REALWorld Law

Construction

Arbitration

Is it common for construction disputes to be referred to arbitration? If so, how does arbitration compare with litigation through the national/federal courts?

Canada

Canada

In order for a dispute to be referred to arbitration, the parties to the dispute must mutually agree to submit their dispute to arbitration.  The parties may do so when the dispute arises, or, more likely, the parties will have provided in their contract that any dispute will be decided by binding arbitration.  Parties to constructions contracts in Canada often use standardized contract forms prepared by the Canadian Construction Association or similar organizations, and virtually all such contracts include a multi-step dispute resolution procedure culminating in arbitration.   

Arbitration and litigation are different in many respects.  In arbitration, disputes are resolved in private; whereas in litigation, the procedure is public, as are the documents and evidence filed by each of the parties.  In arbitration, the parties generally have a voice in selecting the arbitrator or panel of arbitrators. However, in the court system, judges are assigned randomly to cases without any input from the litigants;

Although not always the case, arbitration is intended to be a less formal and speedier process when compared to litigation.  Absent a mutual agreement by the parties, the arbitration process does not carry with it a right of document discovery or examinations for discovery (the latter of which is sometimes referred to as “depositions” or “questioning”), although it is possible to apply to the arbitrator in advance of the hearing for a discretionary order including such procedures.  Arbitral disputes generally can be resolved more quickly than court cases.  Once the arbitrator renders his or her decision, there is usually no appeal to the courts except in extremely narrow circumstances, such as fraud, bias or conflicts of interest, or a decision rendered outside of the scope of the arbitrator’s jurisdiction.  Courts encourage private resolution of disputes by parties, and so avoid setting aside decisions made by arbitrators.

An analysis of the cost of litigation as against arbitration depends on the size of the dispute and other facts.  Arbitrators are typically paid an hourly fee for preparation and study time, travel, attendance at the arbitration, and deciding and preparing the award.  Judges, however, are not paid by the litigants.  Lawyers charge the same hourly rates for arbitration as they do for court appearances.  However, unless the arbitrator grants full document discovery and examinations for discovery rights, the arbitral proceedings will generally involve fewer steps, and therefore, less lawyer time may be required.