Many construction contracts contain clauses that require any dispute to be resolved through binding arbitration. That sounds good to most people. Arbitration is known to be generally quicker than litigation. It involves an arbitrator that is usually picked by the parties; so, presumably it is someone who might (or to be fair, might not) have more experience with construction contracts than the typical judge.
However, I would submit that there are at least three main drawbacks to using arbitration for commercial construction disputes.
- Little Right of Appeal The right to appeal an arbitration award is generally very narrow. Most of the time, it is some variation of the fact that the appealing party has the burden of showing that the award was arbitrary and capricious. That is an extremely hard thing to prove. Contrast that with many court systems that allow an automatic right to appeal a final disposition by a trial court.
- No Right to a Jury While many people believe that it is better for commercial disputes to be resolved by a judge sitting without a jury, that is not always the case. It is impossible to know in advance if the reason you will be suing will be something that would elicit sympathy in a jury of your peers. In the arbitration setting, there is generally no choice; juries are usually for courts, not arbitrations.
- Abbreviated Discovery of Documents and Testimony Prior to the Hearing An arbitration generally allows for some level of pre-hearing testimony and document exchange known by lawyers as “discovery.” However, it is almost always far more abbreviated and circumscribed than would be the case in discovery under court procedures. Again, there is no way of knowing in advance of the dispute which party will benefit from this. However, it is a risk that is not present when one has their dispute decided by a court, rather than an arbitrator.
In sum, the choice to enter into a contract that provides for arbitration is not always the right one. It should be discussed with an attorney before signing on the dotted line.