Kent B. Scott | Babcock Scott & Babcock
This is the third installment in the series of articles on Dispute Resolution.
Arbitration has long been favored as a means of resolving construction disputes. Many standard construction contract documents provide for a mandatory binding arbitration of all disputes arising under or related to the contract.
Both Federal and Utah law, like virtually every other state, favor arbitration as a cost-effective and timely means of resolving disputes. Consistent with these policy considerations, both statutory law and case law support judicial orders compelling arbitration when required by statute or contract. The current Utah law is most commonly referred to as the Revised Utah Uniform Arbitration Act as set out in Utah Code Ann. §78-31a-101 through 131 (“RUAA”). Utah’s RUAA is patterned after the Revised Uniform Arbitration Act that was approved by the National Conference of Commissioners of Uniform State Laws. The Federal law is found in Title 9 U.S.C. §1 et seq. This statute is known as the Federal Arbitration Act.
Commencement of Arbitration and Selection of Arbitrator(s)
Arbitration is initiated by a demand for arbitration. The most common arbitration clause found in construction contract documents requires arbitration to proceed in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association (“AAA”). A demand for arbitration pursuant to the AAA’s rules in a very simple document, requiring only a general and brief statement outlining the nature of the claim and a sum representing the damages sought.
The method for the selection of arbitrators is found in the AAA’s Construction Industry Rule or the Federal and Utah state statutes. The method of selection can also be defined in the parties’ Agreement.
The arbitrator will generally schedule, through the AAA, a preliminary hearing wherein the arbitrator and parties’ council will discuss the parties’ claims, scheduling, discovery, motions, witnesses, exhibits, the evidentiary hearing and form of award.
Discovery and Motions
In most instances, the type, amount and time frame for discovery is left to the arbitrator’s discretion. Most arbitrators try to get the parties to agree on reasonable limits on discovery, especially depositions, but will impose such limits where the parties fail to agree. Within this same authority, the arbitrator usually has the authority to issue subpoenas and subpoenas duces tecum upon third parties as allowed by the Rules of Civil Procedure.
In theory, arbitrators have always had authority to summarily dispose of all or portions of the claims submitted for arbitration. Because of the limited avenues of appeal available in arbitration organizations like the AAA have discouraged summary disposition of claims except in the clearest cut of cases.
The Arbitration Hearing
At the evidentiary hearing, the procedure is in form very similar to that encountered in litigation. It is, however, considerably less formal, particularly as to evidentiary matters. Simply stated, the rules of evidence do not apply in arbitration. In fact, both the AAA’s rules and most arbitration acts require the arbitrator to receive and consider evidence material to the dispute. In short, the test by which evidence is judged in arbitration is materiality, not admissibility.
Once the arbitrator is satisfied that all other evidence is in, he or she will close the hearing and begin deliberations to the end of making an award. Historically, arbitration awards have been extremely brief, consisting essentially of a net award of damages in favor of one of the disputants and perhaps an award of attorney’s fees and/or arbitration costs. Currently, many arbitrators, as well as organizations such as the AAA will provide either a detailed or reasoned award upon request by the parties.
A detailed award must specifically list the arbitrator’s award as to each component of each party’s claims and culminate in a net award as to damages, attorney’s fees, arbitration costs and interest. If a contractor’s claim is comprised of a changed conditions claim, a constructive change order claim and an acceleration claim, the arbitrator must make a specific award as to each claim. A reasoned award takes the process one step further, requiring the arbitrator to provide at least a minimal written explanation for each component of their award.
Under the AAA rules, an arbitrator must issue their award within 30 days from the date they closed the hearing. Neither the Utah Arbitration Act nor the United States Arbitration Act has established any such time frame.
Modification of Award
Under the Utah Arbitration Act and the AAA rules, a party has twenty days from the date the AAA transmits the arbitrator’s award to the parties to seek modification of the award to correct any clerical, typographical, technical or computational errors. The arbitrator has no authority to re-determine the merits of the award but may correct calculations or descriptions of persons or property in the award. Under the Federal Arbitration Act a motion to modify may be filed at any time within three months after the award has been filed or delivered.
Motion to Vacate Award
A motion to vacate the award under the AAA rules or the RUAA must be filed within twenty days from the receipt of the award. Under the Federal Arbitration Act, a motion to vacate may be filed at any time within three months after the award has been filed or delivered.
Once an award has been issued, it may become subject to efforts to vacate by a dissatisfied party. Reversal of an arbitrator’s award can only be done by a court. Under both the Federal and Utah Arbitration Statutes, an arbitrator’s award will be vacated if it appears that:
- The award was procured by corruption, fraud.
- The arbitrator is guilty of misconduct.
- The arbitrator exceeded its powers.
- There was no arbitration agreement.
Again, courts have traditionally deferred to arbitrator’s awards and have been reluctant to revisit them when challenged by a dissatisfied party. However, the Buzas decision seems to indicate that given improper circumstances, a Utah court may explore further propriety and basis for an arbitrator’s award, then one might expect by simply reading the terms of the RUAA.
The construction industry has used arbitration as an alternate form of dispute resolution for several years. Arbitration as a method of dispute resolution will continue to grow.