December 11, 2020 Feature

Arbitration Without Argument

Megan George

Arbitration without argument? While it sounds like a contradiction, arbitration without argument, or arbitration on briefs alone, provides an intriguing alternative to the traditional arbitration process for efficiency-minded clients. Private arbitration’s popularity in the construction industry is directly attributable to its efficiency; but, even the American Arbitration Association’s Fast Track Procedures require significant time and resources, primarily those invested in conducting a hearing before an arbitrator. To reduce those costs, consider an agreement to arbitration on the briefs. When employed in the appropriate situation, agreeing to submit a dispute to an arbitrator on briefs alone can be a useful tool for quick and efficient dispute resolution and a highly satisfied client. 

Arbitration on the briefs has two primary benefits. First, it can be highly cost-effective. Eliminating the costs associated with witness and hearing preparation and presentation can significantly reduce the overall price tag of arbitration. Second, arbitration on the briefs provides for speedy dispute resolution without sacrificing equity or expertise. Again, jettisoning a hearing can expedite a final resolution on the merits by weeks, if not months; certain disputes may even be submitted for a decision on the briefs without a traditional discovery process, which all practitioners know can be extremely time-consuming. Furthermore, the arbitration agreement allows the parties to dictate the timeline for decision, eliminating uncertainty and facilitating easy mid-project or mid-term dispute resolution.

Foregoing a hearing is not without its downsides. Without a hearing, an arbitrator may miss or misunderstand certain complex factual issues, and the parties have limited opportunity for clarification. Thus, astute construction attorneys will recognize that arbitration on the briefs is not one-size fits all. Predicting the nature of disputes likely to arise on your project and the evidence necessary to resolving those disputes is critical in 1) deciding whether arbitration on the briefs is appropriate for your client’s project and 2) drafting the terms of such an arrangement. When considering an agreement to arbitration on the briefs, keep in mind the following tips for success.

Tips for Success

1.  Identifying the issues subject to arbitration.

Not all disputes lend themselves to resolution on written arguments alone. For the same reasons decisions without a hearing are regularly issued in an appellate court setting, an arbitrator’s decision on the briefs is most successful when the dispute is straightforward and turns on a few narrow questions if not a single, objective issue. Lay witness and/or subjective evidence-heavy fact patterns and other, more complex disputes may be difficult for an arbitrator to grasp on paper alone and key details may be lost without an opportunity for the arbitrator to ask questions. Conveying witness credibility and evidentiary context may also be difficult. Accordingly, disputes involving competing expert testimony are not well-suited to resolution by this method. By contrast, a foreseeable, single-issue quarrel that requires either interpretation or application of a contract clause to a limited factual scenario is easily decided with limited party input. For example, in an agreement based primarily on unit prices, disputes over adjustments to unit prices may be well-suited to arbitration on the briefs. Adjustments to unit pricing are often necessitated by either 1) market fluctuations or 2) significant changes to the quantity of units subject to the agreement. Hence, few subjective factual issues will compound a dispute over the equity of an adjustment to an agreed unit price. Design ambiguity controversies and cost-only change order disputes may also lend themselves to resolution through arbitration on the briefs, particularly when employed mid-project to mitigate damages resulting from postponing a final resolution.

2.  Careful Clause Drafting.

Once you have identified the types of disputes amenable to arbitration on the briefs, your arbitration clause should carefully identify and describe those disputes to be subjected to arbitration. In addition, the language should plainly outline the particularities of the arbitration process itself. Each condition applied to the process should promote swift and cost-effective adjudication. Contemplate the following terms when developing an agreement to arbitrate without a hearing:

a)  Arbitrator Selection. Before agreeing to arbitration on the briefs, consider the qualifications an arbitrator needs to provide a speedy and fair resolution. Ideally, an arbitrator should be able to jump into a dispute with minimal education on the intricacies of the particular dispute. In pricing disputes, an arbitrator with an accounting or financial background might be valuable. Alternatively, in a design ambiguity scenario, an arbitrator with architectural or design expertise will require less explanation to understand the parties’ respective positions and reach an equitable decision. To avoid wasting the expediency provided by arbitration on the briefs, the parties should also delineate explicit terms as to how a candidate pool will be developed and how the arbitrator will be selected in the event the parties cannot agree.

b)  Specific Timeframes. As discussed above, a timely resolution of your dispute is a principal benefit of arbitration on briefs alone. Thus, the parties should settle on hard and fast deadlines for brief submission and the arbitrator’s decision. If needed, a limited timeframe for seeking clarification or enforcement of the arbitrator’s decision should also be employed.

c)  Evidentiary Limitations. Your arbitration agreement should place strict limitations on the type and volume of evidence each party is permitted to submit in conjunction with its brief. Disputes that may be decided on objective, empirical, and/or documented evidence will find the most success in arbitration without a hearing. This is not to say that no fact witness testimony should be admitted; a successful arbitration on the briefs provision will permit submission of an affidavit or similar sworn statement to verify documentary evidence and provide necessary project details to put the dispute in context. Still, the primary source of evidence submitted to the arbitrator should be documentary, not testimonial. Taking it a step further, restricting evidence included in the briefs to evidence exchanged prior to submitting the case to arbitration may facilitate the arbitrator’s decision making process, and may even promote interparty resolution without arbitration. Similarly, a practitioner might  consider a page limitation on the briefs; a limited writing will force each party to concisely state its position, and it will assist the arbitrator in identifying the key issues she must consider in making her decision.

d)  Decision Implementation and Cost Allocation. Finally, consider how an arbitrator’s decision should be effectuated. Should the decision or award be applied retroactively? If so, at what point should its application begin? Take the example of a unit price disagreement. Should the arbitrator’s decision apply only to future units? Or, if the pricing decision applies retroactively, should it apply to all units from the time the adjustment was requested forward? Or from the time the dispute was submitted to arbitration? The answers to these questions depend on the projected disputes and your client’s anticipated position. Another important term to consider in an arbitration on the briefs agreement is an attorney fee-shifting provision. In keeping with the cost-efficiency goal of opting for arbitration on the briefs, an agreement that the prevailing party will recover its attorney’s fees will aid in ensuring only truly unresolvable disputes reach the arbitration phase and dis-incentivize over-lawyering.

Sample Clause

Consider the following sample arbitration on the briefs clause addressing the unit price example set out above:

(a) Either party may propose a change to the unit prices set forth herein by submitting a written request to the other party based on demonstrable, documented increases or decreases in the costs associated with the unit prices. Each party’s requests for a change to the unit prices shall be limited to once per year, except upon the occurrence of a force majeure event. The opposing party shall consider in good faith the proposed change, but no change shall take effect unless both parties agree and memorialize said agreement in a writing signed by both parties. In the event the parties are unable to agree upon a unit price change, either party may elect to have the matter resolved by arbitration. Such arbitration shall be conducted by, and pursuant to the Construction Industry Arbitration Rules of, the American Arbitration Association.

(1) The arbitration shall be conducted by a single arbitrator, appointed by the AAA, who shall have experience arbitrating construction disputes and a background in construction and/or industrial accounting. No hearing shall be held; the arbitration shall be decided exclusively on written submissions.

(2) Within twenty (20) days of the arbitrator’s appointment, each party shall submit a written statement and documents in support of its position. The only documents permitted to be submitted to the arbitrator shall be those documents each party provided to the other in connection with any request for or rejection of a price change, an affidavit authenticating such documents, publicly available information (including but not limited to industry trend reports) and briefs or memoranda in support of such party's position. Not later than ten (10) days thereafter, each party may submit a response to the submission of the other party, consistent with documentation limitations set forth in this Section. Each party’s original brief shall not exceed fifteen pages, exclusive of permissible exhibits, and each party’s response brief shall not exceed five pages, exclusive of permissible exhibits.

(3) The arbitrator shall issue his or her decision within thirty (30) days after the parties' responses are submitted. The arbitrator’s decision shall establish the unit price to be in effect for the remainder of the calendar year in which such decision is made. Thereafter, the Contractor may seek another adjustment to the unit price consistent with this Agreement.

(4) The parties shall split the costs of the arbitration at the outset; however, the prevailing party, as determined by the arbitrator, shall recover its attorneys’ fees, expenses, and its portion of the arbitration costs from the non-prevailing party.

(5) During the pendency of the arbitration, the then-current unit price shall remain in effect. Should the arbitrator find the Contractor is entitled to an increase in the unit price, the arbitrator’s award shall award Contractor the increased costs beginning upon the date the Contractor submitted its request for an increase in the unit prices.

(6) A party seeking clarification of the arbitrator’s decision shall request such clarification in writing within five (5) days of the arbitrator’s decision. A party seeking enforcement of an arbitrator’s decision in a court of competent jurisdiction shall file the necessary pleading or motion within five (5) days after the period for clarification has concluded.

(b) No increase to the unit prices shall be made unless Contractor substantiates the need for an increase caused by an increase in costs outside of Contractor’s reasonable control.

These sample terms address the critical points of arbitrator qualification, timelines and content restrictions, and implementation of the arbitrator’s decision. Specific terms may vary depending on the nature of the subject conflicts and your client or project’s particular needs, but all clauses providing for arbitration on the briefs should address these key elements.

As clients increasingly demand options for timely, efficient conflict settlement, attorneys need to stay apprised of all available alternatives. Arbitration on the briefs may not suit all projects or disputes, under the right circumstances, this procedure could help your clients revolutionize the way they approach dispute resolution. Satisfied clients create successful attorneys. Who can argue with that? 

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Megan George

Stites & Harbison, PLLC, Lexington, KY, Division 1 (Litigation & Dispute Resolution)