CZone Legal Notes
THE DISADVANTAGES OF ARBITRATION
Most disputes involving construction projects are litigated in federal and state courts. However, many construction contracts contain arbitration clauses, pursuant to which the parties agree to arbitrate disputes or, in some instances, to provide one party to the contract with the option to arbitrate disputes. Arbitration clauses come in many shapes and sizes. Except in rare circumstances, courts routinely enforce agreements to arbitrate. Before executing a construction contract, you should be cognizant of, among other things, whether disputes under the contract are subject to litigation or arbitration and what conditions, if any, must be satisfied before an action or arbitration may be commenced under the contract.
Arbitration has grown considerably in popularity over the last decade. Proponents of arbitration believe that the process is quicker, cheaper and less formalistic than litigation, and also provides the advantage of having the dispute adjudicated by persons possessing familiarity with the construction industry. All of these frequently-cited advantages of arbitration are, in most circumstances, true and accurate. However, before insisting upon or consenting to arbitration over litigation, you also should be aware of some of the following disadvantages of the arbitration process.
Arbitration hearings typically are spread out over time. Hearing dates are scheduled at the convenience of the arbitrators, usually with consideration accorded to the schedules of the parties and their attorneys. Thus, if an arbitration requires two weeks of hearings, those hearing dates might be spread out over a six-month period or longer.
Arbitration is not always cheaper than litigation. Unlike litigation, the parties must pay for the time of the arbitrators and other associated fees. Moreover, to the extent that the hearings are spread out over a considerable period of time, this re-mobilization of litigation efforts adds costs to the process.
There usually is less opportunity for discovery in arbitration. In some cases, this represents a benefit of arbitration. However, in other cases, the opportunity to conduct discovery prior to the hearings or trial would be beneficial.
Arbitrators are not constrained to follow the law and established precedent as are judges. (Editor's Note: Having been through an arbitration that completely ignored the contract, I wouldn't recommend arbitration for anyone that has serious money to lose - See the Injustice web page under the Anointed Highway Superintendent) Again, in some cases, that may be advantageous. However, valid legal defenses that likely would be successful in litigation may be unsuccessful in arbitration if they go against the arbitrators= opinion of the equities.
In most instances, it is difficult, if not impossible, to successfully appeal an arbitration decision. This difficulty can make arbitration a very risk process, particularly if the dispute is decided by a single arbitrator. The arbitration process has many advantages and often serves as welcome alternative to litigation. However, before embracing arbitration in all future construction contracts, you should be aware that, in the opinion of many, the arbitration process is far from perfect and does involve certain risks and disadvantages that are not always present in litigation.
Please call Michael Mager at (518) 426-460 if you have any questions concerning this article.
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