There are no prizes to be won for identifying that trial in a court of law is an appallingly inefficient way of deciding complex construction disputes. Although in theory more flexible, a conventional hearing in an arbitration is hardly any better, and some would say even worse.
In many cases, of course, it is possible to resolve disputes by some sort of intermediate process, either on a non-binding basis like mediation or review board, or on a “pay now, argue later” basis, such as adjudication. But sometimes, the dynamic between the parties is such that a binding and final determination is required. Is there an alternative to the full Monty?
Well there is, actually. It is pendulum arbitration. Or as the Americans sometimes call it, baseball arbitration. Or sometimes flip-flop arbitration. Or even, less obviously, a “last best offer” arbitration. Personally, I think the term “pendulum arbitration” is the most appropriate. It is not new. But it is much faster and cheaper than conventional arbitration, but is just as binding.
Here is how it works. There is a hearing, at which the parties put their respective cases. For reasons which are about to become apparent, this hearing can be much, much shorter than the sort of hearing that would normally be necessary. It can be run on a chess clock basis. Then, at the end of the hearing, each side delivers a draft award to the arbitrator in a sealed envelope. The arbitrator then has to make her award in the form of one of those drafts, without any amendment.
Why is it so effective? It is not hard to see. The more ambitious a party’s draft award, the less likely it is to be chosen by the arbitrator. And so parties who are not complete maniacs are driven to put in relatively reasonable drafts. And if you know as a party’s lawyer that you are just about to put in a relatively reasonable draft, that affects your case preparation and advocacy: there is no point advocating for an extreme position which you are then promptly going to abandon in the draft award. And so, for the purpose of advocacy all of those barely arguable points which are unlikely to succeed, but which tend to get trotted out in full-scale litigation or arbitration on the “no stone unturned” principle, do not get trotted out.
From the arbitrator’s point of view, of course, the whole thing is delightfully simple. A conventional arbitration requires the arbitrator to build her award from the ground up, taking account of and evaluating every argument and every entitlement. In pendulum arbitration, all she has to do is decide which of the two drafts more closely reflects her view of the justice of the matter. The moment she has done that, she can pretty much stop work: all she has to do is to sign whichever of the drafts she prefers. It means that the time between the conclusion of the hearing and the delivery of the award can be very much shorter than in a conventional case.
The procedure is not used nearly as much as it might be. Some might regard the whole procedure is rather radical. But it is not unheard of, and in NSW Racing v Tab the courts endorsed the process. And whatever one’s view about it, it does have the undeniable merit of making the arbitration much more commercially acceptable in terms of the time and cost of the legal process.
Further, there is a particular place for the process in cases where the parties have attempted mediation, but have been unable finally to close the gap between them. In these circumstances, one option (often a good one) is for the parties to agree to appoint the mediator as an arbitrator on a pendulum arbitration basis, and on the basis that the draft awards are constrained by the parameters of where the parties had got to in the mediation process. The attraction of the process to the parties in those circumstances can be compelling. Obviously, each party would prefer not to budge from its best offer in the mediation, but the prospect of resolving the matter within the parameters of the negotiating positions is likely to be far preferable to the risk of going to conventional trial, its hugely much more legal cost and with the risk of a much less attractive result.
I have just completed such a process here in Australia. Like much of my work these days it was an interstate case. At the beginning of the mediation, the pleaded position of the parties was a slack handful of millions of dollars apart. At the end of the mediation, the parties were just some hundreds of thousands of dollars apart. The gap would have been overwhelmed by the cost of conventional trial in the Supreme Court. And so we appointed the mediator to act as arbitrator on a pendulum basis. I have had a precedent for a pendulum arbitration agreement in my book for many years, but in this case we entered into a Dispute Resolution Agreement which spelled out the detailed procedure for the pendulum arbitration: what the arbitrator was to take into account, the date for further final submissions, the date and length of the hearing etc).
As it turned out, I am pleased to say that the mediator turned arbitrator ended up choosing my client’s draft award. We never got to see the other party’s draft award, but it is a fair bet that even that draft award would have been a more satisfactory solution for my client than incurring the massive cost of a conventional trial. And I think, also, that my client’s draft award – the eventual result – was a more satisfactory solution for the other party than a conventional trial.
The mediator turned arbitrator was not, of course, starting from go. He had the benefit of the Supreme Court pleadings, which were lengthy, but also position papers from the parties prepared for the purpose of the mediation, which included experts’ reports. The pendulum arbitration hearing took place in a single day, and the award came out just a few days after that.
I reckon that my advocacy on that day was good value for the client. I am much less sure about the value that would have attached to my appearing in court every day for several weeks. My fee income is much less, of course, than it would have been had we gone to a conventional trial. But I much prefer doing a good job for my clients than earning money doing dumb things.
So, which is better for the parties: the bottomless pit of legal expense or a pendulum arbitration? There is lot to be said for the pendulum.
 My book contains this:
Note: this precedent comes from the 16th Edition of Kelly’s Draftsman and is reproduced with the author’s kind permission. The author of that work, Roderick Ramage, notes that this form of dispute resolution has been around for a very long time, and according to the 14th century travel book of Sir John Mandeville was then in use in Assyria. In that case, the somewhat passive approach demanded of the arbitrator was especially appropriate, because the chosen arbitrator, St Thomas, had already been dead for well over a millennium.
The deal with St Thomas was that each party put its draft award into the dead hand of old Tom, and the result depended on which one fell out first. We can do better than that these days.
  NSWSC 742.
 Not only, incidentally, in arbitration, but in adjudication also. But that would be a bit more radical, because it would be likely to require legislation.