Mediation vs. Arbitration in Construction Defect Cases
March 13, 2009
The traditional ways to settle an intractable dispute are fighting or going to court. But fighting usually doesn’t actually resolve a dispute and has been out of favor since Aaron Burr shot Alexander Hamilton in a famous duel. On the other hand, while suing someone in court is the civilized approach, it is also extremely expensive and emotionally draining. Therefore, two other means of solving disputes have come into favor – mediation and arbitration.
Mediation and arbitration are often referred to as forms of alternative dispute resolution (ADR). Some people may consider the two terms synonymous, but they are not. Each is a very different and distinct way of settling an argument.
Mediation
Mediation is an attempt to get two parties to come to a mutual agreement for resolving their dispute. The process is aided by a trained mediator whose role is to help the parties come to an understanding. A professional mediator is usually paid an hourly fee split by the parties.
The essential element of mediation is that the parties must come to an agreement of their own free will. Although the judge in a court case can sometimes order parties into mediation, a mediator has no power to decree a solution to their disagreement. Either party in a mediation can decide to withdraw at any time.
Because it is a voluntary process aimed at helping each side recognize their common interests and empathize with the other party’s viewpoint, it is often used when the parties have a relationship they don’t want to see damaged by a protracted fight. This often applies in employment disputes, custody battles, union negotiations, or conflicts between organizations within communities.
When mediation is successful, the parties reach an agreement they feel they can each live with. The signed agreement then becomes a contract enforceable in court.
Should You Use Mediation?
In a dispute over construction defects, both sides have something to gain by choosing mediation.
For the homeowner, the greatest benefit compared to going to court is the reduced expense. For the builder, in addition to it being less expensive, mediation is also a private, confidential matter that can keep the builder’s name out of the news.
Therefore, mediation is a valid means to resolve claims over construction defects. In fact, some construction defect attorneys specialize in mediating construction defect claims. Plus, some professional organizations, such as the National Conflict Resolution Center, have mediators experienced in resolving construction defect matters.
Arbitration
During arbitration, the arbitrator serves in the role of judge. Each side presents its evidence and witnesses and then the arbitrator makes a decision. Arbitration is often referred to as “binding arbitration” to emphasize that whatever an arbitrator decides is final and binding on both parties. It is sometimes equated to an informal and less expensive court proceeding without any right to appeal.
Should You Use Arbitration?
In general, parties that have a dispute don’t decide to take it to an arbitrator – arbitration is usually required by the terms of a contract they’ve signed.
Because the costs involved in arbitration are much less than a formal court proceeding, a builder’s construction contract often includes an arbitration clause to protect the builder. Though an arbitrator is not bound by many of the courtroom technicalities in determining a just and fair resolution to a dispute, arbitrators are also not able to assess punitive damages or other types of non-economic damages (i.e pain and suffering, emotional distress, etc.) This can significantly lower damage awards in some cases.
If you attempt to sue a builder with whom you’ve signed any papers, you may discover you agreed to arbitration without realizing it. In some states, a contractor can’t just slip an arbitration clause into your agreement’s fine print unnoticed, however. In California, for example, a separate notice must be signed by the buyer specifically stating that an arbitration clause is included and describing the effect that clause has on the buyer’s rights and obligations.
You can, of course, refuse to agree to an arbitration clause. The builder, of course, can refuse to undertake your job. Because of a history of expensive lawsuits – some perhaps due to overzealous construction defect attorneys – even the reputable builder will likely insist on an arbitration clause. His insurer may even require it.
In the end, if you don’t trust your contractor enough to agree to an arbitration clause, you should probably be looking for a different contractor.
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