Does Arbitration Deliver?

Construction disputes are frequently complex and technical in nature. Resolving such disputes in the justice system can leave all sides frustrated with the time and expense that compliance with the procedure demanded in court involves. Arbitration is often heralded as the answer to the slow and expensive court process. Does arbitration deliver?

The short answer is “sometimes”. Arbitration clearly has some advantages over the court process but it can also have significant disadvantages. Whether arbitration is the right solution for your construction dispute will depend on the particular circumstances of that dispute.

Arbitration is often confused with mediation, the other major alternative to courts. The two processes are, however, very different.

Mediation is, in essence, simply a negotiation session where one person, the mediator, facilitates the negotiation. A trained mediator helps the parties achieve a mutually satisfactory resolution of the dispute. The mediator has no power to coerce and relies solely on his or her powers of persuasion to help the parties reach a mutually acceptable compromise.

Arbitration is more akin to the process found in a courthouse. An arbitrator plays a role similar to a judge. He or she will make findings of fact and law and will ultimately provide reasons for judgment at the conclusion of a hearing where both parties have had an opportunity to present their cases. Often, the parties, by advance agreement, bind themselves irrevocably to the arbitrator’s decision.   Even in the absence of such agreement, the right to appeal an arbitrator’s decision to a court is narrowly circumscribed and limited to questions of law where the parties consent to an appeal or, where the parties do not consent, where leave has been granted by the court.  Recent changes to the rules governing arbitrations now allow for appeals to be made to a three person arbitral panel however this is very recent and the scope of appeals from this Appeal Tribunal to the courts has not been determined.

An arbitration generally has a more limited set of procedural rules than the rule governing court procedures. Parties will determine in advance much of the procedure to be followed. In some cases, an arbitration will mimic quite closely the procedure followed at trial, In other cases, the process is kept less formal and reduces the procedural safeguards employed in a trial.

The parties will agree on the selection of an arbitrator. In many cases, the parties will choose an experienced construction lawyer to serve as an arbitrator. The advantage of retaining a lawyer to serve as an arbitrator is that a lawyer will be familiar with the applicable law. Equally important, however, is that a lawyer will be familiar with the rules of natural justice and should be able to conduct the hearing in a manner which does not violate those precepts. In many cases however, the parties will choose an expert in their particular field to arbitrate the matter. For example, if the issue in dispute relates to a mechanical contractor’s scope of work, the parties may agree to have an impartial mechanical contractor serve as the arbitrator.

Arbitration has many advantages over court proceedings. Arbitrated disputes are almost always resolved far quicker than court proceedings. Depending on the circumstances, arbitrations can be cheaper than court proceedings, although this is by no means always the case. Arbitrations can sometimes achieve a more fair result than a court proceeding given the greater familiarity of an experienced construction arbitrator with construction issues and the construction milieu than perhaps may be the case with a randomly assigned judge. Finally, arbitrations allow the parties to resolve disputes in a private process, in a less imposing setting than a courtroom, and, where agreed to, without the presence of counsel.

However, arbitration also has some disadvantages. Arbitrations tend to stream-line court procedures. While this is often seen as advantageous, court procedures were created to ensure the fairness of the hearing. By stream-lining the process, arbitrations can be significantly less procedurally fair to the participants than trials. Arbitrations, until very recently, also lack our court’s appeal process. Although even with the Appeal Tribunal, it remains the case that many arbitration agreements typically require the parties to be bound virtually absolutely by the arbitrator’s decision. While this expedites the resolution process, arbitrators, like judges, are sometimes simply wrong. Parties entering into an arbitration should consider carefully what rights of appeal they may or may not have as there is often little you can do to rectify an incorrect decision by the arbitrator.

If you are considering arbitration to resolve a dispute, always ask yourself whether you are prepared to live with the arbitrator’s decision no matter how strongly you disagree with it. If you are not prepared to take the chance that the arbitrator might get it totally wrong, you may be better off with another mechanism of dispute resolution.

Co-authored by Norm Streu the President & Chief Operating Officer of the LMS Reinforcing Steel Group.