Arbitration is increasingly being adopted and accepted in the construction industry as the go-to for settling disputes due to perceptions regarding the benefits of arbitration over litigation.
Chapter 682 of the Florida Statutes governs the state’s Arbitration Code, and it grants authority to voluntary binding arbitration. Generally speaking, this means that if two or more parties in a construction dispute agreed to arbitrate any disputes in their construction contract (known as an Arbitration Agreement), then the courts will likely enforce mandatory arbitration if and when a dispute arises.
In case you are not aware, arbitration is a form of alternative dispute resolution in which the dispute will be heard by a certified, neutral arbitrator or tribunal of neutral arbitrators. Arbitrators will hear evidence from all parties involved in a relatively informal hearing, and they will then make a binding decision to resolve the case.
Below we have detailed some of the pros and cons of arbitrating a construction dispute as opposed to litigating the case.
Cost – This is likely the most frequently cited benefit of arbitration over litigation. The perception is that, due to a lack of court fees and a full discovery period, as well as an expedited procedure, arbitration tends to be far less expensive than litigation. However, this is often disputed. We will keep cost as an arbitration pro, but keep in mind that arbitration costs can soar for more complex cases.
Timeliness – The second most frequently cited benefit of arbitration is that it tends to be much faster than litigation. Hearings do not have to be fit into a crowded court docket, arbitrators are generally juggling far fewer cases than judges, rules of procedure are simplified, and there is usually no appeal. Thus, arbitration is usually much faster than litigation.
Privacy – While litigated cases are public record, arbitration is a private process. You can generally resolve your disputes without the details of the case becoming public knowledge.
Expert decision-maker – While it is unlikely that a judge or jury deciding a litigated case will have any expert knowledge of the construction industry, arbitrators will be selected who are best suited to understand the case, meaning they will likely have a great deal of experience with construction and be better suited to resolve the dispute.
Schedule flexibility – As previously stated, arbitration hearings tend to be much less formal than litigation, and they can essentially be scheduled to occur at any time in any place to better suit your availability to attend.
Finality – Arbitration decisions are binding and there is usually no potential for an appeal. This means the arbitrator’s decision will usually be enforceable by a court, and you won’t have to spend time and money dealing with a lengthy appeals process.
Finality – No, you are not seeing double. The finality of arbitration can also be a detriment if you lose the case. There are very limited grounds in which a court will overturn an arbitrator’s decision—usually only based on corruption or fraud. A legal error made by the arbitrator or counsel will not qualify you for an appeal when it comes to arbitration, as it would in litigation.
Lack of transparency – While the privacy may be nice, it also means there will be no oversight or transparency in the process, and therefore less incentive to ensure that the arbitration is fairly handled.
All-or-nothing – Oftentimes arbitration is an all-or-nothing system, meaning there is no middle ground between winning and losing the case. In litigation, there is a full discovery process and perhaps even mediation before the actual trial in which parties can assess the strength or weakness of the opposing party’s case and may have an opportunity to settle based on that evaluation. This is usually not the case in arbitration, and parties will likely see evidence for the first time during the hearing. The case becomes black and white, with a complete win in the case being the only chance for a positive outcome.
Evidence – In litigation, there are very strict rules regarding the presentation of evidence. Evidentiary requirements in arbitration do not adhere to most of these legal principles, meaning evidence may be prejudicial or misleading in nature, and there is little the opposing party can do to combat such issues.
Subpoenas – While arbitrators may issue subpoenas in order to force a witness to participate in a hearing, they tend to be much more difficult and laborious to enforce than a judge’s subpoena in litigation since arbitration occurs physically outside the court system.
If you are considering adding an arbitration agreement to your construction contracts, or if you are facing arbitration, please contact the Florida Construction Law Group today.