigation and to protect the litigants from harassment.

A plea of res judicata will be sustained if the prior

adjudication was between the same parties or their privies and

a valid final judgment was entered which resolved the claim on

its merits. Bates v. Devers, 214 Va. 667, 670-71, 202 S.E.2d

917, 920-21 (1974). When parties choose to resolve their

disputes by arbitration rather than litigation, even though the

resolution reached in that process does not require the
application of legal principles, courts have applied the

doctrine of res judicata to preclude subsequent litigation on

issues resolved by validly issued arbitration awards. 1

Gabriel M. Wilner, Domke on Commercial Arbitration § 31:02, at
452-53 (1984 & Supp. 1995); Restatement (Second) of Judgments

§ 84 cmt. b (1982).

While we have not specifically addressed the applicability

of the doctrine of res judicata to an arbitration award, this

Court reviewed a trial court's dismissal of a garnishment

action based on the res judicata bar of a confirmed arbitration
award in Virginia Builders' Supply v. Brooks & Co., 250 Va.

209, 212, 462 S.E.2d 85, 87 (1995). On appeal, this Court

reversed, not because res judicata did not attach to such

awards, but because the parties to the arbitration agreement

and award were not the same parties in the garnishment

proceeding and, therefore, the elements of res judicata were

not satisfied. Id. at 213-14, 462 S.E.2d at 88.

The lack of any challenge to the trial court's ability to

bar subsequent litigation by applying the doctrine of res
judicata based on a prior confirmed arbitration award is

readily understandable. Code § 8.01-581.012 provides that a

judgment confirming an arbitration award is to be treated like

any other judgment. Such treatment would include the

application of res judicata.

While res judicata may operate to bar subsequent judicial

proceedings based on a prior confirmed arbitration award, here

WMC seeks to bar a subsequent arbitration proceeding based on

the res judicata effect of an unconfirmed arbitration award.
These factual differences do not preclude application of the

res judicata plea in this case, however. The parties have made

no distinction between a confirmed and unconfirmed award.

Therefore, we will assume, without deciding, that an

unconfirmed arbitration award is treated in the same manner as

a confirmed award for purposes of res judicata analysis. 4

The parties also do not contest the power of res judicata

to bar a subsequent arbitration proceeding. The 49ers,

however, maintain that, in the absence of a specific agreement

to the contrary, whether a prior award is given res judicata
effect on a subsequent request for arbitration is itself

arbitrable, and therefore, the trial court was correct in

referring this issue to the arbitration panel.

1. Arbitrability of Res Judicata Plea

The 49ers rely heavily on a labor arbitration case, Little

4
A number of jurisdictions apparently do not distinguish
between confirmed and unconfirmed awards for purposes of res
judicata. See, e.g., Wellons, Inc. v. T.E. Ibberson Co., 869
F.2d 1166, 1169 (8th Cir. 1989); Behrens v. Skelly, 173 F.2d
715, 720 (3rd Cir.), cert. denied, 338 U.S. 821 (1949); In re
Drexel Burnham Lambert Group, Inc. v. DBL Liquidating Trust,
161 B.R. 902, 907 (Bankr. S.D.N.Y. 1993); Monmouth Pub. Sch. v.
Pullen, 489 N.E.2d 1100, 1105 (Ill. App. Ct. 1985); Hurley v.
Fox, 587 So. 2d 1, 2 (La. Ct. App. 1991); Protocom Devices,
Inc. v. Figueroa, 545 N.Y.S.2d 527, 528 (N.Y. Sup. Ct. 1989),
aff'd, 569 N.Y.S.2d 80 (N.Y. App. Div. 1991). But see Gruntal
& Co. v. Steinberg, 854 F. Supp. 324, 337-38 (D.N.J.)
(unconfirmed arbitration award under Maryland statute has no
preclusive effect), aff'd, 46 F.3d 1116 (3d Cir. 1994); Larsen
v. Farmers Ins. Co., 909 P.2d 935, 940 (Wash. Ct. App. 1996)
(unconfirmed arbitration award under Oregon law not equivalent
to final judgment for collateral estoppel purposes). Even
though the applicable statutes specifically provide that an
arbitration award is only a separate contract between the
parties until confirmed, at least two courts have afforded an
unconfirmed award res judicata effect in a subsequent action.
Pollock v. Marx, 171 B.R. 218, 221-23 (Bankr. N.D. Tex. 1994);
Thibodeau v. Crum, 6 Cal. Rptr.2d 27, 33-34 (Cal. Ct. App.
1992).
Six Corp. v. United Mine Workers of America, 701 F.2d 26, 29

(4th Cir. 1983), for their contention that the applicability of

res judicata to a particular award is an arbitrable issue. 5

Our review indicates, however, that other jurisdictions have

concluded that a plea of res judicata is not subject to

arbitration and the court, not the arbitration panel,

determines whether a previous arbitration award operates as res

judicata or collateral estoppel on a subsequent action or

demand for arbitration. See, e.g., Clark v. Bear Stearns &

Co., 966 F.2d 1318, 1321 (9th Cir. 1992); Greenblatt v. Drexel

Burnham Lambert, Inc., 763 F.2d 1352, 1360-61 (11th Cir. 1985);

Monmouth Pub. Sch. v. Pullen, 489 N.E.2d 1100, 1105 (Ill. App.

Ct. 1985); Chattin v. Cape May Greene, Inc., 524 A.2d 841, 848

(N.J. Sup. Ct. App. Div.), cert. denied, 526 A.2d 209 (N.J.

1987); Rembrandt Indus., Inc. v. Hodges Int'l, Inc., 344 N.E.2d

383, 384 (N.Y. 1976); C & O Dev. Co. v. American Arbitration

Ass'n, 269 S.E.2d 685, 687 (N.C. App. Ct. 1980), review denied,

274 S.E.2d 227 (N.C. 1981). We believe these jurisdictions

reached the correct conclusion.
First we note that arbitration is proper in this case only

for controversies "arising from" or "relating to" the contract

between the parties. The dispute over WMC's plea of res

judicata arises from, or is related to, satisfying the elements

of this common law doctrine; it does not arise from the terms

5
Hotel Ass'n of Washington, D.C. v. Hotel & Restaurant
Employees Union, 963 F.2d 388 (D.C. Cir. 1992), also relied on
by the 49ers, did not involve the preclusive effect of a prior
labor arbitration award on a subsequent arbitration but
involved whether the decision rendered in the first arbitration
was binding on a second arbitration involving a different
employee. Id. at 389.
of the contract. Thus, it is not arbitrable.

More importantly, an arbitration panel is not generally

bound by legal principles, does not have to explain or justify

its decision, and the decision is not reviewed for legal

errors. Rather, the arbitrators are entitled to make their

decision based on what they deem to be just and equitable

within the scope of the parties' agreement. AAA Construction

Industry Arbitration Rule 43 (1993); G. Richard Shell, Res
Judicata and Collateral Estoppel Effects of Commercial

Arbitration, 35 UCLA L. Rev. 623, 633-37 (1988). Consequently,

when considering a plea of res judicata, an arbitration panel

could determine that the issues resolved in a prior arbitration

should be revisited, regardless of whether the legal elements

required for sustaining the plea were met. Allowing a plea of

res judicata to be resolved by arbitration defeats the purpose

of the judicially created doctrine -- to bring an end to the

substantive controversy and to protect the parties from re-

litigating previously decided matters.

Accordingly, we conclude that, in the absence of a clear
agreement to the contrary, a plea of res judicata is not
arbitrable. Therefore, the trial court erred in directing the

arbitration panel to determine whether res judicata barred

WMC's claim for breach of contractual warranty. However, we

will not remand this issue for determination by the trial court

because, like the issue of arbitrability discussed above, the

record before us is sufficient to resolve the issue here.
2. Application of Res Judicata to
Breach of Warranty Claim

The original arbitration demand filed by the 49ers
described the dispute as a breach of contract. The alleged

breach, as explained by the 49ers' arbitration counsel,

consisted of specific design and construction defects.

The 49ers assert that the second demand claiming breach of

warranty as a result of the damaged bulkhead was not identical

to the first, and could not have been, because the bulkhead had

not failed at the time of the first demand. Relying on Allstar

Towing, Inc. v. City of Alexandria, 231 Va. 421, 344 S.E.2d 903

(1986), the 49ers argue that, for res judicata purposes, a
cause of action is "an assertion of particular legal rights

which have arisen out of a definable factual transaction." Id.

at 425, 344 S.E.2d at 906. Thus, they assert, since the event

giving rise to the cause of action, i.e., the partial collapse

of the bulkhead, had not occurred at the time of the first

arbitration, the claims could not have been the same.

The 49ers misapply Allstar Towing. In that case the city

of Alexandria rejected the towing company's initial bid to

provide services because the company was not a registered

corporation and, therefore, was ineligible for award of the
contract. The company unsuccessfully challenged that decision.

Id. at 422-23, 344 S.E.2d at 904-05.

Thereafter, the company submitted a bid in response to the

city's second invitation to bid. The city awarded the contract

to another towing enterprise. The company filed a second

protest asserting that it met the bid requirements, but the

company receiving the contract did not. The Court in Allstar

Towing held that the company's second action was not subject to

a res judicata bar because the legal rights asserted by the
company arose from the second transaction. The second action

was not related to the first transaction in which the company's

bid was rejected because it was an unresponsive bidder. Id.
In this case, the legal rights asserted by the 49ers in

the first arbitration action were based on its contractual

right to construction of a bulkhead free of design or

construction defects. The storm damage to the bulkhead after

the first arbitration did not increase or alter the contractual

rights the 49ers acquired at the time the contract was

executed. Furthermore, no plans were altered and no work was

performed on the bulkhead between the filing of the first and

second demands for arbitration. The damages suffered as a

result of the alleged defects may have increased when the

bulkhead collapsed, but any defects in construction and design

which existed at the time of the first arbitration had not

changed at the time of the second demand for arbitration.
Furthermore, even though the first demand described only

specific defects, the doctrine of res judicata applies to all

claims which could have been brought, thereby preventing a
party from splitting his cause of action. Flora, Flora &

Montague, Inc. v. Saunders, 235 Va. 306, 310-11, 367 S.E.2d

493, 495 (1988); Bates, 214 Va. at 670-71, 202 S.E.2d at 920-

21. Here, the 49ers had engaged an engineer to evaluate the

bulkhead prior to filing its first demand for arbitration.

Their engineer reported that the design and construction of the

bulkhead was deficient. In the first arbitration, the 49ers

chose to limit the items of alleged deficient construction and

design. Having made that choice, they are not entitled to
bring forward additional items at a later date, particularly

when, as set out above, there had been no further construction

or design activity on the bulkhead between the two arbitration

demands.

The claim for breach of warranty asserted by the 49ers in

their second arbitration demand was no different than the claim

for breach of contract asserted in the first arbitration

demand. Labeling the claim a breach of warranty rather than a

breach of contract does not alter the nature of the claim.

That label is a distinction without a difference. As pointed

out by WMC, a breach of the warranty is a breach of the

construction contract. Werner Sabo, Legal Guide to AIA
Documents § 418, at 199 (3rd ed. 1989).

The record demonstrates that the first arbitration was

between the 49ers and WMC, and, as a result of that proceeding,

a valid final arbitration award was entered rejecting the

49ers' claim for breach of contract due to defective design and

construction of the bulkhead. Thus, we conclude that WMC met

its burden of proof to sustain its plea of res judicata. The
49ers' demand for arbitration of their breach of warranty claim

is barred by the first arbitration award under principles of

res judicata.

III. CONCLUSION

In summary, the contract between the parties in this case

did not specifically provide that questions of arbitrability

and res judicata be submitted to arbitration. Therefore, the

trial court erred in failing to resolve those issues and in

referring them to the arbitration panel. Furthermore, the
49ers' claims in their second demand for arbitration relating

to noncompliance with the first arbitration award are not

arbitrable and their claim for breach of warranty is barred by
res judicata. Accordingly, we will reverse the judgment of the

trial court confirming the second arbitration award and enter

judgment in favor of WMC. 6 The judgment will be without

prejudice to the parties' rights in connection with the first

arbitration award.
Reversed and final judgment.

6
In light of this disposition, we need not address WMC's
other assignments of error or the 49ers' assignment of cross-
error.