Alternate dispute resolution, or "ADR" has become the party line for litigation in the '90s and into the 21st Century. Comprised of mediation, arbitration and hybrids of the two, these dispute resolution alternatives to traditional litigation have been touted as more tolerable, economical and efficient methods of resolving disputes. In many cases, this can be true. However, in just as many cases, the opposite is true.

Given the wide acceptance of ADR in both the public and private sectors, it is not surprising that many form contracts contain mandatory arbitration and/or mediation clauses requiring all contract disputes to be resolved in these settings. This notwithstanding, careful consideration should be given by any contracting party to the consequences of pre-selecting such a dispute resolution procedure.

While there are standardized rules and procedures permitting the full discovery and exchange of information during litigation before a court of law, the same is not true for ADR proceedings. Although commercial organizations which sponsor ADR proceedings maintain their own sets of rules and procedures, those rules typically do not provide for the same level of discovery and exchange of information as do the rules of procedure applicable to the courts. Rather, the decisions on how much information will be exchanged prior to the hearing and the ability of the parties to conduct discovery will, in most cases, be left solely to the discretion of the arbitrator selected. This can provide a significant disadvantage in proving entitlement to a claim, or in defending against a claim. Moreover, the ability to refine the issues prior to the hearing is much more limited, thereby rendering the presentation potentially less efficient and more time consuming at the time of hearing.

Additionally, the ability to join additional parties in an arbitration is significantly more limited than in Court proceedings. In some instances, it is not permitted at all. In many cases, the full resolution of a dispute will require the involvement of other parties which could result in piece-meal arbitrations and potentially inconsistent results by different arbitration panels. This problem often arises in construction cases involving multiple prime contractors, owners, and design professionals. Thus, arbitrations in these cases can be particularly problematic.

Perhaps most importantly (but yet most overlooked), is that the ability to appeal from a determination of an arbitration panel is significantly more limited than to appeal from a decision of a court of law. Arbitrations arising out of a contractual agreement between parties are considered common law arbitrations, and subject to a very strict standard of review on appeal. In common law arbitrations, the arbitrators are the final judges of both law and fact, and an arbitration award is not subject to reversal, even if the arbitrator commits a mistake with respect to the facts or with respect to the law. Such an arbitration is deemed to be binding and may not be vacated or modified unless it is clearly shown that a party was denied a hearing, or that fraud, misconduct, corruption or other irregularity caused the rendition of an unjust, inequitable or unconscionable award - an almost insurmountable burden. While this certainly promotes finality at the hearing level, it does little to protect a party against the misapplication of law in the resolution of the dispute. Thus, prior to entering into an agreement to arbitrate any and all disputes, careful consideration of the law applicable to potential disputes, and/or the parties involved, must be undertaken.

This is not to suggest that arbitration and mediation do not have their place in the resolution of commercial and construction disputes. In many cases they provide an effective and desirable method of dispute resolution. Rather, the point to be made is that these dispute resolution methods should not be universally and automatically applied to all disputes, and should be chosen only after careful and thoughtful consideration of the pros and cons of each alternative.

If you would like additional information regarding the pros and cons of arbitrations and mediations in commercial and construction disputes, please contact Michael W. Winfield at mwinfield@rhoads-sinon.com.