A New Route in Arbitration Cutting Through Time and Expense (Construction Executive)

Tuesday, May 1, 2007

By Cathy Cronin-Harris

While arbitration avoids the glare of public proceedings, the International Institute of Conflict Prevention & Resolution (CPR Institute) finds users rarely report more than moderate satisfaction with the process. Often, its promises of speed and economy decline as stakes increase.

One cross-industry study found a 45-day hearing average for cases of $250,000 or more; a quarter of those cases required 13 days for hearings.

International arbitration users also are concerned with arbitral delay. Forty-three percent say it takes as long as litigation while another 43 percent say it saves time, according to the 2006 Fulbright & Jaworski Litigation Trends Survey of 422 senior corporate counsels in the United States and abroad.

Even leading commercial arbitrators say arbitration has become too much like litigation, and many commercial counselors agree. Arbitral delay and the consequent costs arise from multiple sources. To protect high stakes, lawyers attempt to introduce litigation-like procedures such as motion practice, extensive discovery and expansion of narrow statutory review grounds. In addition, some arbitrators fail to manage the process astutely to prevent postponements and other delaying tactics by counsel. Conducting hearings on consecutive days—a practice that can maintain the flow of the proceedings and keep resolutions on track—is rare and often complicated by the number of participants and their varying private schedules.

Reap the Benefits of Arbitration

Recently, the Construction Advisory Committee of the CPR Institute addressed this problem with the publication of its new Rules for Expedited Arbitration of Construction Disputes. These rules call for a rapid arbitration process for any construction dispute, including high-stakes cases, with a 100-day arbitral hearing process.

Selected arbitrators conduct a mandatory pre-hearing conference (or multiple pre-hearing conferences, if necessary) and determine the procedures that promote an expeditious but fair hearing. Topics to discuss include case presentation and cross examination time limits, use of testimony in written form with cross-examination rights, neutral expert appointment, recording the hearings and conferences, timeframes for any motions and control over excessive discovery.

Standards for discovery include: exchange of relevant documents with later exclusion of documents that should have been, but were not, exchanged; limited depositions geared to the needs of the parties; and narrowly focused e-discovery justified in terms of being material and important.

After the pre-hearing conference, the arbitrators set a date to commence the 100-day process, which allows 60 consecutive days for discovery, 30 consecutive days to conduct the arbitral hearing and 10 consecutive days to render the award. While the timeframes can be changed by mutual agreement of the parties, the arbitrators are discouraged from extending the times on one party’s initiative.

Another innovation in the rules addresses delay reduction. When parties fail to appoint arbitrators, or other lapses in arbitrator appointment occur, CPR has the authority to appoint the arbitrators outright.

The Statements of Claim and Defense must contain facts, law and supporting documents, as well as names of experts and witnesses to focus the dispute. If the parties have agreed to each appoint an arbitrator, that arbitrator’s biographical information must be attached to the Notice of Claim and Defense.

The rules protect respondents from being ambushed with an unexpected claim while the claimant has been busy building its case. In that situation, respondents can file a motion to extend time to respond with the arbitrators in place of a Notice of Defense, if a good cause exists. The arbitrators then set the time to file the notice at the pre-hearing conference. This extension may prolong the pre-hearing conference, but does not extend the 100-day period once it starts. If the good-faith provision is abused, penalties can be imposed.

Finally, as potential users review the rules and the pre-dispute clauses, a few options are notable. While the use of three arbitrators (one appointed by each party and one selected by a third) is the presumptive route, the pre-dispute clauses offer the choice of one arbitrator or three, all of whom are appointed by CPR. A single arbitrator might be useful in a smaller claim, or one requiring extraordinary speed, because there’s only one decision-maker’s schedule to accommodate.

A continuing problem with arbitration is the fear of erroneous awards because statutes provide only the most limited arbitral review. In recent years, counselors have tried to expand courts’ review with little success. Rather than attempting to appeal arbitrations to the courts and potentially consume years in litigation, the CPR rules provide a new private appeal process that can be selected when choosing arbitration.

Once parties opt for this appeal process,it can be initiated by either party after the original arbitral award is issued. The appeal uses three former federal judges who review the original arbitral transcript. (The transcript must be made at the original hearing if this option is selected.) The appeal panel can reverse the original arbitral award if it contains material and prejudicial errors of law and factual findings clearly unsupported by the record, or if it violates any of the arbitration statutory grounds.

Rather than attempting to give new powers to courts to reverse arbitration awards on grounds that are not found in arbitration laws, this private appellate process provides all the benefits—and none of the problems—of a rapid appeal process.

Cronin-Harris is a senior consultant with the International Institute of Conflict Prevention & Resolution, New York.

CPR’s Rule can be downloaded at www.cpradr.org under Resources.

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