Dispute Resolution Provisions – Lessons Learned
Dispute resolution provisions usually get insufficient attention at the time of bidding or contract negotiation. This is a topic we addressed several years ago in an article titled - Five Reasons to Read the Dispute Resolution Clause in Your Construction Contract. Recent lessons learned prompt us to address this issue again. These are some additional problem areas to avoid in drafting or negotiating dispute resolution provisions.
Disguised Arbitration Clauses
Some contract provisions that reference arbitration don’t actually require the parties to arbitrate. For example, Alberta Construction Association Subcontract (ACA Form A) provides: “In the event that the parties have agreed to submit such disputes to arbitration either party may thereupon request arbitration…” It is clear that this reference to arbitration is permissive and requires a separate agreement to arbitrate between the parties. Provisions of this nature can be even more subtle or sometimes unclear. Typically, such provisions leave it to the parties to agree to arbitration after a dispute has arisen, but once the parties are in dispute mode such agreement may be difficult to achieve.
Related to the above, it is too common to see language that is ambiguous as to whether or not the parties have agreed to mandatory arbitration. For example, there may be room for interpretation with a clause that simply provides a party “may” give the other party notice to arbitrate. If the parties wish to arbitrate all disputes, then it is recommended that they include a clear statement that the parties agree to submit all disputes to final and binding arbitration.
Does the contract specify an arbitration panel (e.g. three arbitrators) regardless of the value in dispute? An arbitration panel may be quite appropriate for a high value dispute but it may be prohibitively costly for a dispute of modest value. It is often overlooked that CCDC 40 (Rules for Mediation and Arbitration of Construction Disputes), incorporated by reference in various CCDC contracts, requires a panel of three arbitrators if the dispute exceeds $250,000 or if either party requests a panel.
It is common to see contracts that require arbitration pursuant to the Rules of a specific arbitration society, such as the International Chamber of Commerce. These organizations provide robust and predictable processes for arbitration, and they may be quite desirable for that reason. On the other hand, they may be too robust or costly for certain disputes. These organizations charge administration fees (additional to the arbitrator’s fees), and may require arbitration processes and hearing locations that are cost prohibitive in the case of a dispute of modest value.
Limited Disclosure Requirements
It is also common to see limited rights and processes for disclosure, and discovery in an arbitration process. Sometimes this is desirable for the sake of efficiency. Other times, this tends to favour one party over the other by significantly limiting disclosure of records and discovery of information in the possession of the other party (i.e. relative to the rights of disclosure and discovery available in a court proceeding). It is prudent to be deliberate about the rights of disclosure and discovery available to the parties.
Unreasonable Notice Requirements
Notice requirements are common in construction contracts, and non-compliance may sometimes bar a claim or waive a right, depending on the specific contract language. Just as with all such notice requirements, a requirement for notice prior to commencing arbitration should be reasonable. It is possible for onerous notice requirements associated with commencing arbitration to impede or deny the ability to advance a claim.
No Cost Provisions
Contractual dispute resolution provisions are often silent on the question of legal costs (i.e. the successful party’s right to recover costs from the unsuccessful party). The default is that the arbitrator has discretion to award costs, and solicitor-client (i.e. indemnity) costs are often awarded to the successful party in the arbitration context. However, such an outcome may be somewhat punitive in the context of a legitimate dispute. Cost awards can also be used to promote settlement, or discourage unreasonable conduct in the course of arbitration, but in our experience such considerations are often given relatively little weight in the arbitration context – unless the contract provisions expressly provide for such considerations to factor into the award of costs.
The Option to Litigate
The issues listed above relate to arbitration clauses, prevalent in most construction contracts. Of course, litigation is available if the parties do not agree to arbitrate, and sometimes the court process is necessary or even preferable. It is worth considering at the negotiation stage if arbitration is the preferred dispute resolution process (also the subject of a prior article). If so, it is important to ensure the arbitration provisions included in the contract are clear, appropriate and sensible.