This article was published in Under Construction (Vol. 19, No. 3, Spring 2018), produced by the American Bar Association Forum on Construction Law. ©2018 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
The Prevalence of Discovery in Arbitration Proceedings
Traditionally, a hallmark of arbitration in the United States has been a limited discovery process.1 In enunciating the standard of discovery in an arbitration proceeding, one court warned: “It is contemplated that disclosure devices will be sparingly used in arbitration proceedings. If the parties wish the procedures available for their protection in a court of law, they ought not to provide for the arbitration of the dispute.”2 Commentators have further observed: “Arbitration is not for the litigator who will ‘leave no stone unturned.’ Unlimited discovery is incompatible with the goals of efficiency and economy.”3
Construction litigators know all too well, however, that a “limited discovery process” rarely means that there will be no discovery in the arbitration. Additionally, in certain circumstances, the arbitrators would be doing a disservice to the parties to completely foreclose the ability to conduct discovery. In the current fast-paced, document-reliant construction environment, extensive e-discovery is often needed to fully understand the merits of a case, because many project teams rely heavily upon electronic project management systems and email communications to document and provide insight (and a time stamp) for a multitude of decisions made on a daily basis.
The Attempts of Arbitral Tribunals to Balance Cost and Efficiency With Comprehensive Decisions
The potential of staggering costs and extensive delays that often accompany typical document discovery are present in all but the simplest of construction disputes. In addressing these risks, the parties and the arbitral tribunal must balance achieving cost-effectiveness and expediency against ensuring that claims are thoroughly investigated and vetted before issuing a binding award attendant with limited statutory appeal rights.
Arbitral tribunals have addressed this dissonance in disparate ways. For instance, the American Arbitration Association’s Construction Industry Rules contemplate three levels of discovery review, depending on the amount in controversy: (1) for cases processed under the Fast Track Procedures, where the amount in controversy does not exceed $100,000, there is a presumption of no discovery, except for exceptional cases,4 (2) for cases proceeding under the Regular Track Procedures, where the amount in controversy is between $100,000 and $1 million, the arbitrator has broad, discretionary authority to control the discovery process “with a view to achieving an efficient and economical resolution of the dispute, while at the same time promoting equality of treatment and safeguarding each party’s opportunity to fairly present its claims and defenses,”5 and (3) for cases proceeding under the Procedures for Large, Complex Construction Disputes, in which the amount in controversy is at least $1 million, the parties are encouraged to agree upon the extent of discovery, but the arbitrator is specifically authorized to order discovery, including depositions.6
JAMS has embraced a truncated approach to trial-like discovery in arbitrations. Under JAMS Engineering and Construction Arbitration Rules & Procedures, the parties are required to exchange “all non-privileged documents and other information (including electronically stored information) relevant to the dispute or claim immediately after commencement of the Arbitration,” and each party is permitted two depositions of the opposing party or individuals under the control of the opposing party.7
On the other end of the spectrum, the Rules of Arbitration of the International Chamber of Commerce (the “ICC Rules”) provide no express right to discovery, and instead put the onus entirely on the arbitrators to determine what, if any, disclosure is necessary.8 Although some form of limited discovery is commonplace in International Chamber of Commerce (“ICC”) arbitrations, the scope of disclosure is commonly affected by the legal traditions of the parties and tribunal members. Indeed, civil law practitioners unfamiliar with or critical of U.S.-style discovery regularly oppose the broad discovery utilized by U.S. courts. As a compromise, tribunals acting under the ICC Rules (as well as other arbitral institutional rules) regularly use the IBA Rules on the Taking of Evidence in International Arbitration9 – a set of model document disclosure rules created by the International Bar Association’s Legal Practice Division broadly aimed at merging the discovery procedures of various legal traditions.
The one consistent thread throughout these arbitral procedures is that arbitrators are afforded enormous discretion respecting discovery issues. While, on one hand, this discretion provides for more flexibility and informality to adapt to the needs of each particular case, on the other hand, arbitrator discretion may open the door to numerous surprises with respect to process. Expanded motion practice relating to discovery issues can result in contentious advocacy, burgeoning fees and time, and delayed resolution of the claims.
A party that requires extensive discovery to make or defend claims may be placed at a disadvantage by an arbitration process that unexpectedly narrows or even prohibits discovery, thereby permitting the introduction of incomplete facts that could create an inaccurate or incomplete record, which distorts the merits of the dispute. This could have extreme ramifications because of the limited appellate review afforded arbitration awards.
These unknowns demonstrate how the actual experience of the parties can be widely mismatched from the traditional expectation that in selecting arbitration as the method of dispute resolution, claims will be addressed in an efficient, expeditious and equitable manner.
Tailored Arbitration Contracts as a Solution
Arbitral institutions and arbitrators derive their powers from contracts, and, accordingly, one way to provide clients with a more predictable discovery process is to customize discovery parameters during construction contract negotiations, before a dispute arises.
With respect to the chosen arbitral tribunal, the parties may find it important to provide for carve-outs of the tribunal’s discovery procedures. For instance, if the parties wish to contract that disputes be resolved via arbitration before the ICC, which notably provides for no right of discovery absent the arbitrators’ express permission, the parties may specifically permit or exclude discovery in their arbitration agreement to provide for more control over the process and expectations, regardless of particular arbitrators’ preferences.
If the parties wish to preserve the right to conduct discovery, reasonable parameters should be established during the contract negotiation process. Standards with respect to the use, storage and retrieval of electronically stored information can be established upfront to inform client practices. The number and scope of depositions, if any, could also be specified in the construction contract.
Another important consideration for the discovery process in arbitration is the applicable law. For example, where subcontractor pass-through claims are likely or where design claims may require the involvement of design consultants on a project, the parties may be careful to contract for a specific state law that will enforce third-party subpoenas issued by the arbitrators to ensure that important non-parties will be heard.
During the contract negotiation phase, there is generally a pull to get the deal done, and with the availability of tried-and-true boilerplate arbitration provisions, it is easy to postpone decisions about the arbitration process until an actual dispute arises. Falling back on this default, however, is a missed opportunity to control costs, proactively manage client expectations about dispute resolution procedures, avoid unnecessary judicial intervention, and ensure that the parties are selecting the appropriate method of dispute.
1 COMSAT Corp. v. NSF, 190 F.3d 269, 276 (4th Cir. 1999).
2 DeSapio v. Kohlmeyer, 35 N.Y.2d 402, 406 (1974) (quoting 8 Weinstein-Korn-Miller, N. Y. Civ. Prac., par. 7505.06, pp. 75-101).
3 International Institute For Conflict Prevention & Resolution Rules for Non-Administered Arbitration, R. 11, cmt (2007), available at https://www.cpradr.org/resource-center/rules/international-other/arbitration/international-administered-arbitration-rules.
4 American Arbitration Association, AAA Construction Industry Arbitration Rules and Mediation Procedures, F-1, F-9 (2015), available at https://www.adr.org/sites/default/files/document_repository/Construction%20Rules.pdf.
5 American Arbitration Association, AAA Construction Industry Arbitration Rules and Mediation Procedures, supra Note 5, at R-1, R-24.
6 American Arbitration Association, AAA Construction Industry Arbitration Rules and Mediation Procedures, supra Note 5, at L-1, L-4 (d)-(f).
7 JAMS, JAMS Engineering and Construction Arbitration Rules & Procedures, Rule 17 (2014), available at https://www.jamsadr.com/rules-construction-arbitration/#Rule 17.
8 International Chamber of Commerce, Rules of Arbitration, Article 25 (5) (2017), available at https://iccwbo.org/dispute-resolution-services/arbitration/rules-of-arbitration/#article_25.
9 International Bar Association Council, IBA Rules on the Taking of Evidence in International Arbitration (2010), available at https://www.ibanet.org/Document/Default.aspx?DocumentUid=68336C49-4106-46BF-A1C6-A8F0880444DC.
The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.