|
(A
revised version of this article appeared in The Construction
Lawyer, Volume 21, No. 4, Fall 2001, published by the
American Bar Association's Forum on the Construction Industry.)
By Andrew D. Ness
The
Uniform Arbitration Act (UAA), promulgated in 1955, gave
courts the power to enforce arbitration agreements and to
quickly convert arbitration awards into judgments, often
overcoming a long line of state court precedents to the
contrary. 1/ Establishing that arbitration
agreements were valid, binding and readily enforceable paved
the way for the enormous increase in arbitration's popularity
in construction and many other industries. The National
Conference of Commissioners on Uniform State Laws considers
the UAA one of its most successful Uniform Acts, with 35
states adopting the UAA intact and 14 more adopting substantially
similar legislation. 2/
Forty-five
years after UAA, a five-year effort to update and revise
it culminated in the Revised Uniform Arbitration Act (RUAA),
which was given final approval by the National Conference
of Commissioners in August 2000. The RUAA seeks to retain
the basic principles of the 1955 UAA while updating it to
address the issues arising in more complex disputes. As
most state legislatures are expected to consider adopting
the RUAA over the next few years, construction industry
professionals are well-advised to familiarize themselves
with its provisions and ponder how they might affect the
arbitration of construction disputes.
Determination of Arbitrability
The
UAA did not address the question of who decides the arbitrability
of a dispute and by what criteria, an issue that is frequently
litigated as a result of this omission. 3/ In
the absence of statutory guidance, the courts generally
have ruled that courts have the authority to determine issues
of substantive arbitrability while arbitrators decide issues
of procedural arbitrability. 4/ Thus, courts
determine whether the issues in dispute are encompassed
by the arbitration agreement while arbitrators determine
whether procedural prerequisites to arbitration have been
met, such as time limits, notice, estoppel and other conditions
precedent. 5/ The RUAA, in §§6 (b),
(c) and (d), simply has incorporated this general rule,
which emerged from case law. However, these provisions may
be waived by the parties in their arbitration agreement,
allowing the parties to allocate the power to decide substantive
arbitrability to the arbitrators if desired.
Specification of Waivable and Non-Waivable Provisions
Express
permission to waive or modify certain provisions but not
others is another key change in the RUAA. The UAA provided
no guidance regarding which sections of the UAA could be
waived while the RUAA designates in §4 which provisions
are non-waivable (either at any point or until a particular
dispute has arisen), leaving the majority of provisions
waivable at the option of the parties.
The
non-waivable provisions are so deemed because they are viewed
as necessary to protect the parties, the arbitrators and/or
the arbitration system. The expressly non-waivable provisions
in §4 include: The right to representation by counsel
(subject to an exception for labor disputes); 6/
the obligation of an arbitrator to disclose any known facts
that a reasonable person would consider likely to affect
the impartiality of the arbitrator; 7/ the arbitrator's
immunity from civil liability for acting as an arbitrator
(parallel to judicial immunity); and the power of an appropriate
court to confirm, modify, correct or vacate an arbitration
award under RUAA §§22, 23 and 24.
Appellate Review of Arbitration Awards
The
standards for court review of arbitration awards proved
to be one of the most contentious issues. As finally adopted,
RUAA §23 appears little changed from its UAA equivalent
in that it permits vacating awards in the following circumstances:
- If
the award was procured by corruption or fraud.
- If
there is evidence of corruption, partiality or misconduct
by an arbitrator that prejudiced the rights of a party.
- If
an arbitrator refused to postpone a hearing upon showing
of sufficient cause or refused to consider evidence so
as to substantially prejudice the rights of a party.
- If
an arbitrator exceeded his powers/authority.
- If
there was no agreement to arbitrate.
- If
the arbitration was conducted without proper notice to
the other parties as required by RUAA §9. 8/
Discussed
in the commentary but ultimately rejected were suggestions
that the RUAA allow awards to be vacated based on manifest
disregard of the law, which is a non-statutory ground for
overturning arbitration awards that has been utilized in
several court decisions. 9/
A
related provision considered and discussed in the commentary,
but also not incorporated in the RUAA, would have permitted
the parties to "opt-in" to a greater degree of
judicial scrutiny of an arbitration award. The RUAA commentary
indicates that the drafters attempted to balance concern
over wrongly decided awards against concerns that an opt-in
provision for judicial review would defeat the goals of
arbitration. Ultimately, they accepted the point that "arbitration
is supposed to be an alternative to litigation in a court
of law, not a prelude to it." 10/ On the
other hand, the RUAA does not expressly preclude parties
from incorporating such an opt-in provision in their arbitration
agreement and leaves the decision whether to enforce such
opt-in provisions to the courts. Rather than taking a clear
stand either way, the RUAA commentary confines itself to
citing continuing uncertainty as to the enforceability of
contractual opt-in provisions for judicial review. 11/
While the issue certainly is controversial, it is
unfortunate that the RUAA drafters apparently could not
agree on anything beyond noting the existing uncertainty
and leaving it for the courts to resolve.
Consolidation of Arbitration Proceedings
Disputes
involving more than two parties and a single contract are
common in the construction industry as well as other industries.
However, neither the UAA nor the Federal Arbitration Act
deals with administration of multiparty disputes or the
consolidation of arbitrations involving common issues arising
under different contracts. 12/ As noted in
the commentary to the RUAA, a "growing number of jurisdictions
have enacted statutes empowering courts to address multiparty
conflict through consolidation of proceedings or joinder
of parties even in the absence of specific contractual provisions
authorizing such procedures." 13/
Responding
to this trend, the RUAA adds a new provision in §10
empowering a court to order consolidation or partial consolidation
of separate arbitrations even in the absence of any contractual
provision by the parties. 14/ Such consolidation
is authorized when: a) the parties have separate
arbitration agreements with each other or one of them has
an arbitration agreement with a third party; b) the
claims arise substantially from the same transaction or
series of transactions; c) a common issue of law
or fact creates the possibility of conflicting decisions
in separate proceedings; and d) the risk of undue
delay or prejudice from consolidation does not outweigh
the prejudice resulting from separate proceedings. 15/
The RUAA also provides that the court may consolidate
some claims while leaving others to proceed separately.
16/ The parties, however, can preclude such
consolidation by prohibiting consolidation in their arbitration
agreement. 17/ Accordingly, for better or worse,
the anti-consolidation provision appearing in AIA standard
form agreements should continue to be effective.
Discovery
The
UAA did not address pre-hearing discovery although it authorizes
arbitrators to subpoena documents and witnesses for testimony
at the hearing. 18/ RUAA §17 provides
the same authority for an arbitrator to subpoena witnesses
and records. Section 17 (g), however, provides a new tool
for efficiently enforcing such subpoenas. This section expressly
empowers a court in a state other than where the arbitration
is pending to enforce arbitrator-issued subpoenas and discovery-related
orders. According to the RUAA commentary, "Section
17 (g) is intended to allow a court in State A (the state
adopting the RUAA) to give effect to a subpoena or any discovery-related
order issued by an arbitrator in an arbitration proceeding
in State B without the need for the party who has received
the subpoena first to go to a court in State B to receive
an enforceable order." 19/
In
addition, arbitrators are authorized under RUAA §17
to order discovery that is, in the arbitrators' opinion,
appropriate in the circumstances. 20/ Allowing
discovery remains entirely discretionary, and there remains
no right or requirement to permit discovery. RUAA drafters
thereby were attempting to accommodate the argument that
some degree of discovery is essential to a fair hearing
in complex disputes while trying to preserve the cost and
time advantages of arbitration and one of its distinctive
differences from litigation. Discovery generally increases
the time and cost required to complete the dispute resolution
process and, as a result, threatens one of arbitration's
main advantages over more litigation.
Available Remedies
The
RUAA includes notable expansions of arbitrators' authority
to award costs, arbitrator fees and attorney fees; to award
punitive damages; and to order provisional remedies. Most
of these new powers may be limited or eliminated by the
arbitration agreement unless they are based on specific
statutory rights.
While
UAA §10 expressly prohibited an arbitrator from awarding
attorney fees, RUAA §21 (b) specifically allows an
arbitrator to award attorney fees and other reasonable expenses
"where such would be allowed by law in a civil action;
in addition, parties may provide for the remedy of attorney's
fees and other expenses in their agreement even if not otherwise
authorized by law." 21/ RUAA §8 is
new and allows courts to grant provisional remedies in certain
circumstances to protect the integrity of the arbitration
process. 22/ An example is issuance of a restraining
order to prevent a party from conveying or encumbering property
that is the subject of a pending arbitration while the arbitration
is underway. 23/
The
arbitrator may issue orders for provisional remedies, including
interim awards, as the arbitrator finds necessary to protect
an effective, fair and expeditious arbitration proceeding.
24/ If an arbitrator has not been appointed
or the arbitrator is unable to act adequately on an urgent
matter, the RUAA permits a court to order such provisional
remedies to protect the effectiveness of arbitration. 25/
Interestingly, a similar provision was considered
for inclusion in the UAA 45 years earlier but was dropped
in the final deliberations.
Conclusion
Arbitration
has come a long way since 1955 when the UAA was published,
and its key governing statutes, including the Federal Arbitration
Act, certainly are overdue for an overhaul and updating
to deal with 21st Century complexities. The RUAA cannot
be characterized as a bold effort to expand the horizons
of arbitration, but its evolutionary approach does attempt
to address most of the key deficiencies in the existing
statute to at least a limited degree. Doubtless most state
legislatures will be taking a close look at the RUAA in
the next few years, and it will interesting to see whether
the RUAA's evolutionary approach is generally adopted into
state law as was the UAA.
If you would like to receive legal reports and updates
more quickly, by e-mail, click here and fill out the mailing list form. If you would like to subscribe to our RSS feeds or learn more about RSS, click here.
©2002 ConstructionWebLinks, Inc.
ENDNOTES
1/
In this regard, the UAA followed and expanded upon the Federal
Arbitration Act, 9 USC §1 et seq., which was
enacted in 1925 and applied to contracts involving a transaction
in interstate commerce.
2/
RUAA Prefatory Note at Page 1. All 50 states, the District
of Columbia and Puerto Rico have some form of general arbitration
statute. See www.adr.org.
State arbitration statutes can be found under "Resources,"
then "ADR Law."
3/
RUAA Prefatory Note at Page 1.
4/
RUAA §6 (b) and (c). Also see RUAA §6 Comment
2 at Pages 20 to 21.
5/
RUAA §6 Comment 2 at Page 20.
6/
RUAA §§4 (b) (4), 16. See RUAA §4 Comments
at Page 15.
7/
Before a controversy arises, parties may not unreasonably
restrict the arbitrator's required §12 disclosures.
This requirement is waivable only after a controversy arises.
RUAA §4 (b) (3).
8/
RUAA §23 (a) (1) to (6).
9/
RUAA §23 Comment C at Pages 83 to 86
10/
RUAA §23 Comment B.1. at Page 78 ["Comment
on the Concept of Contractual Provisions for 'Opt-In' Review
of Awards"].
11/
RUAA §23 Comment B.4. at Page 82 ["This sparse
state court case law is not a sufficient basis for identifying
a trend in either direction with regard to the legitimacy
of contractual opt-in provisions for expanded judicial review."].
12/
See RUAA §10 Comment 1 at Page 35.
13/
RUAA §10 Comment 2 at Page 36.
14/
RUAA §10.
15/
RUAA §10 (a)
16/
RUAA §10 (b)
17/
RUAA §10 (c)
18/
UAA §7
19/
RUAA §17 Comment 9 at Page 63.
20/
RUAA §17.
21/
RUAA §21 Comment 2 at Page 71 and see Comment
4 at Page 73.
22/
See RUAA Prefatory Note at Page 2.
23/
RUAA §8 Comment 1, citing Salvucci v. Sheehan,
349 Mass. 659 (1965).
24/
RUAA §8 (b) (1).
25/
RUAA §8 (a) and (b) (2).
© 2001, American Bar Association. Reproduced
by permission. All rights reserved. This information or
any portion thereof may not be copied or disseminated in
any form or by any means or downloaded or stored in an electronic
database or retrieval system without the express written
consent of the American Bar Association.
|
