Arbitration Clauses: The Devil is in the Details
By Timothy R. Hughes, Esq., Jacobus P. Joubert, Esq.
A great deal of attention is focused on the big question of whether arbitration is preferable to litigation. Many contractors overlook the hidden details that often can define the answer to that question. The method of choosing an arbitrator, initiating a proceeding, and selecting an administrative entity can have a huge impact on the costs and relative advantages or disadvantages of arbitration. The devil is often in the details.
The AAA is facing serious competition, however, in some localities and regions. Before blindly accepting the AAA as your choice, you should analyze the filing fees, likely costs and the lists of available arbitrators provided by the different arbitration firms in your area. You may find that the competition has comparable or even better available arbitrators. You also may find that the alternatives in your area may be less expensive. For instance, in Virginia, there is a growing perception that the AAA fees are becoming prohibitively high and that the file administration service is lagging. Moreover, the competition over exceptional, third-party neutrals is quite fierce.
Form arbitration contracts often designate a panel of arbitrators as the preferred method. You should consider closely whether your disputes would actually require more than a single arbitrator. Hiring multiple arbitrators can significantly increase arbitration expenses with little or no concurrent gain to the process. Indeed, the process of picking multiple arbitrators can actually become cumbersome, time-consuming, expensive and inhibit the arbitration.
If you decide to use a panel of three arbitrators, you can establish a selection method rather than having an administrative agency. You can, for example, establish that each party picks an arbitrator and those two arbitrators must jointly pick the third arbitrator. It is not, however, a good idea to agree to mutually select a single arbitrator. This arrangement frequently leads to disputes in trying to find a mutually agreeable arbitrator.
In selecting an appropriate arbitrator, you generally want to look for both professional competence and true impartiality. The competence prong of the question often can be substantively researched. With lawyer arbitrators, you want to look for publications, published cases, and decisions or verdicts in representative cases. Prior arbitration experience and training is also helpful. If you agree to use design professionals or contractors, you want to gain an understanding of the substantive construction and/or design experience of the arbitrator. The typical scenario is to use lawyers and judges as arbitrators; you really want arbitrators who will apply the law and legal reasoning to reach a firm result rather than "split the baby."
Finally, you want to pay careful attention to the background of the arbitrator. While most arbitrators will try to be impartial, a lifetime spent representing a single type of party may slant one's viewpoint. For example, if you are a subcontractor, beware of agreeing to a lawyer arbitrator who regularly sues subcontractors.
About the Authors
Tim Hughes is Of Counsel to the law firm of Bean, Kinney & Korman in Arlington, Va. He can be reached by email at thughes@beankinney.com or by phone at 703-671-8200.
Jacobus P. Joubert, Esq., is an attorney in the Northern Virginia law firm of Hughes & Associates, PLLC. He focuses his practice on construction and complex civil litigation. Joubert can be reached at jacobus@hughesnassociates.com or by calling him at 703-671-8200.
This article is not intended to provide legal advice, but to raise issues on legal matters. You should consult with an attorney regarding your legal issues, as the advice you may receive will depend upon your facts and the laws of your jurisdiction.
