What Is Arbitration?

Arbitration is a common process in the construction industry. Consider this a nuts and bolts explanation of how the process works in North Dakota.

Arbitration is a form of alternative dispute resolution. It is an alternative to filing a lawsuit and going to court. The winner in the arbitration is not determined by a jury or a judge. Rather, the winner is determined by an arbitrator. The theory is that arbitration allows the parties to focus their disputes at a lower cost than a typical lawsuit filed with the court.

Arbitration shares many similarities with a typical lawsuit. The parties have the opportunity to exchange documents and records (“discovery”). The parties have the opportunity to conduct depositions of potential witnesses. The parties have the opportunity to hire expert witnesses to provide an opinion on the matter. The parties have the opportunity to present all their evidence and witnesses at an evidentiary hearing.

The most obvious difference is that a typical lawsuit filed with the court provides the parties with an opportunity for a jury trial. The parties will often choose an arbitrator who has experience in the field that underlies the matter. For example, in a construction dispute between a general contractor and a subcontractor, the arbitrator will be a person who has experience with the construction industry. This is an advantage to the parties because the arbitrator does not need to be taught the most basic concepts of contracts and construction. A jury, on the other hand, is made of citizens from all walks of life. Some of them have never read a contract, swung a hammer, or know the difference between concrete and cement.

Another advantage of the arbitration process is privacy. The dispute and result may only be known by the parties and the arbitrator. Put another way, an arbitration action is not part of the public record. When a lawsuit is filed with the court, it becomes a matter of public record. Every pleading, motion and even award of judgment is part of the court docket. If parties do not want others in the industry to know how much they won or lost in the dispute, a non-public resolution process is more ideal.

How Did I Get Here?

If you are a developer, owner, general contractor, or subcontractor, there is a good chance the written contract for your work on a construction project includes a dispute resolution provision. Quite often it is stated in the contract that the parties will arbitrate all disputes between them.

Many contracts used in the construction industry are established by the American Institute of Architects (AIA). These standard form contracts are available online for a fee. The advantage to these contracts is that they have been reviewed by many people in the industry and include language for the most common provisions. The disadvantage is that your particular project may need additional language to cover a unique circumstance. It is important to remember that whatever language is included in your written contract is going to be the language that controls the dispute, despite what you “meant” the contract to say.

North Dakota has a strong public policy that favors the arbitration process. (See, e.g., State ex rel. Stenehjem v. Philip Morris, Inc., 2007 ND 90, ¶ 14, 732 N.W.2d 720.) This means if the written contract contains an arbitration provision for dispute resolution, the court is likely going to order the parties to arbitration even if one of the parties files the lawsuit in front of the court first.

How Does It Work?

The North Dakota Century Code devotes an entire chapter to the arbitration process at N.D.C.C. ch. 32-29.3. North Dakota’s laws are based on the Uniform Arbitration Act which has been enacted in many states, including Minnesota. The American Arbitration Association (“AAA”) also has its own set of rules that are routinely followed.

“An arbitrator may conduct an arbitration in such manner as the arbitrator considers appropriate for a fair and expeditious disposition of the proceeding. The authority conferred upon the arbitrator includes the power to hold conferences with the parties to the arbitration proceeding before the hearing and among other matters, determine the admissibility, relevance, materiality, and weight of any evidence.” N.D.C.C. § 32-29.3-15(1). The arbitrator will also charge a fee for his or her time, which is split among the parties.

To start off, the parties make their written statements of claims and defenses against all other parties involved in the matter. The arbitrator will establish a schedule for the matter that will include deadlines for the parties to exchange documents, deadlines for the parties to conduct depositions, and deadlines for the parties to exchange expert witness reports. Scheduling is a collaborative process between the arbitrator and all the parties on what will work best.

At the arbitration hearing, the parties will have the opportunity to present their cases through witnesses and exhibits. The setting is less formal than a court trial. Often the parties and arbitrator will conduct the hearing in a conference room, not a courtroom. And because there is no jury, the lawyers and witnesses spend very little time explaining the very basics of construction or construction contracts.

In the end, the arbitrator will make a decision based on the evidence presented. The arbitrator will award damages to the prevailing party. This award may include attorney’s fees if so stated in the contract. If the contract language says the arbitrator’s decision is final, the parties cannot appeal the arbitrator’s decision.

Contact SW&L

If you are in the construction industry and are subject to an arbitration action, or you have questions about the language in your construction contract, contact our Business Law Team at 701-297-2890.

The information contained in this article and on this website is for informational purposes only and not for the purposes of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem.

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