Arbitrator-Directed Arbitration: A Proposal to Improve Construction Arbitration

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Arbitrator-Directed Arbitration: A Proposal to Improve Construction Arbitration

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Mark C. Friedlander, Jeremy S. Baker

Arbitration was once the darling of the construction industry, with parties intentionally sacrificing the safeguards of litigation, and its expensive and inefficient procedures, in favour of fair, quick, and cost- efficient dispute resolution. Many in the industry, including the authors, continue to believe that knowledgeable construction arbitrators reliably produce better decisions, even without arcane litigation procedures, than judges who may lack design and construction knowledge. However, arbitration has fallen into disfavour with many. Its critics complain that arbitration’s advantages can be lost when the process is seized by lawyers who treat arbitration like their “scorched earth” courtroom trial practice. With lawyers focused on arbitration rule-making, administration, and operation, not surprisingly arbitration proceedings can resemble the courtroom litigation familiar to many attorneys.

In response, this article proposes five rules to em- power arbitrators to transform traditional arbitration into an arbitrator-directed process in which knowledgeable arbitrators, by their expertise and force of will, optimize the fairness and efficiency of arbitration. In this process, the arbitrator would assume greater control over the conduct of the evidentiary hearings and advise counsel of the arbitrator’s thoughts about the merits of the dispute in real time. This proposal aims to improve construction arbitration by emphasizing speed and efficiency, without sacrificing due process or quality decision-making.

Construction Arbitration in Crisis

Construction arbitration is facing a crucial juncture, and some argue that the drawbacks of today’s arbitration process outweigh its advantages over traditional litigation. Critics point to the fact that modern arbitration allows preliminary motions, forms of discovery, and evidentiary hearings that increasingly resemble trials. They also note that modern arbitrations can endure long delays for scheduling, discovery, or sometimes simply be- cause of a party’s request. And these users understandably resent that, unlike in court, in arbitration the parties often must pay significant filing fees as well as arbitrator salaries and thus lose the checks and balances of a meaningful appeals process.

Some of the responsibility for this perception falls on lawyers. Lawyers understand that their clients expect to win and hold them accountable for delivering winning outcomes. To meet these expectations, lawyers may take time, often excessive time, to make every possible argument to support their client’s case and to win arbitration hearings. But this approach may have little impact on the arbitration panel’s thought process or ultimate decision and can obviate the goals of arbitration, particularly when counsel fails to perceive the truly important issues; spends exorbitant time on relatively minor issues; does not fully understand the legal bases of the client’s claims and defenses; wastes time on unnecessary foundation and similar evidentiary issues; elicits cumulative and more explanatory detail than the panel needs; and plays “jury games”, like attacking a witness’s credibility on collateral issues.

Counsel in a “litigation-like” arbitration may be worried about whether the panel evaluates the issues as do the advocates and act cautiously so they do not risk omitting anything that the arbitrators might find important. Ideally, before and during the hearing, counsel would engage in a dialogue with the arbitrator or panel of arbitrators to find out what the arbitrator(s) believes to be important; how the arbitrator(s) is/are perceiving the facts, issues and arguments; and what information the arbitrator(s) desires to hear to make a decision.

Arbitrator-Directed Arbitration

This proposal attempts to improve construction arbitration by emphasizing speed and economy without sacrificing due process or quality decision-making. The proposed rules are probably best suited for medium- and smaller-sized arbitrations rather than the large disputes whose economy of scale can support lengthier and more cumbersome processes. These proposed rules, which supplement any existing arbitration rules that bind the parties, vest more control of the arbitration process in the arbitrator.

The rules introduce two concepts very different from modern construction arbitration. First, the arbitrator has the primary responsibility for questioning witnesses, with the parties’ counsel asking questions afterwards. Second, at an early  stage and throughout the process, the arbitrator will candidly share the arbitrator’s own views of and thoughts about the facts and the law with the parties and their counsel. If the arbitrator questions the witnesses first, that should save considerable hearing time. And if the arbitrator frankly shares views, the hearing result should be more predictable. Further, the process should facilitate fair, early settlements and focus the presentation of evidence and arguments on the issues that truly matter to the arbitrator.

We propose the following rules to implement arbitrator-directed arbitration:

Rule 1 — Supplementing Other Rules. These rules for arbitrator-directed arbitrations shall supplement any other applicable rules governing the arbitration and shall supersede those rules only to the extent that the language or intent of these rules is inconsistent with any other applicable rules.

Rule 2 — The Initial Preliminary Conference. As soon as practicable, the arbitrator shall meet with counsel. Clients may (but need not) be present. The arbitrator may include and require the following communications at the initial preliminary conference.

a.   The arbitrator shall explain to the parties how arbitrator-directed arbitration works and, after obtaining the parties’ input, identify the procedures to be followed in the hearing and pre-hearing proceedings;

b.   The arbitrator shall elicit from the parties brief descriptions of the factual background and the disputed issues. The arbitrator may exercise discretion and conduct the inquiries and solicit the descriptions as a dialogue rather than as a formal statement by the parties or their counsel; and

c.   The arbitrator and the parties shall identify and discuss the various sources of information and evidence relevant to the disputed issues, including people, documents, and other sources. At the arbitrator’s discretion, arrangements may be made to procure some or all of the sources of information at or before the arbitration hearing, including but not limited to issuing subpoenas, scheduling document exchanges, and suggesting that counsel obtain other information.

Rule 3 — Subsequent Preliminary Conference(s). The arbitrator has the discretion to schedule subsequent preliminary conferences for any or all of the following purposes: for the parties to provide additional detailed information to the arbitrator; to implement, facilitate, or revise any previous decisions or instructions regarding sources of relevant information; and for the arbitrator to provide the parties with any preliminary thoughts about the facts and law pertaining to the disputed issues. The arbitrator shall encourage the parties to offer feedback and comment on the arbitrator’s initial opinions, and the arbitrator may engage in or limit dialogue with the parties and encourage or require formal or other submittals from the parties on any of the disputed issues or preliminary arbitrator opinions.

Rule 4 — The Final Preliminary Conference. At the final preliminary conference before the evidentiary hearing, the arbitrator and parties shall dis- cuss the evidence and procedures for the hearing. With the parties’ input, the arbitrator shall identify any evidence or other information that the arbitrator desires to be presented at the hearing and shall arrange with the parties or counsel for the evidence or information to be made available at the hearing. The parties shall also arrange for any additional evidence or other information that either one desires to present to be available at the hearing.

Rule 5 — The Evidentiary Hearing. The arbitrator shall control the presentation of evidence at the evidentiary hearing, including determining the sequence, dates, and time for the appearance of witnesses, including the following:

a.   The arbitrator shall initiate the questioning of each witness and may, in the arbitrator’s discretion, interrupt the questioning of a witness to obtain supplemental information from other people or sources that are present or otherwise available. During or after the arbitrator questions a witness, either party may suggest questions or provide information to the arbitrator for the arbitrator to use in questioning the witness. When the arbitrator has completed a witness examination, both parties may then, in a sequence determined by the arbitrator, question the witness to elicit relevant, material, and supplementary information, not repetitive or cumulative testimony;

b.   The parties are encouraged (and the arbitrator may direct them), to present any direct or affirmative testimony by a witness within the party’s control, including but not limited to the witness’s relevant expertise and credentials, by affidavit or in similar written format in addition to verbally at the hearing. The arbitrator may require that the parties provide any affidavits or other written summaries of testimony before the hearing or the witness’s appearance at it;

c.   The arbitrator shall have broad discretion to fashion formats and sequence of testimony to ensure that the testimony is as clear and brief as possible. For example, the arbitrator may, among other things, require multiple witnesses to testify simultaneously or bifurcate a witness testimony into two or more separate appearances to address separate issues;

d.   At the end of the hearing, or at other times in the arbitrator’s discretion, the parties shall have opportunities to provide oral or written input to the arbitrator on any of the legal or factual issues relevant to the dispute. The arbitrator shall deter- mine the format and timing of any input; and

e.   In controlling the format and procedures of the hearing, the arbitrator shall not deny any party due process of law or violate any applicable arbitration statute. The arbitrator shall not prevent any party from offering any relevant, material non-cumulative evidence or argument in support of, or in opposition to, any of the legal or factual issues in dispute.

Advantages of Arbitrator-Directed Arbitration

These rules for arbitrator-directed arbitrations may create two significant advantages that decrease the cost and increase the speed of the process. First, the evidentiary hearings and legal argument will be shorter and more efficient, focusing on the information that the arbitrator must know to resolve the dispute rather than on tangential information and litigation “games” that often consume much of the hearings. Second, the parties will be far more able to predict the likely outcome of the arbitration and therefore, settle the dispute at an early stage.

The outcome will be more predictable because the arbitrator will have freely shared preliminary opinions with the parties during the preliminary conferences, and possibly during the evidentiary hearing — unlike current practice in which the arbitrator typically avoids offering any feedback that might enable the parties to predict the eventual ruling. Arbitrator-directed arbitration, with its early dis- closure of and dialogue regarding the arbitrator’s preliminary opinions, allows the party to learn of any “arbitrator misunderstandings” before the evidentiary hearing concludes, in time for the party to produce evidence or to direct the arbitrator’s attention to information that may persuade the arbitrator to reach a different ruling.

Conclusion

Arbitrator-directed arbitration deviates significantly from typical litigation practices, but it is not without precedent. Current arbitration rules allow arbitrators to question witnesses at any time. Arbitrator-directed arbitration is loosely modeled on civil law trials, such as in Western Europe in which the judge is the primary inquisitor, with the judge’s questioning supplemented by the facts and law introduced by counsel for the parties.

Of course, arbitrator-directed arbitration is not suited for every dispute or every arbitrator. But it may be appropriate for smaller and other arbitrations in which speed and cost-effectiveness are paramount concerns. Arbitrator-directed arbitration is a framework particularly well-suited for arbitrators with significant design and construction knowledge and litigation experience, with the expertise, knowledge, and confidence to assume a commanding role in leading the parties toward a fair and efficient resolution of their dispute.

We do not pretend to claim these rules are complete, fully integrated, or free from flaws. Nor do we pretend that arbitration is a panacea always preferable to court litigation. Rather, this proposal is intended to advance discussion around the common goal of preserving construction arbitration as a fair, cost-efficient, and viable alternative to litigation.


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