By Stephen A. Hilger, Esq.
This is Part 8 in a 20-part series of blogs dealing with issues of arbitration in the construction industry.
Once you are in arbitration, the rules of engagement do not mysteriously appear. Since arbitration is a creature of contract, you must look to the contract requiring arbitration to determine what rules govern. If there are no rules specified, then you may be governed by the Federal Arbitration Act or the specific arbitration statutes of the state where the project is located. Those rules may be fairly general and may not be in your best interest as they are too general or simply do not cover most construction circumstances.
As parties to a contract, you have the ability to negotiate the inclusion of any set of rules. A common set of rules in the construction industry are the Construction Industry Rules of the American Arbitration Association. Many contractual arbitration clauses specify the use of those rules. The American Arbitration Association (“AAA”) has rules for smaller fast track cases, standard construction track cases, and complex construction disputes. Each of those rules are tailored for the specific types of issues which may arise. There are other possible arbitration rules, such as JAMS Comprehensive Arbitration Rules and Procedures, and many more. The choice of which rule set to use is driven by what rules serve your best interests, what you are able to negotiate and what your contract then provides.
There are certain rules which are not typically reflected in arbitration clauses and certainly not in the rules of the AAA. For example, the rules of evidence. If you leave the rules of evidence out or your arbitration agreement, you will be left with the AAA or other similar rules. Generally, that means there will be no rules of evidence. As a result, your proceeding may include multiple levels of hearsay. This could include testimony from witnesses, affidavits, and other non-authenticated exhibits. You should establish what rules of evidence apply. Without rules of evidence, an arbitration can turn into a complete free-for-all. The reason the rules of evidence are not part of the AAA rules is because early in its history, arbitrators were mainly architects who were not charged with the legal knowledge of the rules of evidence. As lawyers have taken over the primary role of an arbitrator, lawyers instinctively know whether evidence meets or violates the various rules of evidence.
It makes a lot of sense to incorporate some rules regarding the use of evidence at proceedings. On the other hand, arbitration is designed to move forward and move quickly and you do not want the process bogged down by multiple evidentiary arguments. Accordingly, what I typically do is negotiate an arbitration agreement providing that the Federal Rules of Evidence offer a reasonable guide for the arbitrator to determine in her/his discretion the authenticity and veracity of testimony or other evidence received. I also try to negotiate a term which provides that no witness may testify by affidavit absent specific prior agreement of the parties.
You should also establish the procedures to be utilized at the hearing. Some parties incorporate various selected rules from the Federal Rules of Civil Procedure. These rules do not automatically apply since you are no longer in Federal Court. If you do not include some rules, you may not have the ability to take depositions of your opponents. You also may be limited in terms of what you can do with experts. These are all important considerations and need to be addressed when negotiating the arbitration agreement.
