Ever wonder about a superfast arbitration procedure in a contract that you have been given? An arbitration clause requiring an arbitration panel to issue a decision within 30 days of being selected for the panel was recently challenged on a construction project in the Carolinas. Our firm was asked to provide assistance in handling a legal fee dispute (arising from a construction project in Colorado) requiring a panel to decide within 60 days of the initial notice of dispute.
If you are asked to advise about such a provision during contract negotiations, you should consider some or all of the following:
- Does your client routinely resolve large and small disputes arising during construction—some of them involving millions of dollars—within 30 to 60 days of its arising?
- If there is a formal hearing on the dispute, will it be difficult to complete evidentiary submissions and testimony with only a few days of trial?
- Will discovery be allowed in a proceeding and, if so, how can it be conducted in time to allow a hearing to be concluded and a decision rendered in 30 days?
If you agree to such a clause, then it may appear that your client and the other party believed there would be no discovery and only the most abbreviated of hearings. After all, courts routinely say that arbitration is a matter of contract, and the parties are free to enter into a contract of their crafting, which a court is to enforce. That may work for a change order dispute where the issue may involve millions of dollars, but it is limited to what is or is not shown on the plans and specifications. What if it involves a collapse of a floor of a building though? Or the cracking of a ramp in a parking garage?
If you are asked to advise a client long after the clause is included in a signed contract, what are your choices, assuming the owner invokes the clause (after having had weeks or months to gather his evidence) against your client? The answer is perhaps finally resident in due process, in that the clause is unenforceable because so fundamentally unfair. But before one girds oneself with the constitution, look first at the clause. Does it invoke the rules of any arbitral forum? One superfast clause has been viewed as enforceable because the Commercial Arbitration Rules of the American Arbitration Association (AAA), which the contract invoked, granted the arbitral panel the power to extend the 30-day time frame when the complexity of the case required it. For this reason, an agreement to arbitrate on a compressed schedule may not be found as unreasonable, nor as a violation of the parties’ due process rights.
What is the other line of attack? If the panel does not enter a decision in 30 days, does it lose jurisdiction such that the matter is either waived or no longer arbitrable? That challenge is, of course, available under the Federal Arbitration Act (FAA), but it is likely to be met by a court’s decision that the party raising the issue must first try the case to a conclusion, await the panel’s decision, and then attack it as a nullity because it was decided beyond the 30- day period. This attack may be particularly appealing if the superfast clause has no reference to the rules of any arbitration forum that might allow the panel to extend the deadline for good cause shown.
If you are inclined to write or review a possible clause, you might see this:
Any controversy or claim arising out of or relating to this Agreement shall . . . be settled by binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association . . . . The arbitration panel shall be required to render a decision within thirty (30) days after being notified of their selection . . . .
If you do, then consider whether your client is fostering, or being asked to agree to, a clause that simply will lead to fodder for lawyer battles later, presumably the precise result the client usually wants to avoid.