By Bruce Jervis
Arbitration offers some advantages over litigation. Arbitration is generally more expeditious, with the discovery of factual information less protracted. The fact finder, selected by the parties, will usually be familiar with construction contracting and methodology. The resolution of the dispute will be confidential.
Arbitration also presents some cost challenges. The arbitrator or arbitrators, unlike publicly paid judges, must be paid directly by the parties. And the filing fees, frequently tied to the amount in controversy, can be many times higher than a filing fee in court.
Parties regularly sign contracts or subcontracts with little consideration of what it means to commit all disputes to binding arbitration in accordance with certain stipulated rules. They seldom actually read the rules. Sometimes they get buyer’s remorse.
In a recent California case, a contractor, compelled to arbitrate its payment claim against the project owner, complained it could not afford the American Arbitration Association filing fee. The AAA was more than reasonable. It first deferred the fee to the conclusion of the case and later waived the fee altogether. The contractor then complained it couldn’t afford its share of the arbitrator’s fee. The arbitrator was more than reasonable. He offered to reduce and restructure his fee -- a fee to which the contractor had previously agreed. The contractor still failed to pay the arbitrator.
The arbitrator, in accordance with AAA rules and after providing ample notice, terminated the arbitration proceeding. The contractor was left without a forum for a hearing on its payment claim against the owner. The contractor was barred from court and barred from arbitration. Its claim was effectively extinguished.
Have you seen situations where a party contractually commits to binding arbitration and then attempts to disavow arbitration when it encounters the specifics of the rules and procedures? Do you know anyone, other than legal counsel, who has actually read the rules of the American Arbitration Association? I welcome your comments.