Understanding Arbitration
Arbitration is a form of alternative dispute resolution (ADR) that has gained significant traction over the years, particularly in the construction industry. Unlike traditional litigation, which involves going to court, arbitration allows parties to resolve their disputes privately and often more efficiently. The process involves a neutral third party, known as an arbitrator, who listens to both sides and makes a binding decision.
Key Differences Between Arbitration and Civil Litigation in the Courts
One of the primary distinctions between litigation in arbitration and litigation in the courts is the setting. Arbitration is typically conducted in a private setting, which can be more conducive to open communication and quicker determinations. In contrast, litigation in the courts is a public process that takes place in courtrooms and often involves extremely detailed and lengthy procedures. Court litigation can take substantially longer to get to an end result, requiring each of the parties to jump through more hoops in the process, driving up the attorney’s fees incurred by all involved.
Another notable difference is the flexibility of arbitration. Parties involved in arbitration can choose their arbitrator, set their schedules, and define the framework that will govern the proceedings. This level of control is usually not possible in traditional litigation, where the court’s schedule and rules must be followed. There is also much more certainty as to who is making the ultimate decisions. When cases are filed in the courts, cases are randomly assigned to a judge, and the assigned judge may not have experience of significance with the issues in dispute. Additionally, for cases set for a jury trial, juries are randomly selected from people living in the county, such that you never know what types of persons will be selected to decide the facts, or whether they have the ability to correctly understand or decide the factual issues. Arbitrations can allow much more certainty, by allowing the parties to learn in advance what the qualifications of the arbitrator are, and verify that they have experience with both the types of unique factual issues commonly asserted in construction disputes, as well as how the law applicable to construction disputes should be applied.
Arbitration vs. Mediation
Arbitration and mediation are both alternative dispute resolution methods, but they differ significantly in their processes and outcomes. In arbitration, a neutral third party, known as an arbitrator, listens to both sides and makes a binding decision on the dispute. The arbitrator acts similarly to a judge, providing a final resolution. Conversely, mediation involves a neutral third party, known as a mediator, who facilitates informal and non-binding discussions between the parties to help them reach a mutually agreeable solution. The mediator does not have any authority to make decisions of either fact or law, and cannot impose a decision; instead, they work with the parties, either before or during litigation, to see if negotiated settlement can be reached.
Mediation can work well if all of the decision makers are willing to cooperate and agree to a settlement. Arbitration is often the better choice in scenarios where there is a need for an efficient way to obtain more information related to the dispute before a resolution is reached, or where settlement negotiations have not been fruitful, such that the parties need a definitive and expedient way to get to an enforceable and final resolution. For example, in a construction dispute over contractual terms, project billing, quality of work, resultant damages, and/or loss of use, arbitration allows for a knowledgeable arbitrator to review the key documents and information, make an informed binding decision based on industry standards and legal principles, providing a clear and enforceable outcome.
Benefits of Arbitration
- Speed and Efficiency: Arbitration typically takes far less time than litigation in the courts. Courts can be backlogged with cases, leading to extended timelines for both interim determinations, as well as the trial to get to a final decision. In arbitration, parties can set their pace and avoid prolonged delays, while still having sufficient time to reasonably investigate the claims and defenses. Additionally, while motions are frequently filed in the courts, with strict statutory requirements and hearings scheduled 3-6 months after the motions are filed, arbitration provides the ability to present disputes less formally, and quickly get those issues determined and resolved.
- Cost-Effectiveness: The expedited nature of arbitration often results in lower overall costs. Although the parties in an arbitration do incur some fees for the arbitration proceedings, attorney’s fees and other expenses are typically less than those incurred in litigation through the courts, which can result in lower combined litigation costs.
- Confidentiality: Arbitration proceedings are private, which can be crucial for businesses that want to protect sensitive information and maintain their reputations. Although the ultimate decision of the arbitrator may be submitted to the courts where there is a need to the arbitrator’s decision or collect monies due, the majority of the facts and circumstances, as well as the case documentation, would be expected to remain private.
- Expertise: Parties can select arbitrators with specific expertise relevant to their dispute, which can lead to more informed and appropriate decisions. By contrast, if a construction case is filed with the courts and assigned to a judge whose background is in family law, bankruptcy law, or criminal law, it can require substantial additional time to be spent educating the judge on construction terms, common courses of conduct during construction, as well as the law applicable to construction disputes.
Arbitration in the Construction Industry
The construction industry is particularly suited to arbitration for several reasons. Construction projects often involve multiple parties, complex contracts, and tight timelines. Disputes can arise over issues such as the meaning of and/or compliance with contract terms, project delays, cost overruns, what changes were authorized, construction defects, and who is ultimately responsible for the claims at issue, whether that be the property owner, design professionals, general contractor, subcontractors, and/or materials suppliers. In these cases, arbitration can provide a conduit to submit such issues to someone who understands the lingo and the law, has the ability to logically and efficiently analyze large amounts of information and documentation, and get the parties to a faster and more reasonable resolution than litigation in the courts.
In California, the construction industry sees frequent use of arbitration due to the state’s bustling building activities and the intricate nature of construction law, and the common inclusion of arbitration terms in construction contracts. An arbitrator with expertise in construction disputes can navigate the specific challenges and technicalities of these disputes, leading to more satisfactory outcomes for all parties involved.
Arbitration offers a valuable alternative to traditional court litigation, providing a faster, more cost-effective, and confidential means of resolving disputes. For the construction industry in California, arbitration is not just a viable option but often the preferred method due to its ability to address the unique complexities of construction projects. As we delve deeper into this blog series, we will explore various aspects of arbitration, helping you understand its full potential and application.
