Why do parties choose arbitration over a full out court battle? Time and money.
Brent Meckling, partner at Vancouver-based Clark Wilson LLP, writes time and money losses caused by project disputes can take various forms, including project delays and a reduction in overall site productivity.
Time and money must also be taken into consideration when using the court system to reach a desired settlement outcome.
“This can be particularly damaging for small and medium-sized businesses where owners may not have the resources to absorb the costs associated with legal disputes. Resolving these issues quickly and effectively is crucial.”
Arbitration usually moves at a faster pace than traditional lawsuits, writes Marco Falco, partner with Torkin Manes LLP in Toronto. Quicker decisions can get the project back on track promptly. Arbitration also keeps matters private between the parties, reducing the risk of reputational damage that can occur through open court hearings.
“The effect of an arbitration provision is to divorce the commercial proceeding from the courts and shift the duty of adjudication to an arbitrator – this protects the privacy of the litigation and typically guarantees a timely result,” he writes.
Arbitration can be the right dispute resolution solution, if done correctly. Yet despite the advantages, Falco describes arbitration clauses as, “one of the most overlooked provisions in a commercial contract.”
Meckling explains arbitration decisions can involve payments, freezing orders or injunctions, and can be enforced by the successful party, just like any court judgment. However, under Ontario’s Arbitration Act, 1991, if no provision is included in the arbitration clause concerning appeals of decisions, the right to further recourse through the courts is significantly restricted.
Agreeing to facilitate arbitration for dispute resolution can, and should be, set out initially in the contract. This has several positives, including pre-selection of an arbitrator with the necessary specialized knowledge and experience. Arbitration clauses can also be added to existing agreements.
Either way, Meckling advises engaging experienced legal guidance to develop careful wording of arbitration clauses to ensure enforceability and fairness in the arbitration process. Clauses should be clear and specific to accurately reflect the intentions and goals of the parties involved and avoid ambiguous or confusing language to minimize the risk of disputes or legal challenges.
It makes further sense to agree in advance to a specific arbitrator, or even the arbitrator selection process itself, as part of the contract. Yet, not everyone does.
Failure to do so can result in further acrimony if the parties cannot agree to an individual selection or each propose different arbitrators, write McMillan LLP partners W. Brad Hanna and Jeremy Rankin, and associate Sezen Izer. The parties might then be forced to turn to the courts to make a selection for them.
While courts in Canada may have broad discretion under each province’s specific legislation when it comes to arbitrator selection, they will usually lean towards someone, “with the most adjudicative experience regarding the subject-matter at issue,” they write.
Expertise in the technical subject matter of the dispute alone is not sufficient,” Hanna, Rankin and Izer continue.
“Generally speaking, relative adjudicative experience will trump expertise in the technical subject-matter of the dispute.”
The reason relates to the concept of arbitration as a time efficient process. Arbitrators familiar with the process will be able to “hit the ground running.”
Given everyone’s wish for arbitration to be speedy, cost-efficient and decisive, it seems ill-advised to leave the arbitrator selection to chance through the court. Bringing a motion before the court for arbitrator selection only adds to cost and complexity.
“If you want an arbitrator with specific subject-matter expertise, qualifications or experience, make sure the arbitration clause contains the necessary language,” they write.
Ready-made arbitral rules published by various organizations like the ADR Institute of Canada can be written into arbitration clauses to deal expressly with the appointment of arbitrators. Names of potential arbitrators based on the qualifications and preferences can then be provided to help parties come to a mutual agreement.
John Bleasby is a Coldwater, Ont.-based freelance writer. Send comments and Legal Notes column ideas to firstname.lastname@example.org.