Top 3 New Construction Arbitration Rules That Expand Powers and Challenge Assumptions

When it comes to construction contracts, arbitration and mediation (Alternate Dispute Resolution) are both commonly specified for out of court dispute resolution.  The use of mediation and arbitration in construction contracts, both for small and large construction, has been increasingly common over the past decade.

Lawyers often debate between themselves whether mediation, arbitration, or litigation in court is their preferred choice for resolution, or more importantly, which is the best clear forum for the dispute. Due in part to prior restrictions on enforcement ability, some steered shy of ADR. Recently, however, newly effective  Construction Industry Arbitration Rules seek to address these  shortcomings . While these new rules have several changes both in administration and authority, the following are the top 3  which enhance the ADR process:

 

  • New Rule 25 – Enhanced Arbitrator Enforcement

    Prior to July, 2015, arbitrators were limited to having only the legal authority provided to them in the contract, itself, if any, for resolution of motions or discovery disputes. For example, the compliance by parties for such pre hearing disputes was in large part voluntary. If a party failed to adhere to any discovery dispute with respect to ordering parties compliance, unless the parties contract happened to give permission providing authority to issue such orders, there was little other authority an arbitrator could call upon to issue enforcement orders that were enforceable.The new rules provide the arbitrator with the “authority to issue any orders necessary … to otherwise  achieve a fair, efficient and economical resolution of the case”. Examples of some of these newly expanded powers include protection of confidential information, and discovery production. The new rule further provides authority and support to the arbitration process by allowing the arbitrator to award costs incurred as a result of a party not cooperating, as well as being allowed to draw an adverse inference from such party failures in the resolution of the case.

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  • New Rule 34 – Motions

Due to the prior absence of any specific authority of an arbitrator to enforce discovery motions, arbitrators also often lacked authority to entertain or rule upon motions on the value of the claim itself, such as a motion to dismiss. Included in these recently improved arbitrator authority is the ability to entertain motions seeking to get rid of of all or part of a claim itself or narrowing of issues. As well as ruling on any disputes or motions that may be brought.

  • New Rule 60 – Sanctions

In the past, arbitrators also lacked sufficient authority to maintain order and progression of the case. With arbitrators previously having a lack in authority, some parties would not act as they would act in a court setting, as there was no risk of penalty or sanction. Obstructionist conduct that counsel would not consider in traditional litigation was not necessarily out of the question for arbitration conduct.However, now since the new arbitrator rules are in effect, this conduct may be less likely to be a problem, as the arbitrator is now authorized  to ‘order appropriate penalties’ in response to the failure of a party to comply with an arbitration order or rules. By expanding the authority of the arbitrator under the July 2015 rules to hear and rule on pre-hearing motions, The American Arbitration Association seeks to address a long standing history of lack of enforcement authority in arbitration, and cause those who discount ADR to reexamine their basic longstanding overall assumptions of arbitration and mediation.

Available for download here is copy of The full Construction Industry Arbitration Rules and Mediation Procedures (Rules).  Your comments and future article topic suggestions are invited in the field below.

John Caravella, construction attorney

John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: [email protected] or (631) 608-1346.

This is a general information article and should not be construed as legal advice or a legal opinion. The content above has been edited for conciseness and additional relevant points are omitted for space constraints. Readers are encouraged to seek counsel from a construction lawyer who has experience with Long Island construction law for advice on a particular circumstance.

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