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Arbitration is often referred
to as an alternative to litigation. However, they
share the same fundamental premise. A third party
is responsible for deciding any dispute. In arbitration,
the parties present their dispute to an impartial
arbitrator who will make a binding decision on
the parties. Arbitration takes place as a result
of an agreement in the contract between the parties
requiring disputes to be submitted to arbitration.
Parties may also agree to arbitration after a
dispute arises even in the absence of a contract
provision.
Arbitration procedures are designed
to be simplified and streamlined. They are frequently
conducted under the Construction Industry Arbitration
Rules promulgated by the American Arbitration
Association (AAA). The AAA also maintains a panel
of neutral arbitrators with expertise in given
areas. The AAA handles the administrative tasks
of putting the parties together with the arbitrators
and monitoring the progress of the proceeding.
One of the advantages for arbitration
is the reduction in the cost due to its streamlined
and informal procedures. However, the absence
of rules may allow parties to complicate and delay
the process, and to fill the record with too many
documents, witnesses and experts. As we all know,
many lawyers (and some clients) don't know when
to stop talking. Try to agree to limitations of
evidence and the time which an arbitration will
last.
In a recent arbitration, the parties
limited themselves to 45 minutes per side. The
lawyers for the parties then deliberated with
the arbitrator to answer any questions that arose
and the matter was resolved in time for lunch.
This may not be a solution for everyone, but it
shows the benefits of creative thinking.
Another advantage cited for arbitration
is quicker resolution. Again, this may not occur
as envisioned. Arbitrators usually have other
jobs and may be unavailable for extended periods
of time required for complicated cases. This often
results in splitting into multiple sessions which
then allows each party to regroup and bring the
panel more volumes of documents and more witnesses,
resulting in overkill.
The expertise of the panel is another
benefit of arbitration. This is the major reason
why contractors should strongly consider including
arbitration requirements in their contracts. Arbitrators
available through the AAA have experience in construction.
This saves considerable time and expense in educating
the finder of fact and reduces the chances of
a poor decision caused by an incomplete understanding
of the construction process.
Discovery is usually the most expensive
part of a lawsuit. It is the process by which
the parties exchange documents related to the
case and learn prior to trial the evidence the
other side will use. In arbitration using AAA
rules, for claims less than $50,000 discovery
will occur only in extraordinary cases when the
demands of justice require it. For claims over
$50,000, but less than $1,000,000, the arbitrator
may direct the production of documents and identification
of any witnesses to be called. The parties are
required to exchange copies of all exhibits at
least two business days prior to the commencement
of the hearing. In claims of more than $1,000,000,
discovery is at the discretion of the arbitrators.
In most instances, there is no explanation
of the decision made by the arbitrator. This hampers
the ability to appeal the decision and will impact
the acceptance of the decision by the parties.
The parties can agree in advance that the arbitrator
will provide an explanation of the decision, but
this will increase costs because of the additional
time required by the arbitrator.
Both Florida courts and federal
courts recognize and enforce agreements to arbitrate.
They also enforce the arbitrator's decisions,
except in instances where there is fraud or misconduct
by the arbitrator or if there was a refusal to
hear evidence material to the controversy.
Litigation is a resolution
of disputes through the judicial system. An action
is commenced by the filing of an initial pleading,
usually a Complaint, setting out a claim. The
defendant answers, states defenses and may counterclaim
against the plaintiff. The defendant may also
bring other potentially responsible parties into
the action through a Third Party Complaint. Those
parties have the same rights as a defendant to
bring claims and add parties.
The next step is the motion practice.
Here the legal sufficiency of the claim or counter-claim
is tested. There is also the opportunity, by way
of Motion for Summary Judgment, to allow the court
to decide issues about which there is no material
dispute.
Either after or during the motion
practice part of the suit, discovery commences.
During this process, all documents relevant to
the action may be obtained by the other side.
The fact that it is considered to be personal
or private will not prevent the other side from
seeing it. For this reason you should be aware
that anything you write down during a construction
project may be seen by people other than the intended
recipient. In addition, depositions of all persons
having knowledge of the matter may be taken. Assembling,
reviewing and categorizing documents and preparing
for depositions is often extremely expensive.
This process is the most expensive,
the most time consuming with the least amount
of control, but there are some ways to reduce
the financial impact. Most cases settle prior
to trial. This is usually because each party becomes
educated about the other's case and can, therefore,
more realistically evaluate its own position.
Often there are certain "linchpin" issues, resolution
of which creates a momentum that leads to complete
resolution of the case.
Essentially, a lawsuit should be
litigated to settle. By directing pre-trial activity
towards determination of the linchpin issues,
the litigation process can be used to enhance
the possibility of settlement. Use a rifle shot
rather than the shotgun approach. Be careful of
fishing expeditions where every single document
generated on a job is reviewed. This will substantially
increase the costs.
After you have experienced the joys
of locating documents, answering interrogatories
and facing cross examination in your deposition,
the matter will be sent into an alternate dispute
resolution program. This may be in the form of
a mini trial, non-binding arbitration, or most
often, mediation. If settlement is not achieved
trial will commence, followed by appeals and mounting
attorney's fees. It is not a cost-effective way
to settle a dispute.
Disputes seem to be a natural part
of the construction process. However, very little
gets accomplished when you are involved in resolving
a dispute. The loss of your productive time is
your greatest cost. Try to resolve any problems
as early as possible.
This article first appeared in
the Contractor's Advantage, May/June 1997 issue,
published by Knight Images, Inc. for Scotty's
Contractors School.
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