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LEGALLY SPEAKING:
Arbitration:
What is it? Why should you care?

By Matthew J. DeVries

When parties to a construction project find themselves in a dispute, there are a few options to help find a resolution. These can include: engaging in informal settlement discussions, taking the dispute to an initial decision maker identified in the contract, or hiring a third-party mediator to help the parties find a resolution. If the dispute does not settle at that point, the parties can turn to the courts and engage in litigation.

One alternative to litigation is arbitration, which is a quasi-formal hearing where the parties present their case to a neutral arbitrator or panel of arbitrators that issues a decision which the parties may or may not be required to abide by. Arbitration may be required by contractual provision, by statute, or by court order as a prerequisite to litigation. Additionally, parties may voluntarily submit to arbitration when they find they cannot resolve a dispute through negotiation. Once a decision is rendered, the party seeking to enforce an award by arbitration may petition the courts to confirm the award. Once confirmed, the award has the same enforceability as a judgment rendered by the courts.

The Demand. The process begins when one party makes a demand for arbitration, in writing, upon the other. In cases where arbitration is required by contract, statute, or court order, the consent of the other party is not needed. The demand letter serves as notice that the serving party wishes to exercise its legal right to arbitration. The parties may choose to employ an organization specializing in alternative dispute resolution to coordinate the proceedings or they may handle the process themselves. Using an organization usually entails payment of an administrative fee, in addition to hourly fees for an arbitrator.

Arbitrator Selection. The parties get to choose their own arbitrator or panel of arbitrators. If an organization is employed, the parties are given a list of available arbitrators with pertinent biographical information. Each party then excludes a given number of arbitrators from the list as a matter of right and the panel consists of those remaining. Arbitrators are usually experienced in the construction, engineering or contract administration areas. Frequently, arbitrators are either practicing or former attorneys although the nature of the proceedings do not require this, especially where the dispute involves no legal issues.

The Proceedings. An arbitration proceeding generally resembles a court proceeding in that both parties make opening statements where each summarizes its theory of the dispute. The petitioning party presents its case first, calling witnesses who are then cross-examined by the responding party. The responding party follows with its case in the same manner. Each party is generally represented by legal counsel although in cases involving purely factual issues, for example, where only the quality of the work is in question, parties frequently choose to represent themselves. The proceeding concludes with each party making a closing statement. At the end of the proceeding, the arbitrator either issues a ruling which is later followed up by a written opinion and award, or decides to take the matter under submission. In the latter event, the arbitrator may require written briefs from the parties if there are legal questions involved. The final ruling is usually issued in a period ranging from a few days to at most a month after the hearings are concluded and briefs received.

Arbitration versus Litigation. Even though the arbitration hearing closely parallels a typical courtroom trial, it is much less formal and yields results which are much less likely to be overturned by the courts than a trial court ruling. For instance, arbitrators do not follow the rigid rules of evidence that are strictly adhered to by the courts. Generally, most evidence a party desires to present is admitted unless it is redundant, excessive, or cumulative. Normal relevancy and hearsay rules are relaxed in favor of permitting the evidence to be presented, but appropriate weight is given to the accuracy or reliability of such evidence in the deliberation process. When in doubt, arbitrators will side with admitting evidence so as not to infringe upon a party’s due process rights. Also, documents admitted into evidence in an arbitration hearing are not subject to authenticity requirements unless the opposing party objects and provides a legitimate basis for concerns over authenticity. Sometimes, the arbitrator may visit the project when observation of the site will aid the arbitrator in resolving factual issues.

So What? Because arbitration can be started much sooner and concluded in less time than litigation, some feel it is more economical. Additionally, discovery is limited, which eliminates the need for lengthy depositions, interrogatories and document production. Critics argue that disputes are not justly decided by arbitration because discovery is so limited and relaxed rules of evidence and procedure admit testimony whose prejudicial effect greatly outweighs its probative value. These shortcomings have merit which parties to a contract should consider prior to including mandatory arbitration provisions. Before agreeing to arbitration provisions in a contract, parties should weigh the advantages and disadvantages of the arbitration process with that of litigation.

Matthew DeVriesAbout the Author: Matt is a member of the Construction Service Group in the Nashville Tennessee office of Stites & Harbison, PLLC. Matt is a LEED® Accredited Professional and he is the founder of www.bestpracticesconstructionlaw.com. You can reach the author at mdevries@stites.com.
 

 


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