Michael Erdle on Dispute Resolution Selected Slaw columns from 2012-2021

2020 CanLIIDocs 288

Michael Erdle 2021

About Michael Erdle

Michael Erdle is a facilitator, mediator and arbitrator in Toronto. His practice focuses on commercial disputes relating to technology and intellectual property. He has more than 25 years’ experience as a technology and intellectual property lawyer. Michael has been designated a Chartered Mediator and Chartered Arbitrator by the ADR Institute of Canada and is a Fellow of the Chartered Institute of Arbitrators. Michael conducts his work as a neutral through Practical Resolutions Inc.

About Slaw

Slaw is Canadian, co-operative, and about any and all things legal.

Since 2005, Slaw.ca has been Canada’s online legal magazine, written by and for the Canadian law community: lawyers, librarians, technologists, marketers, students, educators and everyone in between.

With perspectives from academia, law firms, non-profits, regulatory bodies and beyond, Slaw explores how law is practised, how it’s taught, how the industry is changing, and what the future might hold.

Slaw is considered essential daily reading by many in Canadian legal circles. With more than 2 million visits per year, our readers make up a loyal, curious, and engaged community.

2020

Can

LIID

ocs

288

“The Perils of Not Having a Dispute Resolution Mechanism”

Originally published on February 5th 2021

A recent decision of the Alberta Court of Queen’s Bench, in the judge’s words

“highlights the perils of not having a dispute resolution mechanism built into a contract.”

Madam Justice Loparco described the lawsuit in North Pacific Properties Ltd v Bethel

United Churches of Jesus Christ Apostolic of Edmonton as a “Jenga tower.”

The case involved a very complicated real estate deal (119 paragraphs summarizing

the evidence). The saga started in 2006, with an agreement to sell property to a

developer and transfer of part of it back to the Bethell church. The original buyer

assigned the purchase agreement to another developer along with a larger

neighbouring property as part of a proposed subdivision project. The developer

discovered that the church property was smaller than the agreement said. To make

matters worse, the province also expropriated part of the land. In the meantime, work

had been done to get development approval from the city and to prepare the property

and neighbouring land for development.

Attempts to extend the closing date and renegotiate the agreement failed when the

seller refused to reduce either the purchase price or the size of the piece of land it was

retaining for itself. In 2011, the seller declared the agreement null and void. The buyer

abandoned the project, sold off the remaining property and sued for damages for

breach of contract.

After almost a decade of litigation, the judge found that there was no valid agreement to

extend the time for closing the deal, that the church had breached the contract because

the property was smaller than it said, and the developer was entitled to damages of

$5,770,000. (With interest and costs, likely about double the original $3.5 million

purchase price for the property.)

2020

Can

LIID

ocs

288

3

The judgment notes that “the entire deal collapsed because the parties could not

determine who should take less. Unfortunately, they had no prescribed means of

resolving their dispute prior to closing.”

The original purchase agreement apparently had no arbitration or other dispute

resolution clause.

Although the parties tried to negotiate an agreement to extend the original closing, to

give more time to resolve the issues in dispute – or to arbitrate them if they couldn’t

agree – the judge concluded that they were never ad idem on the terms of the extension

agreement. For the same reason, she concluded that they had not agreed to arbitrate

the dispute, despite correspondence proposing to arbitrate.

“In the end,” Justice Loparco concluded, “this is an unfortunate tale of two well-meaning

parties who had no means of resolving their disputes prior to the Closing; the result was

protracted and costly litigation. It highlights the perils of not having a dispute resolution

mechanism built into a contract.”

The decision is a valuable cautionary tale, especially for complex business agreements

where unknown or changing conditions are more likely to cause disputes over time.

(Hat-tip to arbitrator Daniel Urbas who featured a comment on the case in his Arbitral

Matters blog.)

Mediation-Arbitration: More Than Just a Mash-Up

Originally published on December 10th 2020

One of the objections we often hear to Mediation-Arbitration (Med-Arb) is that it is

“neither fish nor fowl”. It is not an effective form of mediation because the mediator is

constrained by their dual role. The impartiality of the arbitrator is somehow

compromised by also acting as mediator.

2020

Can

LIID

ocs

288

4

I think this is a misunderstanding of what med-arb is all about. It’s not just a hybrid

mash-up of two forms of dispute resolution. It’s a unique form of its own, with its own

benefits and challenges. And it can take many different forms, to suit many different

kinds of disputes.

My friend and colleague Colm Brannigan describes an integrated five-stage model of

med-arb, starting with the med-arb agreement, then a mediation phase, a transition

phase, an arbitration phase, and ending with a settlement agreement or award.

(Colm, incidentally, is the first person in Canada to be awarded the Chartered Med-

Arbitrator designation, and teaches, with Richard Moore, an online course for those who

want to pursue that designation. I’ve written an earlier column about the ADR Institute of

Canada’s Med-Arb Rules and the Chartered Med-Arbitrator designation.)

I think the integrated model of med-arb is a very useful way to look at the process, not

as a hybrid, but as a unique whole.

Start with the med-arb agreement. It’s an essential tool to set the rules and procedure

that will apply to the process, but equally importantly, to set the expectations of the

parties and their counsel.

It is a submission to arbitration. After all, if the parties can’t agree on a resolution during

mediation, the matter will go to arbitration and a final award on the issues. (It may or

may not proceed with the same person as arbitrator; we’ll come to that shortly.)

The freedom and flexibility of mediation must give way to the finality of arbitration. But

the agreement should also re-enforce the fact that fairness and impartiality are essential

elements of both mediation and arbitration, so there is no inherent conflict between the

two.

The agreement should also deal explicitly with two of the common concerns about med-

arb: confidentiality and bias.

2020

Can

LIID

ocs

288

5

Will the mediator-arbitrator meet separately with the parties during mediation? Is

anything said in those meetings confidential? How will information disclosed during

mediation be used in the arbitration phase?

I don’t think there are hard and fast rules about this. There are advantages and

disadvantages to each approach to the mediation phase. The mediator-arbitrator needs

to have a frank discussion with the parties and come to a common understanding about

how they will make the mediation as effective as possible, without compromising the

arbitration if there is no settlement.

The agreement phase is also the time to talk about arbitrator bias.

In the mediations I do, the parties are often looking for some kind of evaluation based

on my expertise in the technology and intellectual property field. Is that appropriate for a

med-arb? If the parties still want that, I need to be very careful how I express any

opinions, and they need to understand that those opinions don’t mean I have actually

decided anything. It’s a difficult balancing act, but not impossible.

In some other fields, however, any opinion expressed by the mediator-arbitrator may

fatally taint the arbitration phase. If that’s the case, the mediator-arbitrator needs to be

very clear up front that, while they will help the parties explore settlement options, they

will not express any opinion on the merits of the matter during mediation.

Transition is also a critical phase of any med-arb. There must be a clear line between

the mediation and arbitration phases. The mediator-arbitrator and the parties must

clearly understand that:

The mediation phase has ended. This is not always clear. The parties may

continue to exchange settlement proposals, or equivocal responses to proposals

previously made, either between themselves or with the arbitrator.

What issues, if any have been resolved. In some cases, an issue may be partly

resolved or resolved conditionally, depending on the resolution of a related issue.

2020

Can

LIID

ocs

288

6

For example, the parties may have agreed on the amount of damages (or a

range of damages), but still dispute liability.

What issues have not been resolved. These are the issues (and the only issues)

that will proceed to arbitration. The parties may not agree.

Some ask whether a med-arb can go back to mediation after the arbitration phase has

begun. It can, if the parties think renewed settlement discussions are worthwhile. But it

compounds the risk, if there is no settlement. I’d insist on another transition phase, if the

matter goes back to arbitration, so there’s no confusion over where things stand.

The ADRIC Med-Arb Rules set default rules for determining when the mediation phase

has ended. They also require that both resolved and unresolved issues be documented

in writing. If the parties can’t agree on the issues, the mediator-arbitrator will identify

them.

One of the important transition questions that I think should be decided at the beginning

of the process, in the med-arb agreement, is the ground rules for determining whether

the mediator-arbitrator will continue as arbitrator after mediation. There are several

possibilities:

Opt-In. The parties and mediator arbitrator must expressly agree to continue.

This, I believe, is the rule under the Quebec Code of Civil Procedure, where the

arbitrator acts as mediator or amiable compositeur.

Opt-Out. The mediator-arbitrator may withdraw or a party may ask for removal.

The question then is whether there have to be reasons for withdrawal or removal.

Usually, those reasons would include doubts as to the mediator-arbitrator’s ability

to continue impartially, but the parties may agree on other grounds for removal.

Separate people. The parties may agree from the start that they will have a

separate mediator and arbitrator, and choose both at the start. It may still be

worthwhile to treat the matter as a med-arb, with a single agreement, rather than

two separate processes.

2020

Can

LIID

ocs

288

7

Even if the mediation agreement doesn’t have an express opt-in or opt-out provision, a

party may still challenge the mediator-arbitrator’s impartiality. Under the ADRIC Med-

Arb Rules, this must be done at the beginning of the arbitration phase if the challenge is

based on the mediation phase. If a party does not object then, they can’t wait to see

how the arbitration turns out before launching a challenge. The mediator-arbitrator must

decide any challenge before proceeding with the arbitration.

That’s why it’s a good idea to include terms in the med-arb agreement, setting out the

grounds for any challenge.

One approach is to expressly state that private meetings with the parties, disclosure of

information or the expression of opinions on matters in dispute do not disqualify the

mediator-arbitrator.

Alternatively, simply say the mediator-arbitrator will not do any of those things.

If the reasons for removal are too broad, or if no reason is required, it effectively

becomes an opt-in. Any party that just doesn’t like the way things seem to be going can

opt for a “do over” with a new arbitrator.

The ADRIC Rules also state that during the arbitration phase, the mediator-arbitrator

must not use information from the mediation phase unless it becomes evidence in the

arbitration or the parties consent.

So, again going back to the med-arb agreement, it is useful to consider in advance how

mediation briefs and other information may be used if the matter goes to arbitration.

One of the benefits of med-arb is reduced time and cost if the parties don’t have to start

at square one with the arbitration.

When the arbitration phase starts with an agreed statement of the resolved issues and

the issues still in dispute, some of the information disclosed in the mediation phase will

not be in dispute. The parties may agree that it can form part of the evidence. This may

include relevant documents and undisputed facts contained in mediation briefs.

2020

Can

LIID

ocs

288

8

This evidence can be formalized in sworn witness statements for purposes of the

arbitration, allowing the arbitration phase to focus on the unresolved issues and specific

factual or legal issues in dispute.

When the parties and mediator-arbitrator treat med-arb as a unique integrated process,

they can anticipate and deal with these and other challenges. Even the nay-sayers may

find that med-arb offers a better prospect that the dispute can be resolved through

mediation, and the certainty of an enforceable award if it is not.

Online Dispute Resolution – Making a Virtue of Necessity

Originally published on October 8th 2020

We lawyers, adjudicators, and mediators are normally quite resistant to change. Dealing

constantly with conflict, we seek comfort in the dispute resolution processes we know.

So it’s still surprising to me to see how quickly the “dispute resolution industry” has

adapted to the new reality of physically-distanced dispute resolution imposed by the

COVID pandemic.

Will we ever want to go back to the old way of doing things?

In the spring there was a flurry of tutorials on how to do online dispute resolution. Many

people struggled to learn how to ZOOM. Those who had been advocating and doing

online dispute resolution for a while offered excellent training programs and guidelines.

In April, the ADR Institute of Canada, ADR Institute of Ontario and Family Dispute

Resolution Institute of Ontario jointly published guidelines for online video mediation.

They address issues of security and confidentiality, questions about effectiveness of

ODR and technology. They include Appendices, which provide detailed guidance on

online platforms, key provisions for mediation agreements and tips for participants to

prepare for online mediation.

2020

Can

LIID

ocs

288

9

The International Council for Online Dispute Resolution (ICODR), a US-based

organization that promotes standards for technology-assisted dispute resolution, has

created open standards and offers free Video Mediation Guidelines and other tools.

The National Center for Technology and Dispute Resolution, has published a set

of Ethical Principles for ODR which offer clear, universal principles that anyone involved

in online mediation or adjudication can follow. Principles such as accessibility,

confidentiality, fairness, innovation, security and transparency are applicable to all forms

of dispute resolution, whether online or in person.

Mediator Marc Bhalla, whose practice has focussed on online and hybrid mediation for

the past five years, has put together insightful reflections and observations on how

COVID has changed views of ODR.

Online mediation was generally treated as a novelty before this year, Marc says

in “Canada, Conflict & COVID-19”, published in Volume One of The Journal of the

Canadian Collaborative for Engagement & Conflict Management. People would

consider using it only when meeting in person was inconvenient or impossible.

I’ve noticed the same dynamic in the past. The default option was always to meet in

person, even when co-ordinating the schedule of a large group of people made that

very difficult. Lawyers might inquire about having one or more participants join remotely,

but only when in-person was not feasible, for example due to travel time or cost, or for

other personal reasons.

Technology still seems to be an obstacle even now, when virtual mediation or arbitration

is the only option. I recently held an online arbitration hearing where a party participated

from their lawyer’s offices because they didn’t feel confident managing the technology

on their own. The law firm could provide technical support (and, I suppose, some

psychological support) for the hearing.

2020

Can

LIID

ocs

288

10

As we become more comfortable with online mediation, we need to take it to the next

level. We can leverage online technology to improve the process, rather than accept it

as a poor substitute for in person meetings.

As Simon Boehme has observed, “ODR is more than ZOOM.” As he says in “You

Mediate on Zoom. Now What?” we often try to replicate the in-person dynamics as

much as possible with ZOOM and other online mediation platforms. But the dynamics

will always be different. It is difficult to to make real eye contact through a camera and

video screen, unless you have lots of practice. (Maybe TV journalists and actors could

give us some tutorials…)

We can approach ODR more openly and use the online tools to create collaborative

spaces to help parties better define their issues, identify interests and propose options

for resolution.

It doesn’t have to be done in real time. We already use asynchronous technology –

email, document exchanges, online forms – in our daily lives. We may question whether

these things really make our lives easier; sometimes it really is better to speak to

someone in person and sort the problem out. But there’s no reason we can’t use them

to make dispute resolution less painful. If 80% of the work can be done remotely, in your

own time, it becomes much easier to resolve the last 20% of the problem.

We’re seeing more and more commentators endorse online mediation and arbitration.

Others still expressed reservations.

Some real concerns about security and confidentiality have been addressed through

improvements in widely used video conferencing platforms. After some initial delays,

probably due to the explosion in the number of user this spring, ZOOM took steps to

improve its security features – and to make existing features easier to navigate, as well

as to educate users on how to use them.

Other concerns, including basic issues such as access to technology, are still a work in

progress.

2020

Can

LIID

ocs

288

11

Mitchell Rose (@SettleWithMitch) has been a strong proponent of online mediation

since COVID first hit in the spring. He says he will continue to recommend it as both a

mediator and settlement counsel., even as conditions allow the resumption of in-person

mediation.

In August, he wrote in the OBA Just about his impressions about his first in-person

mediation in months. His experience as “The Masked Mediator” involved many

compromises, but was better than the alternative: an indefinite delay when a virtual

mediation is not an option.

Everyone kept their distance and wore masks. People had to speak a bit louder – but

not too loud! – through their masks. Non-verbal cues still came through via the eyes and

tone of voice. We can all adapt.

It’s possible to combine virtual and in-person mediation. But are there risks, if the

mediator meets with one party and their counsel in person, and the other side is

participating remotely?

What can the mediator do to ensure that everyone has the ability to participate fully,

whether in person or online? We can all continue to experiment to make the best of a

situation to which we’ve all been forced to adopt.

Many expect a return to in person dispute resolution once the current pandemic has

ended – whenever that may be. As much as we all want our lives to get back to

something more “normal”, we shouldn’t abandon the many benefits of online dispute

resolution.

As with mediation in general, the biggest challenge is often to get people to try online

mediation for the first time. Once people have tried online alternatives – and if we all

work hard to ensure that the results are generally positive – maybe they won’t want to

go back.

2020

Can

LIID

ocs

288

12

Uber v. Heller: An “Agreement Not to Arbitrate” Is Unconscionable

Originally published on August 21st 2020

Much has been written over the past weeks about the Supreme Court of Canada

decision in Uber v. Heller, one of the most anticipated decisions of the year – at least in

arbitration and employment law circles.

I won’t go into a detailed analysis of the decision in the face of much more learned

comments. But I do want to suggest that the Court provides some practical lessons for

those drafting and those seeking to engage (or avoid) arbitration agreements.

First, and most important, don’t try to use arbitration to frustrate legitimate claims.

Sadly this has become a common trend in many standard commercial, consumer and

employment contracts in recent years. In the labour and employment realm, arbitration

has long been a standard feature of collective agreements, but there has been a strong

backlash against mandatory arbitration in individual contracts.

The Uber contract is a prime example.

Justice Côté, in a lone dissent, said the majority decision could not be reconciled with

“the concepts of party autonomy, freedom of contract, legislative intent, and commercial

practicalities. These important considerations — which ought to be taken into

account — are disregarded in the majority’s reasons.” [178]

The Uber driver terms may indeed reflect “commercial practicalities” – Uber apparently

cannot make a profit with its current business model, let alone if it’s drivers received

minimum wages, vacations or other employment law protections.

Beyond that, commercial reality requires that large volume, small value transactions –

indeed, most consumer and commercial agreements – be governed by standard form

contracts. It would be impossible to offer any online product or service if the terms had

to be negotiated individually.

2020

Can

LIID

ocs

288

13

But, as the majority decision says, the idea of party autonomy or freedom of contract is

illusory in these situations. Courts and legislatures recognize that inequality of

bargaining power makes freedom of contract a fiction in consumer and employment

situations. That’s why we have consumer protection and employment standards laws.

So there needs to be some legal balance that allows both efficient contracting and

effective dispute resolution. There is a big difference between using standard contract

terms to make it easy to do business and using them to insulate businesses from

responsibility for their conduct or from broader social policies.

The facts, as set out by the majority, are fairly straightforward. Heller, a delivery person

for UberEats downloaded the Uber App used to match drivers and deliveries. He was

presented with a set of standard terms which he accepted by clicking “I agree”. The

agreement included mandatory mediation and arbitration, in the Netherlands, under

International Chamber of Commerce rules. The agreement is also governed by Dutch

law. The cost of taking the dispute to mediation and arbitration was about US$14,500,

the lion’s share what Heller expected to earn in a year of deliveries for UberEats.

Of course, reality is always more complicated. For example, Justice Côté notes that Mr.

Heller had previously raised more than 300 complaints which were resolved through

Uber’s internal dispute resolution process. He is also is the name plaintiff in a proposed

$400 million class action. If that class action were subject to arbitration, the ICC fees

would be much higher.

Justice Côté would have allowed the appeal and stayed the class action, on the

condition that Uber advanced the fees required to initiate the mediation and arbitration

process. [199]

This approach may solve the accessibility problem in theory, but it may not be a

practical solution.

Some gig economy companies have already offered to pay the upfront dispute

resolution costs, with unintended consequences. When DoorDash, an Uber Eats

2020

Can

LIID

ocs

288

14

competitor, agreed to pay the fees of the American Arbitration Association, they were

quickly faced with 6000 claims and a bill for $9 million, according to a New York

Times report in April 2020.

Justices Abella and Rowe, for the majority, and Justice Brown in separate reasons,

focus squarely the issue of accessibility to arbitration.

The majority endorses the principle that, in most cases, it is up to the arbitrator to

determine the validity and scope of an arbitration clause and their own jurisdiction to

resolve a dispute. But there are exceptions.

“A court should not refer a bona fide challenge to an arbitrator’s jurisdiction to the

arbitrator if there is a real prospect that doing so would result in the challenge never

being resolved. In these circumstances, a court may resolve whether the arbitrator has

jurisdiction over the dispute and, in so doing, may thoroughly analyze the issues and

record.“ [paragraph 46]

The difficulty is to decide whether it’s a bona fide challenge.

[51] As well, even though this case could have been resolved based on undisputed facts, such an approach may not be sustainable in future cases. An approach to arbitral referral that depends on undisputed facts would invite parties to dispute facts. Were that standard to apply, unreasonably disputing facts would allow a party to evade any review of the merits, by use of an arbitration clause.

The Court clearly recognizes the Catch 22 in many jurisdictional challenges. Heller

claims the arbitration clause is invalid because it is unconscionable and contrary to the

Employment Standards Act. Uber says those questions must be decided by the

arbitrator, in Amsterdam under Dutch law. The high cost of the arbitration means these

threshold questions would never be decided.

The Supreme Court says the only way to “cut the Gordian knot” is for the court to decide

whether the contract is unconscionable, and, therefore, whether the arbitration clause is

invalid, due to an inequality of bargaining power leading to an “improvident bargain.”

2020

Can

LIID

ocs

288

15

[97] Respect for arbitration is based on it being a cost-effective and efficient method of resolving disputes. When arbitration is realistically unattainable, it amounts to no dispute resolution mechanism at all. As our colleague Justice Brown notes, under the arbitration clause, “Mr. Heller, and only Mr. Heller, would experience undue hardship in attempting to advance a claim against Uber, regardless of the claim’s legal merit” (para. 136). The arbitration clause is the only way Mr. Heller can vindicate his rights under the contract, but arbitration is out of reach for him and other drivers in his position. His contractual rights are, as a result, illusory.

Justice Brown also said:

[102] The arbitration agreement between Uber and Mr. Heller … effectively bars Mr. Heller from advancing any claim against Uber, no matter how significant or meritorious. In effect, it is not an agreement to arbitrate, but rather not to arbitrate. In these exceptional circumstances, a central premise of curial respect for arbitration agreements that they furnish an accessible method of achieving dispute resolution according to law falls away.

Justice Brown agreed that the arbitration clause is invalid, but not because it is

unconscionable. He said it is contrary to public policy.

So what are some of the things businesses can do to help ensure their dispute

resolution clauses pass muster with the courts?

Choose a governing law and place of arbitration that is connected to the parties’

residence or business location. (For national or international contracts, that may

be the other party’s home jurisdiction, but not necessarily; one of the legitimate

uses of arbitration, I think, is to avoid corrupt or unfriendly jurisdictions.)

Make sure the other party knows what they’re agreeing to – contract terms in

general and arbitration in particular. Include a link to the arbitration rules

(granted, no one will read them, but give them a chance).

Use a lower cost provider, and expedited process, to make arbitration cost-

effective.

Use an arbitration provider that can hold online hearings, to minimize cost of

travel (there will be many more of those after COVID).

2020

Can

LIID

ocs

288

16

Above all, mediation and arbitration clauses should be designed to be used, not to

frustrate claims.

New Med-Arb Rules and Professional Designation for Canada

Originally published on June 10th 2020

The ADR Institute of Canada (ADRIC) has recently adopted Med-Arb Rules and

announced a new Chartered Mediator-Arbitrator (C.Med-Arb) professional designation

to enhance the use of med-arb in Canada.

The new Rules and professional designation recognize that med-arb is a distinct

process that is different from either mediation or arbitration on their own.

In med-arb, the same person acts as both mediator and arbitrator, typically

endeavouring to help the parties settle their dispute in a first mediation phase, then

making a binding decision on all unresolved issues in a second arbitration phase.

The process offers parties both flexibility and finality, and if done effectively, can save

time and money by having a single mediator-arbitrator conduct the entire resolution

process.

However, med-arb has many traps for the unwary and inexperienced. If the dispute is

not settled and goes to arbitration, lawyers for the unsuccessful party will use every

effort to find a fly in the ointment that they can fashion into an albatross to present to a

reviewing judge to hang around the successful party’s neck.

(It should also be noted that, while arbitration statutes in Canada generally allow an

arbitrator to act as mediator, this must be done by express written consent of the

parties. International arbitration rules also generally allow this dual role, but rules in

other countries may not.)

2020

Can

LIID

ocs

288

17

I think most people who do med-arb would agree that the best practice is to agree in

advance on procedures to be followed to ensure fairness and an enforceable

agreement or award at the end of the day.

The ADRIC Med-Arb Rules, which are the first in Canada, should advance this goal

considerably. Together with ADRIC’s existing Mediation Rules and Arbitration Rules,

they provide a complete procedure for both the mediation and arbitration phases of the

med-ab process.

According to ADRIC, the C.Med-Arb professional designation is unique in the ADR

world. It is part of ADRIC’s national mandate to protect the public and promote best

practices in ADR.

The new designation will set national standards for mediator-arbitrator training and

experience. Applicants will be required to hold both of the existing C.Med and C.Arb

designations. They must also complete 16 hours of specialist med-arb training and have

completed a minimum number of mediations and arbitrations, plus at least one med-arb.

In addition, everyone holding this designation must comply with the ADRIC Code of

Ethics and Code of Conduct.

The ADRIC Med-Arb Rules are quite simple and straightforward. By incorporating

ADRIC’s Mediation Rules and Arbitration Rules by reference, they provide a complete

procedure for both the mediation and arbitration phases of the med-arb process.

The Rules, therefore, provide a complete default process for med-arb, simply by

incorporating them in any kind of dispute resolution agreement.

And, since many of the specific rules may be modified by agreement of the parties, they

also provide a high degree of flexibility when the parties wish to do so. But one must still

take care not to try to modify the rules in ways that are contrary to mandatory provisions

of family law and other statutes.

2020

Can

LIID

ocs

288

18

The Rules set out the process for starting a med-arb and provide a mechanism to

appoint a mediator-arbitrator, if the parties can’t agree on an appointment

Section 5 of the Med-Arb Rules requires that the mediator-arbitrator must remain

independent and impartial at all times. It also makes it clear that merely acting as a

mediator, meeting separately with parties or questioning the merits of a party’s position

during the mediation phase, will not amount to procedural unfairness or result in a loss

of jurisdiction (two common grounds for challenging the final arbitration award).

These rules will not eliminate potential bias claims arising from a med-arb. It is still

useful to look at the cases to avoid the mistakes that have landed mediator-arbitrators in

hot water in the past.

For example, in McClintock v. Karam, 2015 ONSC 1024 (CanLII), a family law case

involving changes to child custody arrangements in a separation agreement, one of the

parents successfully challenged the impartiality of the mediator-arbitrator after the

parents could not settle during the mediation phase.

After reviewing how the mediator-arbitrator handled the matter, the Court concluded that

“the proceedings were tainted by a lack of fairness” and ordered the removal of the

mediator-arbitrator.

(Unfortunately, this meant the parties had to go back to med-arb and start over. Not a

result either of the parties would have wanted, I imagine, when they opted for med-arb

in their separation agreement.)

In coming to that conclusion, the Court looked at a number of things the mediator-

arbitrator said and did during the mediation phase and in the transition from mediation

to arbitration.

Strong comments on the merits of each party’s position on key issues during the

mediation.

Statements during mediation like: “there’s more than ample evidence that…”

2020

Can

LIID

ocs

288

19

The arbitrator’s determination to move quickly to arbitration over the objections of

one of the parties.

Statements made in correspondence with counsel for both parties, which

appeared to favour one side over the other regarding the issues to be arbitrated.

The transition from the mediation phase – when everyone is at least trying to get along

and come up with a settlement – to the arbitration phase – when everyone suits up to

fight over the remaining issues – is the most fraught part of any med-arb.

Section 6 of the Med-Arb Rules deals with these crucial transition issues. It says:

The mediation phase ends when an agreed time limit expires, the parties have

settled all issues in dispute, the parties agree in writing, or the mediator decides

to end it.

When the mediation phase ends, the parties must confirm which issues have

been resolved (to be documented in a settlement or consent award).

The parties must also identify the unresolved issues to go to arbitration. If they

can’t agree, the mediator-arbitrator will identify those issues.

At the beginning of the arbitration phase, the mediator-arbitrator will decide any

challenge arising from the mediation before continuing with the arbitration. Any

party that does not object is deemed to have waived any such challenge.

Any other objection to the mediator-arbitrator, such as impartiality or

qualifications, must be resolved under the ADRIC Arbitration Rules.

During the arbitration phase the mediator-arbitrator must not use information

from the mediation phase unless it becomes evidence in the arbitration or the

parties consent to its use.

Several of these provisions are noteworthy because they expressly deal with common

concerns about the med-arb process.

2020

Can

LIID

ocs

288

20

There must be a very clear, bright-line transition from mediation to arbitration. This is

sometimes unclear, especially when there is little or no time between the phases, or the

med-arb is being conducted more informally.

This may impose some time gap between the two phases, unless there is clear

agreement that the mediation has ended and the arbitration will begin. While it may be

more efficient to do everything at once, especially when parties and witnesses have to

travel or the matter is urgent, undue speed may hurt in the long run.

The parties and the mediator-arbitrator must document the issues that have been

resolved and those that have not. This may be tricky in some cases. For example,

agreement on one issue may be dependent on resolution of another. The parties may

be reluctant to commit to the first until they know how the second is decided.

If a party has an objection to the mediator continuing as arbitrator for any reason, they

must raise it right away. They can’t wait to see how things go and raise the objection

later, if the award goes against them.

The rule against using information from the mediation unless it becomes evidence in the

arbitration puts a responsibility firmly on the arbitrator, and on each of the parties, to be

very clear about what information is in evidence and what is not.

As has been said before, there is a difference between information and evidence, but

that difference is not always apparent to the disputing parties.

Each party is entitled to know what evidence the arbitrator intends to consider in making

a final decision, especially when potentially conflicting information (either in documents

or statements made by the parties) has been provided at each stage. Some of the

information exchanged earlier in the med-arb may not be relevant (or even admissible)

as evidence in the arbitration phase. And fairness dictates that each party have the

opportunity to address any evidence that the arbitrator considers to be relevant.

2020

Can

LIID

ocs

288

21

As noted by the judge in McClintock v. Karam, the mediator-arbitrator “cannot be

expected [to] entirely cleanse the mind of everything learned during the mediation

phase, and of every tentative conclusion considered, or even reached, during the

mediation phase. However, at a bare minimum the parties are entitled to expect that the

mediator/arbitrator will be open to persuasion, and will not have reached firm views or

conclusions.”

We can hope that the ADRIC Med-Arb Rules, the C.Med-Arb designation, and a

continuing discussion about best practices for med-arb will take us closer to consistently

meeting that goal.

Re-Thinking How We Resolve Disputes in a Time of Global Pandemics and Climate Change

Originally published on April 1st 2020

In person if necessary, but not necessarily in person…

The Superior Court of Justice in Ontario issued a notice on March 13, advising people

not to go into any courthouse, if they have been advised to self-isolate in response to

the growing COVID-19 pandemic. The courts remain open to the media and public (this

may have changed since I wrote this…) but anyone who has COVID-19 symptoms, has

been advised to self-isolate, or has travelled from an area under a travel advisory

should stay away. This includes civil litigants and criminal defendants, who are advised

to contact their lawyer or the court if they are required to attend for a hearing or trial

Other courts, administrative tribunals and agencies are making similar decisions to try to

limit physical contact for the protection of their employees and the public. People are

“social distancing” (heaven for introverts) or self-isolating.

This got me thinking about how the current crisis should be prompting all of us to re-

think some things we have taken for granted about dispute resolution, including the

presumption that it is best done in person.

2020

Can

LIID

ocs

288

22

It also comes on top of heightened concern about climate change and a movement to

reduce unnecessary travel.

(I may be stretching to look for silver linings during a very worrying time, but the New

York Times recently noted that one consequence of the COVID-19 pandemic may be a

positive effect on climate change.

“Any time you can avoid getting on a plane, getting in a car or eating animal products,

that’s a substantial climate savings,” Kimberly Nicholas, a climate researcher in

Sweden, told The Times.

Driving is a major contributor to climate change in North America. Air travel also has a

very large impact: Ms. Nicholas said a round-trip flight from New York to London

produces as much greenhouse gas emissions as the preventive climate impact of

nearly eight years of recycling. By that measure, a round trip flight between Toronto and

Vancouver would equal about five years of recycling…

On the other hand, if everyone drives everywhere in Canada, rather than flying or taking

public transportation, maybe carbon emissions will actually go up. You can’t win.)

Delos Dispute Resolution, an independent arbitration institution in Paris, recently

published a very thoughtful online checklist entitled “HEARINGS IN TIMES OF COVID-

19”:

“Consider the potential disruption that not taking steps – moving the venue, postponing the hearing or conducting it online – may create for participants and their families.”

Delos says the checklist applies to both arbitration hearings and mediation meetings. It

is a work in progress, and they welcome feedback.

The checklist asks whether it is safe to attend an in-person hearing. It includes health

and safety best practices for the hearing room itself.

Can the hearing be moved? Do all of the participants really need to attend?

2020

Can

LIID

ocs

288

23

Are the participants able to travel? (This is a common question in international disputes,

due to broader political travel restrictions. It also makes Canada an attractive location

for arbitration.)

Can the hearing be shortened, postponed, or held online?

Delos also asks whether it is safe to send documents to participants by courier. Where

are they coming from? Who is handling them along the way?

There is a strong argument in favour of electronic exchange of documents in all cases,

not only when there is a pandemic.

I think we should also be routinely considering the climate impact of travel to attend

hearings (or to ship physical documents).

Developing and adopting similar checklists would be a very useful exercise for the

Canadian dispute resolution community.

Online Dispute Resolution (ODR)

ODR is not new. The federal Department of Justice published an ODR reference

guide and checklist in 2012.

The United Nations Commission on International Trade Law (UNCITRAL) has also

posted a number of online resources for ODR. Although they generally relate to

electronic commerce (business and consumer), and some of the links and references

are quite dated, there are links to sources of information on best practices that apply to

ODR more generally.

There are several resources available for those interested in learning more about online

dispute resolution tools. For example, Dr. Evan Hoffman (@drevanhoffman), of the

Institute for Applied Conflict Management at Nippising University, recently posted on

Twitter and LinkedIn a comparison chart of a few different ODR platforms. They include

2020

Can

LIID

ocs

288

24

Zoom and Skype, which are both available free, and the paid services from Modron,

OntheMove, and Resolve Disputes Online.

Since 2017, the Ontario Superior Court of Justice has allowed counsel to appear by

video conference for some matters on the commercial list, estates list and other civil

cases in Toronto. The court uses CourtCall, a third party videoconferencing service,

which counsel can use without prior approval of the court (though they must register

with CourtCall and pay for the service). It also allows other videoconferencing methods,

with prior approval.

However, I’m told that many lawyers outside Toronto still prefer to make the trek into the

city to attend court in person, because they fear videoconferencing may somehow

disadvantage their client. There are concerns that parties attending in person have an

advantage over those attending remotely. Or counsel worry about missing out on the

hallway conversations that may open the door to settlement.

Lawyers are a naturally cautious lot. They are reluctant to try new technology. Why

does anyone still use faxes? Or ship binders of printed documents? (As Danny DeVito

says in his ubiquitous accounting software commercials: “Is this the 80’s?”)

Still, there are major cost (read “access to justice”) advantages to ODR. Now you can

add personal heath and the health of the planet to the list of benefits.

Online dispute resolution may well become the new normal. We’d better get used to it.

We Need More Evidence-Based Research on Mediation in Canada

Originally published on February 6th 2020

Research in New Zealand sheds light on commercial mediation in that country, and

highlights the lack of hard data on mediation in Canada.

2020

Can

LIID

ocs

288

25

Grant Morris, law professor at Victoria University of Wellington, New Zealand,

published From Anecdote to Evidence: The New Zealand Commercial Mediation

Market, in 2017.

(Hat tip to mediator/arbitrator Rick Weiler (@Medarbman) for retweeting a commentary

on the NZ paper from a US bankruptcy attorney, which drew my attention to this

interesting research.)

Professor Morris’s research project surveyed and interviewed commercial mediators.

New Zealand is a relatively small country, so the numbers for this research were quite

manageable.

The author notes that there is little empirical research into commercial mediation. For

one thing, mediation is private. Mediators (and counsel) are bound by confidentiality

clauses in mediation agreements.

Before this study, there was only anecdotal evidence about commercial mediation in

New Zealand – and in other common law countries, including Canada. This contrasts

with statutory mediation in other fields, such as labour or family matters, where there

was more empirical data due to mandatory reporting requirements.

“The opacity of the [commercial mediation] market makes it very difficult to obtain

statistics. In comparison, court-connected civil mediation schemes have been subjected

to exhaustive research.”

The study found that commercial mediation was “quite limited” in New Zealand,

compared to both commercial litigation, and to mediation in other fields. This, despite

persistent claims since the 1990s that commercial mediation is rapidly increasing (and

despite overt criticism from both the bench and the bar that private mediation

undermines the civil justice system). In reality, most practitioners were “struggling to

secure work.”

2020

Can

LIID

ocs

288

26

Based on the survey and interviews with leading mediators, it appears that about two-

thirds of commercial mediations in New Zealand are conducted by about 10 mediators.

The rest are conducted by some 40-50 other active mediators.

The survey was unable to confidently answer the question: “How much commercial

mediation is there?” The number obtained by the survey (813 a year) is, perhaps, too

low – because the survey response rate was less than 100% – or too high – because

many respondents seem to have taken an overly broad definition of “commercial

dispute”. For example, some respondents included business aspects of disputes over

family property and estates; others mentioned employment or residential construction

matters.

The paper notes that, in the UK, a market about 14 times larger than New Zealand, the

Centre for Effective Dispute Resolution (CEDR) reported about 9,500 commercial

mediation cases in England and Wales in 2014. CEDR also found that 85 percent of

commercial mediations are conducted by a small proportion (15-20%) of the mediation

professionals. (CEDR, ‘The Sixth Mediation Audit A survey of commercial mediator

attitudes and experience’, 22 May 2014)

I’m not aware of any comparable published statistics for commercial mediation in

Canada (or in any of the individual provinces).

Some interesting (but unsurprising) findings:

Commercial mediation is dominated by older men. Only 28 percent of

respondents were female (consistent with similar findings in the UK). This

contrasted with other areas, such as family mediation, where most mediators

were female.

Most commercial mediators (70 percent) have legal training. Many practiced

commercial law or litigation, demonstrating a clear career path from legal practice

to mediation practice.

2020

Can

LIID

ocs

288

27

The mediation profession is not regulated, but most commercial mediators

belong to one of the national ADR organizations, which provide training,

certification and some degree of quality assurance.

Most of the mediators surveyed said they used a “facilitative” style. A smaller

number described their styles as “evaluative” or “settlement” (compromise and

bargaining) focussed. This contrasted sharply with anecdotal evidence indicating

that most commercial mediation is either evaluative or settlement-driven. The

author speculates that some mediators may be describing themselves as

“facilitative” but actually using more evaluative or bargaining styles when it

comes time to nail down a settlement. Respondents also said they believe that

parties to a commercial dispute expect a more evaluative or settlement-focussed

mediation style.

Settlement rates were described as a “controversial but relatively straightforward”

way to measure success of mediation. The survey respondents reported

considerably higher settlement rates than research from statutory and court-

based mediation would predict. More than half of survey respondents reported

settlement rates over 90%, compared to rates of 70-90% in other studies. (The

survey did not address partial settlement because of difficulties defining the

term.) The author questions whether high self-reported settlement numbers may

reflect the fact that settlement rates seem to be a selling feature in the

commercial mediation field.

For users of commercial mediation, the main motivations were:

o Cost (compared to litigation (61 percent of respondents)

o Time (also compared to litigation (50%)

o Confidentiality (25 per cent);

o Preserving relationships (19 per cent);

o The parties’ desire to settle (17 per cent);

o Control over the outcome (17 per cent);

o Mediation was advised by counsel (17 per cent);

o Mediation was required by contract (11 per cent).

2020

Can

LIID

ocs

288

28

(Most respondents cited multiple reasons in their answers.)

Lack of public and professional awareness was seen as one of the main challenges

facing commercial mediation in New Zealand. Interestingly, respondents cited both a

shortage of good, experienced commercial mediators and an oversupply of mediators

relative to the amount of work available!

The mediators surveyed also said there was a reluctance from “gatekeepers” (mainly

lawyers) to recommend mediation to their clients. These responses are consistent with

challenges in other jurisdictions (and other areas of law).

The New Zealand research concludes that more awareness of the benefits of mediation

– and better access to information about mediator availability, qualifications, and costs –

are the keys to increasing the use of commercial mediation, both domestically and

internationally.

For an international perspective see: SI Strong “Use and Perception of International

Commercial Mediation and Conciliation: A Preliminary Report on Issues Relating to the

Proposed UNCITRAL Convention on International Commercial Mediation and

Conciliation” (University of Missouri School of Law Legal Studies Research Paper

Series (2014-28)

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2526302

It would be very useful to have more detailed, objective statistics about commercial

mediation in Canada (and mediation in other fields as well). Is anyone currently doing

this research?

Adjudication of Technology and Construction Disputes

Originally published on December 4th 2019

The movement toward speedy adjudication of payment disputes in the construction and

technology sectors seems to be gaining some momentum this fall, with new programs

being launched in Ontario and England.

2020

Can

LIID

ocs

288

29

In England, the Society for Computers and Law (SCL) has launched a new adjudication

process for resolution of technology disputes, following several years of study and

industry consultation.

SCL was established to educate legal and technology professionals and promote “best

practice” for the technology sector in the UK. It identified a need for faster, cheaper

resolution of disputes involving long term, high value, and technically complex

technology contracts.

Adjudication provides a voluntary mechanism for resolving any kind of technology

dispute, including software development, outsourcing, systems integration, IT

consultancy, software licensing, blockchain/smart contracts and cloud computing. It is

being rolled out by the SCL this fall as part of its “Better Contracts Initiative” which aims

to develop best practices and industry standard contracting terms in the technology

sector.

Over the past several years SCL engaged in a detailed review of alternative dispute

resolution procedures and consultation with industry members. They found:

a strong preference for binding awards (adjudication or arbitration) over non-

binding processes (mediation or conciliation);

support for quick adjudication, on condition that awards could be challenged;

a desire for clear deadlines, with some flexibility to extend them in complex

disputes;

a need to identify suitable qualified adjudicators; and

a need for industry standard contract terms to implement the dispute resolution

process.

In Ontario, the Construction Act offers an adjudication option for payment disputes in

construction projects as of October 2019. The system is modelled on the construction

adjudication process, which has been widely used in the UK for many years. But, unlike

the UK, the Ontario process is voluntary. Parties may opt for adjudication as an

alternative to arbitration or litigation. Adjudicators are chosen from a registry maintained

2020

Can

LIID

ocs

288

30

by ADR Chambers, which was selected as the administering authority under the

legislation. The adjudicator must issue a decision within 6 weeks. The decision is

binding on the parties, subject to a further determination by arbitration or court, or

agreement of the parties. However, there are very limited grounds for judicial review of

an adjudicator’s decision, on the basis of adjudicator misconduct or improper process.

Like Ontario, SCL also looked to the UK contraction industry, as a model for its

adjudication process. Sometimes described as a “pay first, argue later” mechanism, the

experience with construction adjudication in the UK has been that owners and

contractors are generally happy with fast “rough and ready” adjudication decisions,

when the alternative is expensive litigation and project delays.

Although construction adjudication awards can be challenged through arbitration or

litigation, more than 99% of adjudication awards are not challenged. Decisions are often

“water under the bridge” by the time a project is completed and legal challenges are

rarely successful in court or arbitration.

Like the new Ontario process, the SCL adjudication process is voluntary. However, it is

not limited to payment disputes. It can be used for any kind of technology dispute.

SCL adjudication is meant to be fast, largely document-based, and completed within

three months.

The adjudicator’s decision is “provisionally binding.” The parties must comply with the

decision – for example, to pay a sum of money or to provide specific products or

services – but either party may challenge the decision, either in court or to an arbitrator,

depending on the terms of their contract. The decision becomes final and binding, if it is

not challenged within six months of the award.

The rules expressly require all parties to act in good faith and co-operate through the

adjudication process. They also require the adjudicator to conduct the process in a

timely and cost-effective manner and avoid unnecessary expense.

2020

Can

LIID

ocs

288

31

SCL is in the process of setting the qualifications for adjudicators and establishing a

panel from which parties can choose a suitable adjudicator.

There are two opportunities to appoint an adjudicator: when the contract is signed or

when a dispute arises. Appointing an adjudicator in the contract avoids potential delays

when a dispute arises and means that the adjudicator is familiar with the parties and the

contract. This can help speed the decision-making process. No need to bring a stranger

up to speed, when time is a critical factor. On the other hand, an ad hoc appointment

when a dispute arises may provide a “fresh pair of eyes” and allow appointment of an

adjudicator with particular expertise relating to the issues in dispute. The downside is

that there can be delays in choosing an adjudicator – especially if one of the parties

doesn’t want to co-operate.

One interesting question is whether an SCL adjudication award would be considered to

be an arbitration award under the New York Convention, meaning that the award could

be enforced in other jurisdictions (presumably after the 6-month window to challenge it

has ended). There was some uncertainty about this at a discussion I attended at a

meeting of the International Technology Law Association recently.

Perhaps this is not an issue for the SCL, which developed the process specifically for

the domestic technology industry in England, but it could be problematic if similar

schemes are adopted for international technology contract disputes.

It will be interesting to see how these two initiatives in Canada and the UK unfold and

whether there is significant buy-in from industry participants. Since both are voluntary

and depend on agreement of the parties – either in their initial contracts or when

disputes arise – it may take some time before we see widespread adoption. But I expect

that the speed and cost benefits will encourage many to give it a try.

Canada Not Among 46 Nations Signing UN Mediation Convention

Originally published on October 1st 2019

2020

Can

LIID

ocs

288

32

The United Nations Convention on International Settlement Agreements Resulting from

Mediation (under UN custom referred to as the ‘Singapore Convention’) was formally

signed in August 2019. Canada is not one of the initial signatories to the Convention,

which was previously approved by the UN General Assembly.

The Convention sets requirements for reliance on settlement agreements, standards for

enforcing the agreements, and grounds for refusing to grant relief.

It applies specifically to settlement of “international” commercial disputes. It does not

apply to consumer disputes. Nor does it apply to family, inheritance or employment

matters.

The Convention also expressly does not apply to settlement agreements that have been

recorded as arbitral awards or approved by a court.

Supporters are hoping the Singapore Convention will give businesses confidence to

settle international disputes through mediation – that it will increase global acceptance

and enforcement of mediated settlements, particularly in states with different legal social

and economic traditions. It is intended to function similarly to the 1958 New York

Convention on enforcement of arbitral awards, which was a catalyst for modern

international commercial arbitration.

The Singapore Convention allows a party to a dispute to invoke the Convention to prove

the matter has been resolved, if another party continues to contest the matter. It creates

a positive obligation on member states to enforce settlement agreements, subject to

their own rules of procedure and under the conditions laid down in the Convention.

Those conditions include providing written proof that mediation took place and a copy of

the signed settlement agreement.

Critics say the Convention may impose additional burdens in states such as the United

States, Canada, and other western jurisdictions which already have well-established

commercial mediation traditions. For example, Article 4 of the Convention requires

2020

Can

LIID

ocs

288

33

evidence that a settlement agreement “resulted from mediation” such as attestation by

the mediator or an administering body.

Some US mediators have expressed concern that having the mediator sign or attest the

settlement agreement could open them up to being called as witnesses and

compromise the confidentiality of the mediation process, if the settlement terms are later

contested.

This is a particular risk given the potential grounds for refusing enforcement of a

mediated agreement set out in Article 5, which says the local authority may refuse to

grant relief if specific listed conditions are met.

These include incapacity of a party, invalidity of the settlement agreement, the terms of

the agreement are not clear or cannot be performed, or the relief sought is contrary to

the terms of the settlement agreement. One can easily see how enforcement disputes

may involve the validity or interpretation of the settlement agreement or even whether

the document actually settles all of the matters in dispute, especially if those are the

only grounds for refusing enforcement under the Convention.

Article 5 also opens the door to a challenge on the basis of a “breach by the mediator of

standards applicable to the mediator or mediation” (without stating what those

standards might be), or a “failure by the mediator to disclose to the parties

circumstances that raise justifiable doubts as to the mediator’s impartiality or

independence.” These are the kinds of tests that have caused all sorts of mischief with

post-award arbitrator challenges in international arbitration.

Others have argued that mediation settlement agreements are not “enforceable” in the

same way as an arbitration award and questioned the need for the Convention at all.

They argue that settlement agreements are simply contracts and can be enforced in the

same way as any other contract. Claims that terms are unclear or cannot be performed,

for example, are contract interpretation problems, not an enforcement problem. This

may be true in common law countries, but not necessarily in other legal regimes. The

whole purpose of the Convention is to try to bridge that gap.

2020

Can

LIID

ocs

288

34

The initial response to the Convention has generally been positive, with many of the

world’s largest economies, including the United States, China, India and many Asian

countries, signing on the first day. (The Convention will come into force 6 months after it

has been formally ratified by three of the signatories – and in individual states 6 months

after those states have ratified.)

Others, including the Canada, the UK, Australia and the European Union, have not yet

signed. If Canada does accede to the Convention, each of the provinces may still

decide whether to opt in or not. If Canada does join, it should benefit Canadians

involved in international commerce by helping them enforce mediated settlement

agreements in other member states and by giving their commercial counterparts

confidence that such agreements will be enforced here.

Is Arbitration Private and Confidential in Canada?

Originally published on July 31th 2019

The limits on privacy and confidentiality of arbitration is often hard to unravel. They are

really two separate questions. And the answer to both seems to be: “It depends.”

Is Arbitration Private?

It is generally assumed that arbitration is private – in contrast to the courts, which are

generally open to the public, with some exceptions. But where does that assumption

arise?

Provincial arbitration statutes generally do not provide that arbitration is private. (See for

example the Uniform Arbitration Act and the BC, Alberta, and Ontario Acts.)

Nor does the UNCITRAL Model Law on International Commercial Arbitration, which has

been adopted in provincial laws governing international commercial arbitration.

However, many institutional arbitration rules do have express privacy terms.

2020

Can

LIID

ocs

288

35

For example, the ADR Institute of Canada (ADRIC) Arbitration Rules state that

arbitration proceedings must take place in private, unless the parties agree otherwise.

(4.18.1)

The Agreement for Arbitration of the Canadian Motor Vehicle Arbitration Plan

(CAMVAP) expressly provides that “the Arbitrator will hear your claim in private.”

The ICDR Canada Canadian Arbitration Rules provide that “hearings are private unless

the parties agree otherwise or the law provides to the contrary.” (Article 23.6 )

The JAMS Comprehensive Arbitration Rules frame privacy a bit differently. Under Rule

26 says anyone having a direct interest in the arbitration is entitled to attend the

hearing, subject to the discretion of the arbitrator or agreement of the parties. However,

the arbitrator may exclude any non-party from any part of the hearing.

Rules such as these give an arbitrator the authority to exclude the public from arbitration

hearings. For example, if a party wants to have a member of the public or media attend

the hearing, the arbitrator can exclude them either at their own discretion or the request

of the opposing other party.

The private nature of arbitration may also influence whether the evidence, arguments

and findings of fact in an arbitration are admissible in court.

A recent decision of the Alberta Court of Appeal illustrates some of the limits on the

privacy of arbitration, if the case ultimately ends up in court in a dispute about the

validity or enforcement of the award.

In Flock Estate v Flock, 2019 ABCA 194, the court had to decide whether any of the

evidence, legal arguments or findings from an earlier arbitration between the parties

was admissible as evidence in court. The case involved a dispute over matrimonial

property which was fought out in arbitration and multiple court proceedings for more

than 20 years, and even survived one of the spouses.

2020

Can

LIID

ocs

288

36

The arbitration award had been set aside 10 years earlier, so the court was not willing to

rely on any of the arbitrator’s findings.

“It is highly unlikely that anything in the decision would be admissible as evidence. The arbitrator’s opinion and ineffectual ruling about what should happen to the [disputed] property is not evidence of anything other than his personal, and ultimately ineffective opinion.” {25, citations omitted]

Similarly, the court said the pleadings and legal arguments made in the arbitration were

also irrelevant and inadmissible. It ordered all of the materials in the current

proceedings referring to the earlier arbitration award, and counsel’s submissions in the

arbitration to be struck.

However, the court did find that “sworn testimony given by either of [the parties] during

the arbitration proceedings might be admissible. That evidence, however, is different in

quality from the bare submissions of counsel, or the ultimately ineffectual opinions of the

arbitrator.” [31] Recognizing that this bitter fight wasn’t over, the Court of Appeal, left it

up to the trial court to make a final determination about the admissibility of contested

evidence.

Is Arbitration Confidential?

This question usually relates to the confidential nature of the information and evidence

disclosed in the arbitration. The fact of the arbitration itself may also be confidential.

Arbitration statutes are generally silent these questions as well. However, arbitrators do

have broad discretion to make procedural orders, including orders requiring parties to

keep information and evidence disclosed in the arbitration confidential.

Many of the institutional rules go further.

The ADRIC Rules provide that the parties and anyone attending the proceedings must

keep all Confidential Information confidential. “Confidential Information” includes the

existence of an arbitration and the meetings, communications, documents (including

electronic data), evidence, awards, rulings, orders, and decisions of the Tribunal in

2020

Can

LIID

ocs

288

37

respect of the arbitration. Exceptions can be made only for disclosure required by a

court, necessary in connection with a judicial challenge or to enforce, or required by law.

(4.18.2)

Jams Rule 26, on the other hand, requires only that JAMS and the Arbitrator to maintain

the confidential nature of the arbitration proceedings, the hearing and final award. It

doesn’t require the parties themselves to keep it confidential, but the arbitrator may

issue orders to protect the confidentiality of “proprietary information, trade secrets or

other information”.

The ICDR Rules on confidentiality are somewhat broader than JAMS. Neither ICDR or

the arbitrator may divulge confidential information disclosed by the parties or any

witnesses. And the tribunal “may make orders concerning the confidentiality of the

arbitration or any matters in connection with the arbitration and may take measures for

protecting trade secrets and confidential information.” (Article 37)

So many of the things that would automatically be protected as Confidential Information

under the ADRIC Rules may not be covered by the more limited confidentiality

protection of the JAMS Rules. The ICDR Rules seem to fall somewhere in between.

In 2249492 Ontario Inc. v. Donato, 2017 ONSC 4974 (CanLII), the Ontario Court

considered an appeal of an arbitrator’s confidentiality order and upheld the arbitrator’s

decision to grant a permanent injunction against the applicant and its counsel from

publishing the award or other details of the arbitration.

The arbitration was conducted under the rules of the ADR Chambers, which state that

any arbitration is private and confidential — with some specific exceptions such as for

the conduct of the arbitration itself, or to set aside, recognize or enforce an award, or

where disclosure is required by law or a court. Even when one of those exceptions

applies, disclosure is limited by the rules. (Rules 16.1, 16.2, 16.3)

2020

Can

LIID

ocs

288

38

When the arbitration was commenced, one of the parties proposed specific

confidentiality terms in a draft arbitration agreement. Those terms were removed by the

opposing party, so they were left with the default ADR Chambers rules.

The Court concluded that the arbitrator was correct in deciding that those rules applied,

despite the negotiations over the wording of the agreement. The absence of an express

confidentiality clause in the arbitration agreement was not enough to permit the parties

or their counsel to make public statements about the arbitration or the award, the court

said.

[46] “…the removal of language providing for confidentiality in … the draft arbitration agreement does not assist in the interpretation of the Arbitration Agreement. The confidentiality language … was unnecessary, given the incorporation by reference of the ADR Rules which include confidentiality language in Rule 16. For this reason, it was not unreasonable for the Arbitrator to interpret the Arbitration Agreement as he did without regard to the extrinsic evidence [of the removal of the confidentiality clause].”

What Can Parties Do To Protect Privacy and Confidentiality?

First it’s critical to understand the default rules under the statutes or institutional rules

governing a potential arbitration. Do they provide the kind of protection you want or

need?

If not, the default statutory and institutional rules generally give way to the agreement of

the parties in most cases, so the obvious solution is to include express privacy and

confidentiality clauses in the arbitration agreement.

However, it’s important to take care and give some thought to those terms. As the cases

clearly show, there are some situations where a party to a dispute may not want it to be

private, or may not want all of the information disclosed to be confidential.

This can be tricky. If one party tries to negotiate the privacy and confidentiality terms, it

may raise a red flag for the other party. It’s hard to argue that the arbitration

should not be private or confidential, given that these are often seen to be reasons for

choosing arbitration over litigation.

2020

Can

LIID

ocs

288

39

And, in the end, as the Donato decision illustrates, the arbitrator or a court court may

ignore the parties’ negotiated agreement and decide for themselves what is private and

confidential.

Arbitration, by Any Other Name

Originally published on June 11th 2019

I recently went looking for a simple definition of arbitration and ended up going around

in circles.

Wiktionary, the online dictionary, defines arbitrate as to either make a judgement in a

dispute as an arbitrator, or to submit a dispute to such a judgment. Arbitrator is then

defined as a person to whom the authority to settle or judge a dispute is delegated.

The Oxford English Dictionary is even less helpful. It defines arbitrate as to “reach an

authoritative judgement or settlement.” Arbitration is “the use of an arbitrator to settle a

dispute,” and arbitrator is “an independent person or body officially appointed to settle a

dispute.”

Many arbitration statutes have similarly circular definitions.

For example, the Ontario Arbitration Act defines an “arbitration agreement” as “an

agreement by which two or more persons agree to submit to arbitration a dispute that

has arisen or may arise between them.” But it does not define arbitration. The

Alberta Arbitration Act is similar.

Neither Act defines arbitrator, except to say it includes an umpire.

The British Columbia Arbitration Act does provide more detailed (but equally circular)

definitions. Arbitration is “a reference before an arbitrator to resolve a dispute under this

Act or an arbitration agreement.” An arbitrator is defined as a person who resolves a

dispute referred to them under the Act or an arbitration agreement, and expressly

includes an umpire. And an arbitration agreement is “a written or oral agreement

2020

Can

LIID

ocs

288

40

between 2 or more persons to submit present or future disputes between them to

arbitration…”

Several recent cases, in Canada and elsewhere, remind us that arbitration is arbitration,

no matter what you call it.

Earlier this year, the United States Second Circuit Court of Appeals provided a reminder

that arbitration can be any process that “manifests an intention by the parties to submit

certain disputes to a specified third party for binding resolution.” This intention doesn’t

need to be expressed in any particular language.

The court decided that a binding appraisal of a loss claimed on an automotive insurance

policy was arbitration, even though it was not called that in the insurance contract. The

appraisal provision identified a category of disputes that would be submitted to specified

third parties for a binding determination of the amount of the loss. That was enough to

make it arbitration and, therefore, the relevant law governing arbitration applied. (In this

case, giving the court jurisdiction over the dispute.)

It is worth noting, as the court did, that the US Federal Arbitration Act does not define

arbitration, leaving it to the courts to decide what is – or is not – arbitration as a matter

of common law.

In Belnor Engineering Inc. v. Strobic Air Corporation et al., 2019 ONSC 664 (CanLII),

the Ontario Superior Court of Justice was called on to decide whether a clause in a

contract was a valid agreement to arbitrate. It read, in part

Any controversy dispute or claim arising out of, or relating to this Agreement, or any breach thereof, shall be settled in accordance with the Commercial Arbitration Rules of the American Arbitration Association, …

The plaintiff had brought an action seeking damages and other relief in a contract

dispute. The defendants sought to have the action stayed in favour of arbitration.

Plaintiffs argued that there was no agreement to arbitrate because the clause was

2020

Can

LIID

ocs

288

41

missing the key words “by arbitration” found in the American Arbitration Association’s

recommended arbitration clause.

While noting the clause was poorly written, the court found no real ambiguity or

uncertainty. The clause was not sufficiently vague as to render it unenforceable.

Reference to the AAA Commercial Arbitration Rules was enough to show a clear

intention to refer disputes to arbitration. Any uncertainty over how the arbitrator would

be appointed or the arbitration conducted could be answered the the AAA Rules.

However, the decision does serve as a reminder that care must be taken in drafting

arbitration agreement, if only to avoid wasting of time and money determining where the

dispute should go.

In Zerr v. Thermal Systems KWC Ltd, 2018 ABQB 1008, a Master of the Alberta Court

of Queens bench had to decide whether a dispute resolution clause in a lease required

arbitration of a dispute over leasehold improvements. The clause provided that:

Where the Landlord is obliged to refer any dispute or question to an auditor, real estate appraiser or other expert experienced in assessment appeals, surveyor, engineer, architect, insurance consultant, or other professional: (i) the Landlord will select a person who is at arm’s length from the Landlord, except that the Landlord may use its external auditor and other arm’s-length persons with whom the landlord has dealings, (ii) that person’s decision or determination will be conclusive and binding on the Landlord and Tenant, and (iii) each of the Landlord and Tenant will pay 50% of that person’s fees and disbursements.”

The dispute related to the cost of certain work which was to have been done to the

premises and how the rent should be adjusted to reflect those costs. The landlord

commissioned independent reports on those issues. The tenant referred to the dispute

resolution clause in support of its position that those assessments were “conclusive and

binding.” The landlord disagreed.

The Master considered the dispute resolution clause and found it “somewhat oblique.”

He said “it does not provide for the appointment of an arbitrator and a hearing, as one

might expect.” Finding no binding obligation to arbitrate the specific issues in dispute

2020

Can

LIID

ocs

288

42

under the lease, the court refused to grant either party the summary judgments each of

them had sought.

In Quebec, a court refused to refer a construction claim to arbitration, where the

contract said (in part): “…either party may refer the dispute to be finally resolved by

arbitration under the Rules of Arbitration of Construction Disputes…” The judge

in Prométal inc. v. Maxim Construction inc., 2019 QCCS 1207 found that the wording

did not require all contract claims to be arbitrated. It was permissive, rather than

mandatory, and the defendant had failed to deliver the required arbitration notice within

the time set out in the contract (or before the plaintiff started the court action).

In Lambsmead Limited v. Pharmawest Pharmacy Ltd., 2014 BCSC 218 (CanLII), the

question for the BC court was whether the following term in a contract was an arbitration

agreement:

It is understood that in the unfortunate event of a dispute that the matter will be resolved by arbitration or mediation as opposed to litigation and U.K. law will prevail.

The plaintiff, which had insisted on including the clause in a contract to supply

pharmaceutical products, claimed that it was not and opposed an application to stay a

claim for non-payment brought in the BC court. The defendants argued both (1) they

were not parties to the contract, and therefore, the claim should be dismissed; and (2) if

they were parties, as the plaintiff claimed, the clause required arbitration, so the claim

should be stayed.

The court referred to the definition of “arbitration agreement” in the BC Arbitration

Act and the International Commercial Arbitration Act. It also referred to equivalent

definitions in the English and Scottish Arbitration Acts, since the clause referred to UK

law. All of these statutes include provisions for legal proceedings to be stayed or

suspended if there is an arbitration agreement.

In the circumstances, the court had no difficulty finding that there was a valid agreement

to arbitrate and that it should stay the legal proceedings, regardless of which law – BC

2020

Can

LIID

ocs

288

43

or UK – it applied. The lack of any procedural detail in the clause was not fatal, because

the arbitration statutes provided enough procedural certainty.

It is interesting to note that the Arbitration Acts in BC, Alberta and Ontario all specifically

provide that an arbitrator includes an umpire. Does this mean that other species of

decision-makers – such as appraisers, assessors, or valuators – are not arbitrators?

In Concord Pacific Developments Ltd. v. British Columbia Pavilion Corporation, 1991

CanLII 5733 (BC CA), the court had to decide whether an appraiser appointed to

determine fair market rent under a lease was in law acting as an arbitrator. The

appraiser made an error and failed to follow the process set out in the lease. He offered

to remove himself as a result. One party supported removal; the other did not

(presumably because they liked the appraisal). So the dispute went to court over

whether the appraiser should be removed for “arbitrator error” under the BC

Commercial Arbitration Act. That led to the question of whether the appraiser was an

arbitrator under the Act. The court concluded that he was.

In my opinion, what is important in this determination is the function of the person appointed, not his title. [20]

The court referred to Sport Maska Inc. v. Zittrer, 1988 CanLII 68 (SCC), in which the

Supreme Court had to decide whether auditors, whose opinion of the valuation of the

inventory of a bankrupt company was agreed to be final and binding, were acting as

arbitrators. To make that determination, the court said, one must look at whether

there is a “formulated dispute” between the parties, not just some unresolved

disagreement

there is a legal obligation to submit that dispute to arbitration, whether by statute

or agreement (agreement may be express or implied, based on the intention of

the parties)

the dispute has been remitted to the person to make a decision and the parties

have agreed to accept the decision

2020

Can

LIID

ocs

288

44

the parties have been given an appropriate opportunity to present evidence and

make submissions in support of their claims

In that case, it was determined that the auditor was not acting as an arbitrator, because

these conditions had not been met. In particular, there was no crystalized dispute at the

time the parties agreed to have the auditor make the valuation.

The take-away from these and other similar cases?

For lawyers drafting arbitration agreements, clear explicit language referring specific

kinds of disputes to arbitration (and stating what is not subject to arbitration, if

applicable) will avoid all kinds of potential issues if a dispute arises.

For litigators reviewing dispute resolution clauses, the absence of the word “arbitration”

does not necessarily resolve matters. If there is a clear intention to refer disputes to a

binding determination by a third party, that may be arbitration by any other name.

Cybersecurity Risks for Mediators and Arbitrators

Originally published on April 17th 2019

Despite almost daily reports of privacy breaches and thefts of confidential information,

the role of mediators and arbitrators in protecting this information has received relatively

little attention in the professional community.

That is rapidly changing.

Now, almost every continuing education session I go to has some discussion on this

topic.

Are the mediators and arbitrators in the room complying with privacy laws? This

means PIPEDA compliance for those who work in Canada and – more crucially – the

new(ish) European General Data Protection Regulation (GDPR) which affects anyone

who collects information relating to EU citizens.

2020

Can

LIID

ocs

288

45

This was brought home again recently when I was talking to someone in Toronto who

casually mentioned that he is a EU citizen, though a resident of Canada. Even so, any

personal information I have about him is also subject to the GDPR, making me subject

to potential penalties if I misuse or fail to protect it! Scary thought…

These days most of us prefer to get mediation briefs and related materials

electronically. This means measures must be taken to protect confidential information

provided by the parties, when it is first delivered and throughout the time it is in the

mediator’s possession.

The same applies to arbitration communications, pleadings and evidence.

An article by Stephanie Cohen and Mark Morril, both the New York based arbitrators,

entitled A Call to Cyberarms: The International Arbitrator’s Duty to Avoid Digital

Intrusion, published in the Fordham International Law Journal in 2017, makes a strong

argument that arbitrators must assume responsibility for digital security of the cases

they adjudicate. [Volume 40, Issue 3, 981]

“Cyberbreaches of the arbitral process, including intrusion into arbitration-related data and transmissions, pose a direct and serious threat to the integrity and legitimacy of the process. This article posits that the arbitrator, as the presiding actor, has an important, front-line duty to avoid intrusion into the process.”

Cybersecurity has naturally attracted attention in the high-stakes world of international

commercial arbitration, where state actors and commercial rivals may be extremely

interested in getting their hands on arbitration documents and evidence.

Cohen and Morril refer to reported attacks on arbitral institutions, counsel and parties.

International investor-state arbitrations are potential targets. They also cite examples

such as the attacks on sports arbitration and anti-doping agencies related to the Rio and

Sochi Olympic Games.

But it is something that should concern every mediator or arbitrator, regardless of the

nature of the disputes they handle.

2020

Can

LIID

ocs

288

46

Cohen and Morril cite the ABA/AAA Code of Ethics for Arbitrators in Commercial

Disputes, which requires an arbitrator to be competent and to uphold the integrity and

fairness of the arbitration process, as well as the IBA Rules of Ethics for International

Arbitrators which include a general requirement that international arbitrators be

“competent”.

In Canada, the ADR Institute of Canada Code of Ethics requires members to “uphold

the integrity and fairness of the arbitration and mediation processes” and to be “faithful

to the relationship of trust and confidentiality inherent in the office of arbitrator or

mediator.”

As lawyers we also have professional duties of competence and confidentiality that

arguably include data security and personal privacy.

(Working in Ontario, I find it interesting that the Ontario Rules of Professional Conduct

don’t include the provisions in the Federation of Law Societies of Canada Model

Code which require lawyers to maintain “adequate” facilities and equipment as part of

the standard of competence: see Commentary 5 of s. 3.2-1.)

Nevertheless, I think there is an expected standard of competence for mediators and

arbitrators, even if that standard is not always clear.

I’d wager all of us have had the sinking feeling of having an email go to unintended

recipients through a hasty “reply all.” Or maybe the email program’s automated address

feature inserts an incorrect, but similar, name or email address and the user hits “send”

without noticing it.

Beyond simple email security, we also have a responsibility to take reasonable steps to

ensure that data on our office computers and laptops is secure.

It is said that any system can be made completely secure: just seal it up tight, so

nothing can get in or out. But that’s not very useful. So we must work pro-actively with

disputing parties and their counsel to balance efficiency and security.

2020

Can

LIID

ocs

288

47

Do the parties or their counsel encrypt every file they send the mediator or arbitrator (or

each other)? Is it the mediator’s or arbitrator’s responsibility to recommend encryption or

other security measures? Should they demand it, if counsel say it’s too much trouble?

Some may prefer to deliver files on a USB drive or other physical device, rather than by

email. (In the past, I’ve received document books and other evidence on a CD; not very

useful now that my current laptop doesn’t have a CD drive. Just a reminder that we

need to keep evolving technology in mind when we decide what security to adopt.)

Many organizations don’t allow external media to be connected to their systems, due to

the risk that viruses could be delivered on those media. Do you have software that

automatically scans any USB or other device for viruses when you plug it into your

desktop or notebook?

Another option is to use a third party “Dropbox” type of service as a repository for all of

the electronic files. Cloud services often have better security to control access to the

files, and options to determine what level of security and authentication is appropriate

for a particular matter. Authorized users may be limited to reading the files in place, or

they may be allowed to download them to their own systems. (The former is more

secure; the latter more convenient, if the user wants to access the files offline…)

What about email attachments? Maybe it’s safe to open or save attachments from the

counsel on a particular file, but a sophisticated hacker could spoof the email address to

deliver an attachment that allows the hacker to copy and read every file on the target

system.

You will have noticed by now that this piece is throwing out more questions than

answers. That’s because none of the sessions I’ve attended recently have any easy

solutions to offer. Some independent mediators and arbitrators talk about software and

services they have used to address these concerns in specific cases, but there don’t

seem to be any generally-accepted standards.

2020

Can

LIID

ocs

288

48

Law firms use a wide range of security applications, so getting the lawyers on a file to

agree on a common standard or platform often seems more challenging than getting

them to agree to settle the entire dispute.

Cohen and Morril conclude that the arbitrator’s (and by extension, a mediator’s) duty is

to take reasonable measures to provide unauthorized electronic access to information.

They also look at the scope of that “reasonableness” standard and some practical

measures that neutrals can take. These depend in part on the nature and sensitivity of

the mandate, as well as the circumstances of the file.

Security standards are continually changing, so what was reasonable last year may not

cut it any more. Unfortunately, “reasonableness” is usually only evaluated in hindsight,

once a breach has occurred, so mediators and arbitrators must make a risk

assessment, based on the kind of work the do. And they must periodically re-evaluate

that assessment, in light of changing technology and the evolving expectations of

disputing parties and their counsel.

Although it is now a couple years old, I encourage everyone to read the Cohen and

Morril article, first for a healthy dose of fear, then beginning at pg 1014, for some useful

ideas for implementing and continually improving their own cybersecurity practices.

Competent to Decide My Own Competence

Originally published on February 5th 2019

The idea that an arbitrator has the authority to determine her or his own jurisdiction,

including deciding the scope and validity of an arbitration agreement itself, may seem

odd at first, but it is a core principle of international arbitration and has been adopted by

the Canadian courts – with some reservations – in domestic arbitration.

The “competence-competence” principle, as it is generally referred to internationally and

in Canada, is embedded in the UNCITRAL Model Law, adopted in 1985 and updated in

2006, and is credited with much of the growth of international commercial arbitration.

2020

Can

LIID

ocs

288

49

There are many reasons why the responding party in an arbitration – and it is almost

always the responding party – may want to challenge the jurisdiction of the arbitrator.

They may say there is no valid agreement to arbitrate. Or they are not a party to the

agreement. Or the matter in dispute falls outside the scope of the agreement.

The Supreme Court of Canada, in Dell Computer Corp. v. Union des consommateurs,

2007 SCC 34 (CanLII), laid down a general rule that, except in the narrow category of

cases in which a challenge to an arbitrator’s jurisdiction is based solely on a question of

law, “in any case involving an arbitration clause, a challenge to the arbitrator’s

jurisdiction must be resolved first by the arbitrator.” (Dell, para. 84).

The Dell case applied this rule under Quebec law. It has also been followed by Ontario

courts in cases involving the International Commercial Arbitration Act, which adopts the

principles in the UNCITRAL Model Law. And more recently, the courts have recognized

the principle under domestic arbitration statutes.

Article 8(1) of the Model Law provides that state courts must refer to arbitration a claim

that is allegedly subject to arbitration “unless it finds that the said agreement is null and

void, inoperative or incapable of being performed.”

In Ontario, section 7 of the Arbitration Act says a court must stay an action when a party

to an arbitration agreement commences an action in a matter that is subject to

arbitration, except in limited number of circumstances. These include: the party being

under a disability; the arbitration agreement being invalid; the subject matter not being

arbitrable; undue delay; or the matter being a proper one for default or summary

judgment.

Section 17 says the tribunal “may rule on its own jurisdiction to conduct the arbitration

and may in that connection rule on objections with respect to the existence or validity of

the arbitration agreement.” Arbitration Act, 1991, s. 17 (1).

2020

Can

LIID

ocs

288

50

When the tribunal rules on a jurisdiction issue, a party may appeal the decision in court.

There is no appeal from the court’s decision: ss.17(8) and 17(9).

In Ontario Medical Association v. Willis Canada Inc. (2013), 118 O.R. (3d) 241 (C.A.),

the issue was whether to stay an action by a litigant that said it was not a signatory and

was not bound by an arbitration clause in an agency agreement. When the third party

brought an action in court for unpaid fees, the motion judge stayed the action. The Court

of Appeal agreed, saying it was up to the arbitrator to make the initial determination on

the scope of the arbitration clause

Tom Heintzman, in a 2012 commentary for Construction Law Canada, asks: What Are

The Limits Of Competence-Competence For Arbitral Tribunals?

First, he says, a person cannot ask the court to stay an action and refer the matter to

arbitration, and at the same time take a position denying the validity of the arbitration

agreement or that it is a party to the agreement. If they were successful in that

argument, the matter would just have to go back to the court.

In Shaw Satellite G.P. v. Pieckenhagen, 2012 ONCA 192 the Ontario Court of Appeal

said it is “incumbent on [the defendants] to indicate to the court that they are parties to

and are bound by the Agreement to invoke s. 7(1). To hold otherwise would enable

them to take the position before an arbitrator that they are not parties to the Agreement

which in our view would be entirely inappropriate.”

However, as Heintzman notes in his article: “If…the competence-competence principle

can only be invoked by a party that acknowledges, in all relevant respects, that the

tribunal has jurisdiction…then the scope of the competence-competence principle may

be substantially limited.”

For example, someone defending an arbitration claim or counterclaim may

acknowledge the validity of the arbitration agreement, but argue that the matter in

dispute (or part of the dispute) falls outside the scope of the agreement. In that case,

2020

Can

LIID

ocs

288

51

the claimant may choose to start a court action with respect to those issues for a variety

of reasons (including simply to preserve a limitation period).

Would it be appropriate for the party challenging the jurisdiction of the arbitrator to ask

the court for a stay, if the end result will be to send the parties back to court if they are

successful in blocking the arbitration?

Could the party that commenced the court action then consent to the stay and send the

matter back to the arbitrator and argue for a broad interpretation of the arbitration

agreement to make the court action unnecessary?

Most recently, the Ontario Court of Appeal chose not to deal with the “competence-

competence” principle in a case about the enforceability of an arbitration clause in the

context of an employment standards claim, saying it applies only where the scope of the

arbitration is in issue, but it is up to the court to determine the validity of the arbitration

clause.

Heller v. Uber Technologies Inc., 2019 ONCA 1 (CanLII), at paragraph 39.

The court said it would not address arguments relating to the competence-competence

principle [40], and decided the case on other grounds (ruling that a clause requiring

arbitration in Netherlands was an unenforceable attempt to contract out of the Ontario

Employment Standards Act and that the clause was unconscionable due to the unequal

bargaining power between Uber and its drivers).

The Court of Appeal seems to have ignored the clear wording of the Arbitration Act,

which says objections with respect to both the existence and validity of the arbitration

agreement are within the purview of the arbitrator at the first instance.

However, it did find grounds to refuse to stay the drivers’ claim and refer the matter to

arbitration under section 7 of the Arbitration Act, which says the court may refuse a stay

if the arbitration agreement is invalid.

2020

Can

LIID

ocs

288

52

It is difficult to reconcile sections 7 and 17 of the Arbitration Act in those situations

where the conflict goes to the fundamental existence or validity of the arbitration

agreement. Section 7 gives the court the authority to determine validity in deciding

whether to grant a stay or not. At the same time, section 17 (and the competence-

competence principle generally) says that is up to the arbitrator to decide whether there

is a valid agreement to arbitrate.

As one commentary on the Uber case noted:

The Court’s statements about arbitrator jurisdiction and the applicability of the competence-competence principle in this case could also have significant ramifications for future application of the competence-competence principle, and whether invalidity of an arbitration provision is an issue relating to arbitrator jurisdiction. The Court did not fully delve into this issue. Clarity from the courts on this issue would assist parties to arbitration agreements. Blakes Business Class, January 8, 2019.

And, as the Supreme Court said in the Dell decision (at paragraph 86):

“Before departing from the general [competence-competence] rule…, the court must be satisfied that the challenge to the arbitrator’s jurisdiction is not a delaying tactic and that it will not unduly impair the conduct of the arbitration proceeding. This means that even when considering one of the exceptions, the court might decide that to allow the arbitrator to rule first on his or her competence would be best for the arbitration process.”

Are We Done Yet?

Originally published on December 7th 2018

If parties are successful in reaching an agreement at the end of a long day (or more) of

mediation, one of the final challenges is preparing a written document everyone can

sign to capture the terms of the settlement.

One difficulty is to make it detailed enough to cover all of the essential terms, without

leaving any loose ends.

2020

Can

LIID

ocs

288

53

Another is to avoid getting bogged down with overly complex legal drafting that can

simply open up new issues or unravel a still-fragile agreement.

The more complex the settlement, the more difficult it is to balance these two competing

challenges. It’s fairly simple when the settlement involves a one-time payment to settle

a claim, together with mutual releases. It’s much more difficult when there’s an ongoing

relationship between the parties and the agreement involves continuing obligations on

both sides.

There’s a natural temptation, when agreement “in principle” has been reached, to “fine

tune” the detailed terms to each party’s advantage. Be careful it doesn’t lead to either

no agreement, or one that wasn’t intended.

A recent case in the Federal Court illustrates this danger and provides a timely reminder

of the importance of having a clear settlement agreement.

Though not involving mediation, the Court in Betser-Zilevitch v Nexen Inc., 2018 FC

735 was faced with an agreement “in principle” to settle a patent infringement action.

After lengthy correspondence between counsel, with multiple offers and counter-offers,

Betser-Zilevitch proposed terms which included a patent license, release from all

claims, no further legal action by either party and a confidentiality agreement. (The offer,

as set out in the decision [22] also included one term that is fully redacted. References

to this term, which appears to relate to confidentiality, are redacted throughout the

judgment [see 89-93].)

Nexen said it was “prepared to agree in principle” and would prepare a settlement

agreement on those terms and “other standard settlement terms.” Betser-Zilevitch then

advised the Court, on consent, that a settlement had been reached subject to

formalization.

In fact, the parties could not agree on all the terms of the formal agreement and Betser-

Zilevitch tried to withdraw the settlement offer. Nexen brought a motion to enforce the

2020

Can

LIID

ocs

288

54

settlement and was successful. The court found that there was a binding agreement to

settle, determined several implied terms on which the parties could not agree, and

discontinued the action.

The court found a clear intention to settle in the correspondence. It also found

agreement on the “essential terms” despite the subsequent correspondence between

counsel, disagreeing over the scope and conditions of the license, release and

confidentiality agreement.

Both parties tried to change the wording of the formal documents to their own

advantage, beyond what was in the original settlement offer.

Nexen tried to expand the scope of the license and release Betser-Zilevitch had

offered.

Betser-Zilevitch tried to narrow the scope of the license and release.

I especially enjoyed the “officious bystander” approach cited by the Court to determine

what an objective business person would have considered to be essential terms in an

agreement of this kind. The Court set out its conclusions on the essential terms,

including implied terms. Each side, it concluded, had also tried to add non-essential

terms in the final drafting. Those were rejected by the Court.

The Court also refused to set out the settlement terms in a formal order, which would

elevate contractual terms into a “Court order with attendant liability to civil contempt

proceedings for non-compliance.” [97] This effectively threw it back to legal counsel to

draft a definitive agreement, on the terms determined by the Court.

Avoid Unintended Consequences

How can parties to a dispute, counsel and mediators avoid the potential unintended

consequences of a vague or incomplete settlement agreement? Here are a few ideas.

1. Preparation

2020

Can

LIID

ocs

288

55

It may go without saying, but I always make a point of recommending to counsel that

they come to the mediation with prepared drafts of the terms they would expect to see

in the settlement document. This includes the standard release, confidentiality and other

terms that should be in any agreement.

More importantly, it should include potential terms relating to the main issues in dispute.

They can prepare several alternatives for a range of settlement options that may be

discussed. This will also help each party focus on precisely what they want to achieve in

the mediation – best case, as well as a range of acceptable alternatives.

2. Keep it Simple

Lawyers are risk averse. They have a natural tendency to try to draft settlement

agreements to cover every possible contingency. This can make them overly

complicated. The document should be detailed enough to make the terms clear and

certain, but not more than that.

A mediated settlement agreement should be written in clear simple language, not in

typical legalese.

Complicated clauses may create uncertainty and ambiguity, rather than providing

certainty. At best, they will take time to review and discuss, usually at the end of the day

when everyone is tired and impatient. At worst, over-reaching in the drafting will

damage hard-won trust and may scuttle the settlement.

There is often a temptation to add terms in the document that were not discussed during

the mediation – usually with an “of course we need to include that…” If it’s something

non-controversial, it may be fine. But if not, it may be a large setback.

The more complicated the agreement, the more likely it is that one party or the other will

think there is something underhanded.

The writers should also avoid throwing in catch-all phrases, such as “other standard

terms.” As the case above illustrates, this just opens the door for the lawyers to argue

2020

Can

LIID

ocs

288

56

over what terms are standard or were implied. If specific terms are critical to the

settlement, include them, at least in bullet form, to provide certainty.

3. Conditions to be Satisfied

Ideally, the final decision makers are at the mediation and can sign off on the settlement

terms on the spot, but that is not always possible. In complex commercial disputes, the

settlement may be subject to approval or other conditions.

It may be conditional on internal approval (e.g. by one party’s board of directors) or the

approval or other action of a third party (e.g. a public authority). In public sector

disputes, the settlement may need approval of elected officials or some other formal

process.

These conditions should be communicated to the other parties early, so they aren’t a

last minute surprise. The should also be drafted carefully. Spell out exactly what

approvals are required, from whom and when.

Beware of terms that allow approval to be withheld or delayed as a way to re-open

negotiations. There should be a realistic deadline to secure approval, failing which the

settlement fails (or some other alternative kicks in).

The representatives at the mediation can’t promise that approval will be given. Often,

the most that can be said is the party representatives will recommend approval. Avoid

obligations such as “best efforts” to get the approval; this just opens the door to an

argument over what that means if approval isn’t forthcoming.

If a party is required to take a specific action or pay a fee to get the consent, spell it out.

None of this is easy, especially under the pressure of a deadline to prepare something

the parties can sign before they leave the mediation. The lawyers’ big fear is that they

might forget to include an important term. The more this can be planned in advance, the

easier it will be to get a signed agreement when the day is done.

2020

Can

LIID

ocs

288

57

Ombudsman Impartiality Is a Delicate Balance

Originally published on October 2nd 2018

The recent announcement that another major Canadian bank is withdrawing from the

national banking ombudsman service in favour of a private dispute resolution service for

customer banking complaints raises interesting questions about independence and

impartiality.

In September, the Ombudsman for Banking Services and Investments (OBSI)

confirmed that Bank of Nova Scotia will no longer use the service for banking

complaints as of November 1. Instead, it will join Royal Bank of Canada and Toronto-

Dominion Bank in using ADR Chambers Banking Ombuds Office (ADRBO) to resolve

complaints, the Globe and Mail reported.

Scotiabank will still use OBSI for investment disputes, as do the other banks.

Banks are required by federal regulation to have an independent service to investigate,

mediate and adjudicate complaints about banking services.

OBSI and ADRBO are currently the only approved private service providers for banking

complaints. (ADRBO does not handle complaints against investment firms.)

The head of OBSI was quoted in the Globe as saying there is “an inherent conflict of

interest” in letting banks decide who will handle their customer complaints. It’s “a real

problem for consumer protection in the banking sector,” Sarah Bradley, ombudsman

and chief executive, said.

Those concerns were echoed by other consumer advocates, who expressed concern

that a private, for-profit service cannot be as independent and fair as the OBSI, which is

funded by financial industry members, based on size and revenues, and operated on a

not-for-profit basis.

2020

Can

LIID

ocs

288

58

The OBSI website describes how OBSI investigates complaints about banking and

investment services and makes non-binding recommendations for compensation if it

finds that consumers have lost money or been treated unfairly. It tries to facilitate

settlements between the financial institution and the customer, where possible. If it

cannot settle the matter, it makes a formal non-binding recommendation. Compensation

is capped at $350,000.

Financial institutions don’t have to accept the recommendation, but any refusal is made

public and they seem to be relatively rare. The OBSI website lists one refusal in 2016,

four in 2015, six in 2014, five in 2013, three in 2012 and one in 2007. All related to

investment losses, rather than banking complaints.

The OBSI opened 721 cases in 2017 – 370 banking cases and 351 investment

complaints – and recommended total compensation of $2.6 million according to

the 2017 annual report. Average compensation for banking complaints was $2,089; for

investment complaints it was $16,000.

Earlier this year, the Financial Post reported that there was a 28% increase in bank-

related complaints to OBSI in 2017. Almost one third of the complaints related to credit

cards; mortgages were 18% and personal accounts were 16% of the banking

complaints. Chargebacks were the leading credit card issue; prepayment penalties

generated the most mortgage complaints, according to OBSI.

In 2017, many of the large banks also faced complaints about aggressive sales tactics,

as both employees and consumers said the banks were pushing products on customers

to meet sales and revenue targets.

In November 2017, ADRBO started taking complaints about National Bank Canada, in

addition to RBC, TD and DirectCash Bank. Bow it is adding Scotiabank to the list.

A spokesman for Scotiabank said one of the reasons for moving from OBSI to ADR

Chambers was to provide customers with a more streamlined service and faster

response times.

2020

Can

LIID

ocs

288

59

Customers must exhaust the bank’s internal complaint process before going to OBSI or

ADRBO.

ADRBO’s 2017 Annual Report says it opened 275 new complaints (from 1248 initial

contacts) and it closed 267 files, including all of those opened in previous years.

The ADRBO website explains that it makes an initial assessment within 30 days of

receiving a complaint. If it concludes the complaint isn’t within the scope of its mandate

or that it will not likely come to a different conclusion than the bank, it will issue an “initial

view” letter declining the case. In 2017, that was the result in more than 60% of new

cases. (Final reports were issued in 16% of new cases; 18% were still under

investigation or under review; 4% had been resolved by agreement between the bank

and customer.)

For many years, OBSI faced complaints that it’s process was too slow, leaving some

consumers waiting for months or years to learn whether they would receive

compensation or not. But based on the 2017 numbers, there doesn’t seem to be

significant difference between the two services in investigation times for banking

complaints.

In 2017, it took ADRBO an average of 54 days to complete its investigations. OBSI also

reported that it completed its banking investigations in an average of 50 days in 2017,

and none took longer than 120 days.

It is always a challenge to create and manage an effective, independent consumer

dispute resolution process, particularly when it is offered free of charge to the

consumer. Any system is going to face suspicion that it is biased in favour of those

paying for it, especially when it’s funded by the parties being investigated and potentially

sanctioned. If some can opt out and move to another service provider when they don’t

like the way it works, it inevitably causes doubts about fairness and impartiality.

ADR Chambers commissioned an independent audit of its investigation and

adjudication processed in 2012, in response to earlier public challenges to its

2020

Can

LIID

ocs

288

60

independence and fairness. The audit report is available here. It made several

recommendations to improve transparency and communications with consumers which

I think are applicable to any similar consumer complaint system, whether private or

public:

Adopt clear policies for contract investigators and office staff to provide accurate

and timely updates to parties to an investigation

Clearly articulate what feedback is being sought when a draft investigation report

is provided to parties to the investigation.

Provide an explanation of the relevance of case law or contract documents

referred to in the investigation report and attach the relevant supporting

documents for clarity and understanding of the report.

Clearly, transparency and timely communication are essential to any consumer dispute

resolution process. The consumer, unfamiliar with the process, is naturally suspicious of

the ongoing relationship between the business and the service provider. They must

have visible assurance that the claim is being handled fairly and in their interests.

On the other hand, an adversarial relationship between the service provider and the

business that is subject of the complaint is not productive either. The investigator must

be able to get all the relevant information to make an objective assessment. And final

recommendations must have credibility if they are to be accepted, especially when they

are non-binding.

It’s a delicate balancing act and, as the banking industry example shows, a loss of

confidence can result in a run on the bank – or on the banking ombudsman.

Lessons From the FIFA World Cup

Originally published on July 31st 2018

The international football (soccer) circus known as the FIFA World Cup rolls around

every four years and I spend way too much of the early summer watching the games.

The best place to watch, I think, is an outdoor patio, preferably surrounded by partisans

2020

Can

LIID

ocs

288

61

of one or both of the contenders. In Toronto it’s easy to find supporters for every team in

the tournament.

This year, the games were played at either late morning or early afternoon Toronto time.

Downtown office buildings have giant screens in lobbies or food courts so fans don’t

have to sneak too far away from their offices for an extended lunch hour. Some spend

much of the game on phones or laptops, presumably so bosses don’t know how much

they’re shirking.

I enjoy the spectacle, the drama and emotion. I don’t really care who wins, as long as

there are enough upsets and surprises to make things interesting.

I wrote about some of the dispute resolution lessons from the 2014 World Cup In

my Practical Resolutions blog: playing to win vs. playing not to lose; how quality and

team play usually prevail in the long run.

This year my idle thoughts were on the challenges of adjudication, especially

adjudication in real time, in situations where everything (and nothing) may turn on each

decision.

One of the biggest challenges the referees face is that players are always trying to bend

the rules as much as they can get away with. The pushing; the shirt-tugging; the 20-

meter stroll down the sideline before a throw in. All part of the game within the game.

As usual, social media was afire with complaints about the diving and fake injuries.

Players who manage to carry an opponent on their backs in their own end of the field

drop to the ground at the slightest touch when they near the opposing goal, trying to

draw a penalty and a scoring chance.

The referee often waves off the obvious fakes, but they are sometimes taken in.

As Globe and Mail sports writer Cathal Kelly noted in a column early in the tournament,

it’s all all part of the “realpolitik” of the game.

2020

Can

LIID

ocs

288

62

When Brazilian superstar Neymar Jr. – the most expensive and, quite possibly, most

talented player today – rolls around on the ground in mock agony, he’s not fooling

anyone. But he is buying himself a bit more room to move when he gets into scoring

position.

(Those who haven’t seen Neymar’s over-the-top fakery can simply Google his name

and find hundreds of hilarious memes including giant pandas rolling on the ground and

soccer practices where kids learn to dive on command.)

It all reminds me of the tactics I sometimes see in disputes where every point in issue is

argued like it’s a matter of life and death. Every request from the other side is

unreasonable, unethical, and grossly unfair; every request from our side is a merely a

question of justice and fairness.

Even if the procedural wrangling has nothing to do with the merits of the case, counsel

will do the legal equivalent of writhing on the ground clutching their ankle, to try to get

what they want from the adjudicator.

If they don’t, well, eventually they jump up and run off to re-join the play, until the next

issue comes along.

Does it affect the outcome of the dispute? I like to think not, but it’s only human nature

for the adjudicator to pay more attention to these tactics than they deserve.

In the final game of this year’s World Cup, the first goal was scored after a French

player went down just outside the penalty area. To me, the replay clearly showed he

had fallen before the Croatian player touched him, but the free kick had been awarded

and the shot deflected into the net off a Croatian player.

Bad luck for Croatia all around, but they evened things up with a pretty goal shortly

after. Karma, I thought.

Then, a second French goal that was even more controversial, when a penalty kick was

awarded for a “hand ball” after a video replay.

2020

Can

LIID

ocs

288

63

This year, for the first time, FIFA used a video assistant referee (VAR) system to review

calls on the field. The replays are supposed to be used only to “ensure that no clearly

wrong decision” is made on the field in connection with goals or penalties. As usual with

these systems, it showed the referee was right more often than not. In some cases, it

did change a bad call; more often, it was inconclusive, so the call stood.

In this case, the replay showed the ball glancing off the player’s arm. No question there.

But penalties for hand balls are supposed to be awarded only if the player intentionally

puts a hand or arm in the way of the ball.

How is the referee supposed to know what is going on the the player’s mind, especially

from a slow motion replay after the fact, when intention must be read into every slight

movement of the arms while he’s jumping for a ball in a jostling crowd of other players?

The decision to award the penalty put France up 2-1 at halftime and it looked like it

would be the deciding factor in the game. Not as it turned out. France scored two more

beautiful, skillful goals from the field in the second half. I’m sure that was a relief for the

referee as much as the players involved.

Croatia also scored one more in a losing cause, when the French goal tender suffered a

brain cramp and kicked the ball close to an an opposing player who tapped it into the

net.

This, too, reminded me of disputes I have adjudicated, where one side or the other

momentarily took their eye off the ball – or tried too hard to make a clever play – with

disastrous results.

Missed and blown calls from the referee; own goals by both teams. These things

shouldn’t happen in a high-stakes game played by world-class teams, but they do.

Final score: 4-2. The better team on the day won.

And once again, football offers us some important – or maybe just mildly interesting –

life lessons.

2020

Can

LIID

ocs

288

64

Arbitrator Anxiety: When an Award Is Challenged in Court

Originally published on June 11th 2018

As an arbitrator, it is a nerve-wracking and somewhat fearful experience to have an

award challenged in court. I’m glad to say it isn’t a common experience for me (knock

on wood), but it happened recently.

I was relieved to read the judgement – skipping straight to the last page to see whether I

had got things right or not. (Do judges do that, I wonder.) The court said I had – big sigh

of relief – but it prompted me to think about what what courts expect from us as

arbitrators. It was a reminder of some essential things we should remember at all times.

I won’t comment on the case itself or on the court judgement. Interested readers can

find it here. But I want to offer some thoughts on broad issues raised by this and other

legal challenges to the arbitration process.

Most of the cases do center on process, I think, because arbitration statutes and rules

set out very limited grounds to appeal an arbitration award or to have it set aside.

Courts generally avoid second-guessing arbitrators on questions of fact (though they

are known to find errors of law in situations where it appears the tribunal simply got

things wrong…).

Under Section 45 of the Arbitration Act in Ontario, appeals are allowed on a question of

law or mixed fact and law, if the the arbitration agreement expressly provides for such

appeals. Otherwise, appeals are only permitted on questions of law, and only with the

leave of the court, which must be satisfied that the matters at stake in the arbitration

justify an appeal or the question of law at issue significantly affects the rights of the

parties. This is a fairly high threshold to obtain leave.

The Arbitration Act (section 46) also lays out a number of grounds on which a court may

set aside an award. Broadly speaking, those grounds go to the very existence or validity

of the arbitration agreement; whether the arbitration has gone outside the scope of the

2020

Can

LIID

ocs

288

65

arbitration agreement or the jurisdiction of the arbitrator; whether the procedures

followed in the arbitration complied with the Act; fraud or misconduct by the parties or

the arbitrator.

But perhaps the most common grounds to seek to have an award set aside is

“reasonable apprehension of bias” by the arbitrator and whether the parties were

treated equally and fairly.

It’s human nature, I think, to believe a decision that does not go our way is unfair. Every

parent must learn to deal with the universal appeal of the aggrieved child: “But that’s not

fair!” Eventually, we learn that life is not fair.

In arbitration or adjudication, courts have consistently said allegations of bias, or

unfairness, must be raised in a timely manner. Such claims seem to be quite common in

decisions involving labour relations and human rights tribunals. Both the tribunals

themselves (ruling on their own impartiality) and supervising courts have said the failure

to raise these issues immediately amounts to a waiver.

For example, in Eckervogt v. British Columbia, 2004 BCCA 398 (CanLII), the BC Court

of Appeal said:

I do not think it is proper for a party to hold in reserve a ground of disqualification for use only if the outcome turns out badly. Bias allegations have serious implications for the reputation of the tribunal and in fairness they should be made directly and promptly, not held back as a tactic in the litigation. Such a tactic should, I think, carry the risk of a finding of waiver. Furthermore, the genuineness of the apprehension becomes suspect when it is not acted on right away. (at 48)

And in the context of a labour mediation/arbitration, the BC Labour Relations Board

said:

“… it is especially important that a party put its objection … at the relevant time, rather than putting it in its back pocket and relying on [it] much later (after it receives what it perceives as an unfavourable decision).” PCL Constructors Canada Inc v International Association of Bridge,

2020

Can

LIID

ocs

288

66

Structural, Ornamental and Reinforcing Iron Workers, Local No 97, 2012 CanLII 1509 (BC LRB), at 113.

I must say that It has always seemed odd to me that arbitrators are charged with

determining their own impartiality or qualifications. But that’s the way it is. And parties

have very little time to make a challenge.

For example, section 13 of the Arbitration Act requires the parties to challenge within 15

days of becoming aware of the facts giving rise to the challenge, and to make an

application to court within 10 days of being notified of the tribunal’s decision if the

arbitrator does not resign or is not removed.

Similarly, the ADR Institute of Canada Arbitration Rules allow only seven says after

becoming aware of circumstances giving rise to “justifiable doubts about the Arbitrator’s

independence or impartiality” to challenge the arbitrator. And in the case of a single

arbitrator, it is the arbitrator who decides the challenge.

Procedural issues can’t simply be dismissed out-of-hand, either, even if the arbitrator

thinks they aren’t appropriate for arbitration (for example, issues related to the scope of

the arbitration, broad document production and witness discovery requests, evidence

and hearing procedures, repeated missed deadlines or requests for more time).

Judges, who live by the rules of civil procedure, may expect a certain level of procedural

correctness, even if those rules of procedure do not apply to arbitration. And there is

lots of room for interpretation in the arbitration statutes and rules.

The tribunal must make the reasons for its procedural orders as clear as possible. It

must also balance the goals of “a just, speedy, and cost-effective determination”

(ADRIC Rule 1.1) and the obligation to “treat each party fairly and give each party a fair

opportunity to present its case.” (ADRIC Rule 4.7.2)

This is especially important in the case of the self-represented party, who may not

understand all of the procedural rules or the implications of their actions.

2020

Can

LIID

ocs

288

67

The arbitrator must not only strive to treat the parties equally and fairly; he or she must

also strive to make it clear that this is the case in all procedural orders and in the final

award.

Careful, detailed reasons serve both the interests of the parties and of the arbitration

process. First, for the benefit of the losing party, who may not agree with the decision,

but may accept it if it clearly explained. Secondly, to establish a clear record, if the

decision is challenged.

Third Party Arbitration Funding (Part 2)

Originally published on March 27th 2018

In my previous column, I looked at the growth of third party litigation (and arbitration)

funding in Canada and discussed whether an arbitration Tribunal has any jurisdiction to

control the involvement of funders. If the Tribunal does have jurisdiction, what issues

should it be concerned about?

Here are just a few thoughts on some of the issues raised by third party funding in

commercial arbitration and how to deal with them.

Whether the third party funding agreement must be disclosed to the tribunal

and/or the opposing party.

Whether such disclosure should exclude privileged or confidential information.

Whether other information about the funder should be disclosed, to address

concerns that the funder, or its investors, is in competition with a party or whether

there are other potential conflicts of interest.

Whether there should be any restrictions on disclosure of information to the

funder, or it should be required to sign a confidentiality agreement.

Whether the funder is bound by the implied undertaking rule.

Whether the funder should be liable for costs and, if so, whether the it should be

required to post security for costs.

2020

Can

LIID

ocs

288

68

Whether the involvement of the funder in the arbitration gives rise to any potential

conflict issues for the Tribunal.

Confidentiality

Commercial arbitration often arises from agreements that include confidentiality clauses

which restrict disclosure not only of information relating to the subject matter of the

agreement, but details of the agreement itself. Even the fact of a dispute between the

parties may be confidential. And at least one of the parties usually wants to keep it that

way. That may be why they choose arbitration in the first place.

The party seeking outside funding – usually the Claimant, but sometimes a Respondent

in connection with a counterclaim – will not want the opposing party to know about it.

Certainly, not before it has secured a funding commitment. Knowing your opponent

can’t finance its claim is definitely a tactical advantage. And if the party is unsuccessful

in obtaining funding, that may signal that funders don’t think the claim has much merit or

value.

On the other hand, the opposing party will be concerned about the disclosure of any of

its confidential information, especially if it’s being disclosed to multiple potential funders

or other unknown third parties.

In Ontario, the Arbitration Act is silent on the confidentiality of arbitration.

Section 4.18 of the ADR Institute of Canada (ADRIC) Arbitration Rules provides that

arbitration proceedings must take place in private, unless the parties agree otherwise.

And it says the Tribunal must decide issues related to privacy or confidentiality.

“Confidential Information” is defined extremely broadly under the Rules. It includes the

existence of an arbitration and the meetings, communications, documents, evidence,

awards, rulings, orders, and decisions of the Tribunal in respect of the arbitration.

2020

Can

LIID

ocs

288

69

The parties and the Tribunal must keep all thisinformation confidential. The only

exception is where disclosure is required by a court, necessary in connection with a

judicial challenge or enforcement of an award or otherwise required by law.

But the rule permits disclosure to a “person with a direct financial interest in the

arbitration” (section 4.18.4). So the question is whether a third party funder – or

potential funder – is a person with a direct financial interest in the arbitration.

A party opposing disclosure of confidential information to a third party would argue that

the third party has no financial interest until an agreement to share in an award is

actually signed. This would preclude the disclosure of information at the due diligence

stage, when the potential funder is assessing the merits of a case and deciding whether

to fund it.

So, there’s a Catch 22. The funder can’t assess the viability of a case unless it has

access to information about the dispute and the arbitration. But the party can’t disclose

any of that information unless the third party already has a financial interest in the

arbitration.

So the Tribunal may have to intervene, to allow or limit disclosure, or to control what the

recipient can do with the information. But the Tribunal can only do so after the

arbitration has commenced and the Tribunal has been appointed.

Arguably, the Arbitration Rules would not apply if the discussion occurs before there is

an actual arbitration. What power does a Tribunal have with respect to disclosures that

occurred before the arbitration? Or disclosures made without the knowledge of the

Tribunal or opposing party after the arbitration has commenced? Can it impose

confidentiality obligations retroactively? What limits should the Tribunal set on

disclosure?

In Dugal v. Manulife Financial Corp., 2011 ONSC 1785, the court approved the funding

agreement but said there should be limits on the exchange of information between a

party and the third party funder.

2020

Can

LIID

ocs

288

70

36. […] I agree with the defendants’ submission that there should be some reasonable controls on the provision of information to the funder. The management of the funder’s own affairs requires that it be provided with reasonable information concerning class counsel’s assessment of liability, damages and trial prospects. It is also reasonable that information be provided concerning settlement offers. Appropriate guidelines need to be established to recognize the interests of both [the funder] and the defendants.

In that case, the parties agreed that evidence obtained from the defendant was not to

be provided to the third party without the defendant’s consent. Formal settlement offers

could be communicated, but must be kept confidential. And, with respect to any

evidence that was disclosed, the funder would be subject to the deemed undertaking

rule that it not use any evidence or information disclosed for any purpose other than the

proceeding at hand.

Other cases have also imposed confidentiality and deemed undertaking restrictions.

And, it seems, those restrictions have generally been acceptable to third party funders,

who seek such information only to make fully informed funding, case management and

settlement decisions.

Privilege

Generally, it seems that funders are also willing to agree to limited disclosure of the

terms of their funding agreements in order to get approval of the arrangement.

However, there are certain key terms that the funder, and the party they are funding, will

want to keep confidential. These include such things as:

the timing and total amount of the funding commitment, which could give the

opposing party a tactical advantage, and

the compensation formula, which may provide insight into incentives to settle at

different stages of the proceeding.

There may also be concerns about disclosing the funder’s assessment of the value of

the case, as well as its factual and legal strengths or weaknesses.

2020

Can

LIID

ocs

288

71

The Ontario the Court in Fehr v. Sun Life Assurance Co. of Canada, 2012 ONSC

2715 said third party funding agreements are not privileged.

129. I see no reasonable possibility that any genuinely solicitor-client communication need be revealed as a part of any third party funding agreement. Thus, there is no privileged information.

130. Put differently, if a third party funding agreement contained information that disclosed counsel’s legal opinion about the merits of the litigation or disclosed how counsel proposed to carry out the litigation beyond what might be disclosed in the litigation plan that would be disclosed for a certification motion, then it was both unnecessary and wrong to include that information.

More recently, in Seedlings Life Science Ventures, LLC v. Pfizer Canada Inc. 2017 FC

826, the Federal Court said that the funding agreement is privileged and refused to

order disclosure of the complete unredacted agreement to the defendant. In a ruling on

the disclosure motion, Prothonotary Tabib said the agreement was privileged because it

was created for the sole purpose of the litigation. She said portions relating to details of

the amount and timing of the funding could be withheld. Otherwise, the defendant would

have “a tactical advantage in how the litigation would be prosecuted or settled, … the

very essence of what the litigation privilege is designed to protect.”

So it seems there are still open questions as to what is privileged and what must be

disclosed. The answer may well depend on the context of the litigation or arbitration,

and be different for class actions or other commercial disputes.

Conflicts

Third party funding of arbitration raises another important consideration that doesn’t

usually apply in litigation: whether the involvement of the funder creates any conflict

issues for the Tribunal. In order to determine that, the Tribunal members must at least

know the identity of the funder, and may need information about other individuals or

entities related to the funder, in order to comply with continuing disclosure obligations.

2020

Can

LIID

ocs

288

72

The difficult question is what the Tribunal should do, if there is prior connection between

a Tribunal member and a funder. For example, if arbitrator has decided another case

involving the same funder.

And what about potential conflicts involving parties to other cases the funder may be

involved with? For example, is it a conflict if the arbitrator (or the arbitrator’s law firm)

represents a party in a completely unrelated matter involving the same funder? How far

does the Tribunal need to go to avoid any potential conflicts, particularly since a funder

may be financing dozens or hundreds of cases?

And how much involvement should the funder have in the selection of the Tribunal (for

example, to exclude potential arbitrators who they believe could have a conflict)?

Liability for Costs and Security for Costs

In most funding agreements, the funder agrees to assume the risk of liability for any

adverse costs award, if the claim is not successful. That is one of the benefits of the

agreement for the party being funded. The funder takes all (or most of) the risk and

shares in the rewards.

It would be a significant red flag, if the funder sought to avoid that risk. That is one of the

reasons why the Tribunal should have some visibility into the funding arrangement.

By taking a “direct financial interest” in the arbitration, and by taking a measure of

control over how the claim is prosecuted and any settlement decision, the funder

becomes a direct party to the arbitration. It should not be permitted to seek the benefits

of the arbitration while avoiding the risk of costs if the arbitration is not successful.

The Tribunal also has jurisdiction to order a party, and by extension the funder, to post

security for costs.

It is unusual to order a plaintiff or claimant to post security for costs as a condition for

prosecuting a claim or counterclaim. Courts and arbitrators are rightly reluctant to

impose impediments to access to justice.

2020

Can

LIID

ocs

288

73

However, in several Ontario cases, third party funders have voluntarily agreed to

provide security for costs in order to obtain court approval of funding agreements.

(See Dugal v. Manulife Financial and Schenk v. Valent Pharmaceuticals International

Inc. 2015 ONSC 3215)

The funders have recognized that the courts still have a long-standing aversion to

maintenance and champerty, even though they have now recognized that contingency

fees and third party funding are necessary for access to justice in some situations.

Funders seem to be willing to go to some lengths to assure courts that approval of

funding is in the interests of access to justice and not contrary to public policy, at least in

the class action context.

But there are still many concerns relating to litigation funding, and many that are unique

to arbitration. It will be interesting to see how the law and arbitration practice continues

to develop in this area.

Third Party Arbitration Funding (Part 1)

Originally published on February 2nd 2018

Third party litigation funding is growing in Canada and starting to appear in commercial

arbitration as well. This raises some interesting questions about an arbitration tribunal’s

authority to allow (or refuse to allow) third party funding and, if it is permitted, the degree

to which the tribunal should control the funder’s involvement in the arbitration.

To date, in Canada, most court decisions regarding third party funding have involved

class actions. This is partly because the cost of large class actions has grown beyond

the capacity of plaintiffs’ counsel to self-fund them and partly because the courts have

an inherent jurisdiction to oversee counsel fee arrangements and, by extension,

financial arrangements with any funder.

Interest in funding commercial claims has been growing since the Ontario court said

there is “no reason why such funding would be inappropriate in the field of commercial

litigation.” (Schenk v. Valeant Pharmaceuticals International Inc. 2015 ONSC 3215)

2020

Can

LIID

ocs

288

74

One of the arguments in favour of third party funding is that it enables a plaintiff to

pursue a claim for which it might otherwise not have the financial resources. More

rarely, a defendant may seek funding for a counterclaim. Funders are not usually

interested in funding a defense, because a successful defense doesn’t provide a pool of

funds from which they can make a return.

In a commercial context, funding may simply be an effective way for a business to

manage its legal risks.

Typically, the funder will agree to finance the legal fees and expenses – and assume

the risk of an adverse costs award – in exchange for a percentage of any settlement or

final award. The return to the funder will often vary depending on the timing of a

settlement or amount received.

Funding arrangements have raised a number of issues relating to privileged and

confidential information (both of the parties and the funder), control over the litigation

process, and liability for costs.

In Seedlings Life Science Ventures, LLC v. Pfizer Canada Inc. 2017 FC 826, the plaintiff

and funder (Bentham IMF Canada) requested court approval of the funding agreement.

Protonotary Tabib, acting as case management judge, noted that there was no

precedent in the Federal Court for such a procedure. She questioned why court

approval was necessary, or appropriate:

[18] To the extent the doctrine of champerty and maintenance remains relevant in Canadian common law, even as means of protecting the courts and vulnerable litigants against abuses, its purpose is not and was never intended to be achieved by conferring on the courts the discretion to inquire into and approve or disapprove of a plaintiff’s funding arrangements as a condition precedent to instituting or pursuing litigation. It simply operates and achieves its purpose by rendering agreements tainted by maintenance and champerty unenforceable.

In the end, the court declined to approve, or even consider, the funding agreement.

2020

Can

LIID

ocs

288

75

[23] The Defendant has no legitimate interest in enquiring into the reasonability, legality or validity of [the plaintiff’s] financial arrangements, its counsel’s fee structure or the manner in which [the plaintiff] chooses to allocate the risks and potential returns of the litigation…”

The Seedlings case is somewhat unusual, because the Federal Court has no inherent

jurisdiction, unlike the provincial superior courts. Madam Tabib found that there were no

procedural requirement for approval of a funding arrangement outside of class

proceedings and no substantive grounds on which the Court could assume jurisdiction

[28]

Interestingly, Madam Tabib, also expressly noted that: “The Federal Court’s jurisdiction

cannot be conferred by agreement between parties.” [27]

So the case is not completely analogous to arbitration, in which the parties clearly can

agree to confer jurisdiction over their dispute to the Tribunal. But it is more analogous

than many of the other cases, in that the Tribunal has no inherent jurisdiction and must

find its authority in the agreement of the parties, the applicable rules, or governing

statute.

So the question arises whether an arbitration Tribunal has any jurisdiction to approve or

disallow third party funding arrangements and, if so, what terms a Tribunal ought to

impose.

Tribunals’ Jurisdiction

What is the Tribunal’s jurisdiction to authorize or supervise third party funding?

An arbitrator has no inherent jurisdiction. It arises from the agreement of the parties,

and any applicable Rules or arbitration statute.

The Ontario Arbitration Act is typical of most arbitration statutes when it says parties

shall be treated equally and fairly and each party shall be given an opportunity to

present a case and respond to the other parties’ cases (s. 19).

2020

Can

LIID

ocs

288

76

Arguably, access to third party funding is a matter of equity and fairness, if that is the

only way one party can obtain the financial resources to present its case.

The Act also gives the tribunal broad authority to determine procedural matters (s.

20(1)).

But the Tribunal has no authority over any person who is not a party to the arbitration

agreement. It can assert authority over the party being funded (or seeking funding) in

connection with their conduct of the arbitration, but it has no authority over the funder

(or prospective funder) unless it agrees to be bound by the arbitration agreement and

the Tribunal’s decisions.

Funders recognize this and, if they are serious about funding arbitration claims, ought to

be willing to formally submit to the Tribunal’s jurisdiction. But they may be reluctant to

do so, if the conditions imposed by the Tribunal are too onerous or frustrate the

business case for the funding arrangement.

Nevertheless, the Tribunal has a duty to both parties to treat them fairly, so it must

balance the interests of both the party being funded and the opposing party to ensure

they aren’t prejudiced by the funding arrangement.

In my view, this is the most compelling argument in favour of the Tribunal asserting

jurisdiction over the funding arrangement.

If the Tribunal has jurisdiction, how should it exercise that jurisdiction and what

terms should it impose?

There are a number of steps a Tribunal may be asked to take in exercising its

jurisdiction to control to arbitration process.

And in some cases, the Tribunal may even refuse to allow the funding or the

participation of the funder in the arbitration.

2020

Can

LIID

ocs

288

77

While Canadian courts have said that third party funding agreements are not per se

illegal (champerty or maintenance) or contrary to public policy, they have said that

specific agreements may not be permitted.

For example, the funder may be seeking some kind of collateral benefit from the

proceeding, or the financial terms of the agreement may be contrary to public policy.

(See for example Metzler Investment GmbH v. Gildan Activewear Inc., (2009), 81 CPC

(6th) 384, 2009 CarswellOnt 4653 (Sup Ct) where the Ontario Superior Court refused to

approve a costs indemnification agreement by a third party funder.)

Internationally, there are examples of situations where third party funding could be

contrary to public policy. For example, in the United States, Hulk Hogan’s widely

reported lawsuit against Gawker raised a number of issues quite apart from the merits

of the case (privacy rights vs. free speech). Many people were troubled to learn that

billionaire Peter Thiel had secretly funded the lawsuit, apparently in retaliation for

disclosures about his personal life, which were not actionable. Critics claim Theil’s sole

motive was to drive Gawker into bankruptcy, and to create a chill for similar online

gossip sites, not to recover any damages for Hulk Hogan. Others praised him for

holding Gawker accountable for invasion of privacy.

While situations where the funder has an ulterior motive in supporting the litigation may

be relatively rate, it is a risk that requires some degree of oversight by a court or

Tribunal.

And in exercising this oversight, the Tribunal may impose conditions on the parties and

the funder

It may require disclosure of all or part of the funding agreement and other

information.

It may require the funder to sign a non-disclosure agreement with the opposing

party, or limit the disclosure of certain confidential information to the funder.

It may require the funder to post security for costs.

2020

Can

LIID

ocs

288

78

One thing that is clear from the cases is that the Tribunal must look at each case and

decide how to manage the arbitration process in the context of its own unique facts.

In my next column, I will look at these and other issues the Tribunal may have to

consider in exercising its jurisdiction over the arbitration procedure and the involvement

of a third party funder.

Med-Arb: Efficiency vs. Justice

Originally published on December 13th 2017

I had the pleasure recently of co-chairing a one-day seminar on mediation-arbitration

(med-arb), sponsored by the ADR Institute of Ontario, the Family Dispute Resolution

Institute of Ontario and Osgoode Professional Development.

The program explored the question “Med-Arb: Efficiency or Justice Compromised?”

We were fortunate to have two thought-provoking keynote speakers and many very

experienced panelists.

Warren Winkler, former Chief Justice of Ontario, recalled a number of efforts over the

years to incorporate both mediation and med-arb into the justice system and talked

about the resistance some lawyers and judges have shown to the idea of combined

med-arb.

Stephen Morrison, a leading commercial mediator and arbitrator, spoke eloquently

about the failure of the civil justice system to meet the needs of disputing parties for

timely, cost-effective resolution of their disputes. The courts are simply too slow and too

expensive for most people involved in business, family or workplace disputes. So ADR

in general – and med-arb in particular – is increasingly filling the gap.

Med-arb is a practical response to the needs of disputing parties. It combines the

flexibility of mediation with the certainty arbitration in a single process. When it works, it

works well and parties are generally very satisfied.

2020

Can

LIID

ocs

288

79

But when it doesn’t work, there is very real potential for the process to put people in a

worse position than they would have been if they had stayed in the court process.

Courts have generally accepted med-arb as a valid process for many years and have

shown considerable deference to party agreements (or statutory requirements) to adopt

this process.

But when a party is unhappy with the result they will challenge the process any way

they can – usually alleging arbitrator bias, misconduct or some over-riding error of law.

And it is often easier for a court to find a fatal flaw in a med-arb process that with

arbitration alone.

med-arb is very common in family disputes and, as a result, many of the court decisions

that have looked at med-arb are in that field as well. Family law is not my area of

expertise at all, but I think it’s instructive to look at those cases, because the same

issues apply to med-arb generally.

In McClintock v. Karam 2015 ONSC 1024 (CanLII), the court considered allegations of

mediator/arbitrator bias. The court reviewed a number of comments made during the

mediation phase and concluded that the mediator/arbitrator should be removed and

new arbitrator appointed to conclude the matter.

The case involved a claim by the father that the mother was alienating the affections of

their daughter, and an application to change the custody arrangements.

The mediation didn’t resolve things, and the mediator/arbitrator set a date about two

months later for an arbitration hearing. When the mediator/arbitrator refused a request

from the mother’s lawyer to delay the hearing, the court application was filed to

challenge both the jurisdiction to arbitrate custody and the arbitrator’s impartiality.

The court had no hesitation finding that the mediator/arbitrator had jurisdiction to deal

with these issues. The court also acknowledged the validity of med-arb in theory, but

expressed some strong reservations about how works (or doesn’t) in practice.

2020

Can

LIID

ocs

288

80

Mediation/arbitration is a relatively recent phenomenon. Used in the right circumstances, and with proper safeguards, it can be a useful means of dispute resolution. However, care must be taken to ensure fairness, and to ensure that a reasonable apprehension of bias does not arise. [1]

The court, citing previous decisions of the Supreme Court of Canada, said one of the

considerations in determining reasonable apprehension of bias is the “special

circumstances of the tribunal.”

…In this case, the tribunal is a mediator/arbitrator, and he has been constituted by agreement. It must be concluded that the parties, in agreeing to mediation/arbitration, would understand the nature of the process of mediation/arbitration. The informed person, in deciding whether there is a reasonable apprehension of bias, would also understand the nature of the process of mediation/arbitration.

In order to effectively mediate, the person appointed must engage in a process that has a good deal of informality. Mediative techniques include persuading, arguing, cajoling, and, to some extent, predicting. Mediation is a process to secure agreement, if possible. All of those techniques, as well as others, will come into play in trying to secure agreement.

If the mediator/arbitrator must move to the arbitration phase, it cannot be expected that he or she can entirely cleanse the mind of everything learned during the mediation phase, and of every tentative conclusion considered, or even reached, during the mediation phase. However, at a bare minimum the parties are entitled to expect that the mediator/arbitrator will be open to persuasion, and will not have reached firm views or conclusions. [68-70]

The mediation had been recorded with the approval of all parties and the mother was

able to provide the court with transcripts of the comments that the court ultimately found

to show bias. For example:

You are riding a sinking ship. You need to take this very seriously now. Not – I’m not suggesting that you haven’t taken it seriously. You need to take it seriously in a different way. That’s where my thinking is right now – very transparent, very open.

…

From my perspective, there’s more than ample evidence and concern to demonstrate that knowingly, unknowingly, inadvertently, intentionally, you’re

2020

Can

LIID

ocs

288

81

undermining the relationship of your daughter with her father. That’s a real concern.

…

It’s not gonna happen anymore by one of two ways: an arbitration hearing and I change the residential plan, or you change. I have educated, coached, begged, cajoled you. I’m not gonna do any of that anymore. Now I’m gonna arbitrate and you’ll either do it or you won’t. Is that understandable? And I don’t say that facetiously or aggressively or – I do want you to appreciate that. You’re actively teaching your daughter to disrespect her father.

The court considered those comments and concluded that a reasonable person would

conclude that the mediator/arbitrator had made up his mind about the behaviour of the

mother (which she disputed), and that by refusing to grant a short delay for the hearing

he had failed to give her a reasonable opportunity to be heard.

Philip Epstein, a prominent Toronto family mediator and arbitrator, was one of the

panelists at the Med-Arb conference. He commented on the challenges that cases like

this present for a mediator/arbitrator. He had previously commented on this case in

his This Week in Family Law newsletter (March 23, 2015).

Epstein, and other panelists who work in the labour and commercial fields, said the

challenge is to balance the parties’ expectations that the mediator will give them a full

and frank assessment of the dispute, including the merits of their positions and the

potential outcome if they do not settle, against the risk that comments on the merits of

the case will be seen as pre-judging it.

In the newsletter, Epstein took issue with the judicial view that parties are more

comfortable if a different person performs the mediation and arbitration function. In

family law, at least, his experience is that parties prefer med-arb because it is more cost

effective and there is a perception that mediation is more likely to be successful if the

mediator and arbitrator are the same person.

While mediator/arbitrators must keep the two processes separate, they cannot erase

everything they hear during the mediation from their minds. At the same time, Epstein

2020

Can

LIID

ocs

288

82

and others who spoke at the conference said they think arbitrators are as capable as

judges of putting the mediation out of their minds and deciding issues based only on the

arbitration evidence and arguments. They make a conscious effort to do so and, when

there is a significant time gap between the two phases, may actually forget much of

what they have heard.

I have acted as mediator/arbitrator in a handful of cases, so my experience is much

more limited than many of the commercial, labour and family mediator/arbitrators who

spoke at the conference, but I agree with much of what they said about this problem.

One approach that was recommended to me some time ago, and I have used in my

own cases, is to be very clear with the parties – and with counsel – that there is a

difference between “information” and “evidence”.

Arbitrators, like mediators, get a lot of information about a dispute, through pre-hearing

conference calls, pleadings, document and witness briefs. Each party will try to put their

claims in the most positive light and paint a negative picture of the other side. This is

just a normal part of arbitration advocacy.

Parties and advocates also try to influence the neutral during mediation, with

information that may not be relevant to the dispute. One can’t refuse to hear this kind of

information as a mediator. All one can do is ask: “Why are you telling me this? How is

this relevant?”

Everything the mediator/arbitrator learns at the mediation phase – as with the pre-

hearing stage of the arbitration – is information; it isn’t evidence. Some of it may

become evidence later, if the dispute goes to arbitration. Some will not.

And even if it is part of the evidence, the arbitrator must still determine whether it is

relevant and how much weight to give it.

If parties understand this, they may be more open with the mediator, but they will still be

reluctant to make any admissions, about the facts or the law, that they think will hurt

2020

Can

LIID

ocs

288

83

them if the dispute does not settle. And the mediator/arbitrator must remain very

cautious about any comments or evaluation of the merits of the case.

Cases like McClintock are a constant reminder of the traps that may befall the

mediator/arbitrator who is a bit to candid with mediating parties.

The Psychology of Negotiation

Originally published on October 4th 2017

I’ve been thinking a lot lately about the psychology of negotiation.

In the negotiation course I teach at University of Toronto School of Continuing Studies a

few times a year, I have consistently seen that the students are quite good at

understanding their own negotiation styles, strengths and weaknesses. They

understand the difference between their positions and interests. They recognize the

importance of empathy in building a negotiating relationship and value the active listing

and other negotiating skills we practice.

Where these students – and most negotiators, I think – have trouble is understanding

the motivations and interests of their negotiating counterparts.

The major assignment for this course is to write about a recent negotiation experience,

reflecting on each party’s interests and strategies, the barriers to negotiation and ways

to overcome them. The course is part of a Leadership Certificate program, so many of

the papers deal with work-related negotiations: new jobs, raises, internal projects,

customer contracts. Others deal with personal situations: buying or renovating a home,

negotiating with spouses or children.

A common thread through many of the stories is the tendency to see a negotiation as a

win-lose competition (despite the usual claims of looking for a “win-win” solution).

We attribute our own emotions, wants and fears to the “other side” and assume they

just want the opposite of what we want.

2020

Can

LIID

ocs

288

84

“I want a raise. The company doesn’t just want to pay.” “They want more money; I want to pay less.” “If I give them what they want, I will seem weak and they will just want more.”

Even the words we use implies a competition: “the other side”, “my opponent”, etc.

Fear of losing something or appearing weak to an opponent is a very powerful barrier to

negotiation.

Loss aversion has been widely studied and documented in all aspects of decision

making and plays a huge role in negotiation. In some situations, negotiators may prefer

to have no agreement rather than one where they have lost a potential benefit – even a

purely speculative one.

This also affects how negotiators value potential options for agreement. It is very hard to

give up something we already have – or something we strongly believe we deserve –

even if we stand to gain something of greater value in return. We value what we have

more highly that what we may receive.

We also value our concessions in a negotiation more highly than the other person’s.

Anything we give up is a big deal; if they give something up, it probably wasn’t that

important in the first place.

But negotiation gains and losses are also relative. Surprisingly, many negotiators will

opt for a smaller gain, or even a small loss, if they think their counterpart is losing more.

This is especially true in conflict situations where the desire to punish the other party for

their supposed bad behaviour can be stronger than the desire for personal benefit. (And

any supposed preference for mutual benefit goes out the window completely!)

There is quite a bit of writing on all the ways we sabotage ourselves psychologically

when we prepare for negotiations.

Marty Nemko, in a Psychology Today blog, says many people psych themselves out

before the negotiations even start.

2020

Can

LIID

ocs

288

85

“Am I asking for too much?” “What if they say no?” “What if they take the existing offer away?” “What other options do I have?”

The alternative is to psych ourselves up before a negotiation.

“They’re being completely unreasonable.” “Who do they think they’re fooling?” “Be tough. Don’t make any concessions.”

I think this is what happens in a lot of legal negotiations. Lawyers don’t want to appear

weak in front of their clients or other lawyers, so they go to the other extreme and force

themselves to be more aggressive and uncompromising than necessary.

Reasonable offers and small concessions are quickly rejected.

“We can do better than that.”

Many lawyers who are aggressive, uncompromising sharks at the negotiation or

settlement table are actually very nice, reasonable people in real life.

I am reminded of all the movie scenes where warriors work themselves into a frenzy

before rushing into battle. If a negotiation is a battle to be won, we must do the same.

It’s human nature.

This is also consistent with research into the “us” and “them” dynamics of group

negotiation.

To the “us” group, hostility toward “them” is perceived as loyal, cooperative behaviour.

On the other hand, cooperative or conciliatory actions toward “them” is seen as disloyal

to our team. This is particularly relevant for lawyers, for whom loyalty to the client is

paramount.

And it is also important to clients, who expect their lawyer to be a tiger who will fight on

their behalf. Simply being reasonable or realistic in negotiations can then be seen as a

sign of weakness or lack of confidence in the client.

2020

Can

LIID

ocs

288

86

We also fear being exploited or taken advantage of by others. This prevents the open

exchange of information that may be critical to a successful negotiation.

“The exchange of honest and accurate information fosters the achievement of high joint gain and, at the same time, makes one vulnerable to exploitation by a (relatively more knowledgeable) partner. To prevent exploitation and foster personal gain, negotiators can use misrepresentation and deception. Individuals in negotiations thus constantly face the question of whether they should provide accurate information to achieve high collective outcomes, or rather strategically misrepresent their preferences to foster the achievement of good personal outcomes. Because of the informational dilemma, negotiators have a fundamental reason to doubt any information from their partner.”

De Dreu, Beersma, Steinel & van Kleef (2007). The Psychology of Negotiation

The authors say this is true even when disclosing information will result in both

improved individual and collective results. For example, negotiators are reluctant to

reveal a (real) negotiation deadline because they think it weakens their position, even

though research shows it actually speeds up concessions by one’s counterpart.

What is the point of all of this?

Simply that a better understanding of human psychology can make us better

negotiators. We need to understand that our counterparts may not react the way we

expect them to, especially in conflict or stressful situations.

We tend to attribute negative motives and intentions to our counterparts, which leads to

lack of trust and lack of cooperation.

We may not disclose important information, and will not trust the information we are

given, for fear of being exploited.

And distrust breeds distrust in return.

2020

Can

LIID

ocs

288

87

Both we and and our counterparts are driven, at least in part, by fear of loss, fear of

appearing weak to our bosses, clients and colleagues (and in public situations, fear of

public perception as well).

If we recognize these and other common psychological barriers in ourselves and our

counterparts, we can avoid some of the traps we face as negotiators.

Recent International Surveys Shed Light on Why We Litigate, Even Though We Say We Prefer Mediation or Arbitration

Originally published on July 26th 2017

Many business leaders and in-house counsel say that they strongly prefer alternatives

to litigation. So why is litigation still the default process for most commercial disputes?

My previous Slaw column looked at the question of whether lawyers are “hijacking”

mediation and arbitration. I speculated that one of the problems may simply be that

lawyers are risk-averse. This leads them to follow the well-trodden path of litigation,

rather than exploring less well-known alternatives.

Some recent research may shed light on the apparent disconnect between the dispute

resolution parties say they want and what they actually do.

Pre-empting and Resolving Technology, Media and Telecom Disputes, an international

dispute resolution survey published in 2016 by the School of International Arbitration,

Queen Mary University of London, found that mediation is the stated preferred way to

resolve disputes in the technology, media and telecom (TMT) fields.

Most companies surveyed said they encourage mediation in their dispute resolution

policies, either on its own or as a step before litigation or arbitration. Arbitration is

preferred over litigation, especially for international disputes.

Seventy-five percent of the organizations surveyed had a dispute resolution policy.

Those companies reported that mediation was the preferred method of dispute

2020

Can

LIID

ocs

288

88

resolution, followed closely by arbitration. Even those with no formal policy said they

encouraged mediation. Very few of the survey respondents (11%) said they

discouraged mediation (vs. 29% that discouraged litigation).

The most common disputes reported in the TMT field related to IT system development

and implementation; collaborations, joint ventures or partnerships; intellectual property;

and licensing. More than 90% of those surveyed said international arbitration was well-

suited for TMT disputes. And more than 80% said they expect the number of

arbitrations to increase.

The most attractive features of international arbitration were enforceability, the ability to

avoid a foreign jurisdiction, expertise of the decision maker, and confidentiality and

privacy. The biggest negatives were cost, unsatisfactory results and limited remedies,

difficulty finding qualified arbitrators and delays in getting a final result.

Interestingly, customers favoured arbitration much more strongly than suppliers. The

suppliers, especially in the IT sector, preferred litigation or expert determination.

However, the responses were quite different when respondents were asked what they

actually did.

Although arbitration was preferred, litigation was the most used form of dispute

resolution. While 43% of respondents said they preferred arbitration, only 35% had

actually used it in the past five years. Contrast this with litigation, which was preferred

by only 15% but actually used by 44% of respondents.

Mediation fell in the middle – preferred by 40% and actually used by 37% – but even

there the actual experience was less than the stated preference.

People in the technology sectors like mediation and arbitration in theory, apparently, but

when it comes to actual disputes they still fall back on traditional litigation models.

2020

Can

LIID

ocs

288

89

The Global Pound Conference is a series of meetings on commercial dispute resolution

organized by the International Mediation Institute (IMI) and being held around the world

in 2016 and 2017 (including Toronto in October 2016).

Data is still being collected and those interested in participating can still vote online until

July 31, 2017.

The results published to date (May 2017, based in the initial 1500 responses) are

particularly interesting, because the responses of parties, advisors, adjudicators,

mediators and others are broken out separately, sometimes with very significant

differences in their reported interests and preferences.

All participants showed strong agreement that commercial disputes are either financial

or result oriented (ie. to obtain or prevent some specific action). No surprises there! And

all say efficiency is a top priority.

Things get more interesting when the data looks at attitudes toward different forms of

dispute resolution.

For example, mediators and other non-adjudicative service providers think retaining

control over the process is the main benefit of mediation or conciliation, but parties and

legal advisers think the main benefit is financial, followed by the opportunity to get better

knowledge of the case or likelihood of settlement.

Respondents said the most effective commercial dispute resolution process was a

combination of adjudicative (arbitration/litigation) and non-adjudicative (mediation)

processes. This was followed by mediation alone, pre-dispute escalation or other forms

of prevention. Arbitration and litigation were well down the list.

Perhaps it’s not a surprise to learn that both legal advisors and adjudicators ranked

adjudication higher than other processes – and that mediators ranked non-adjudicative

methods first.

2020

Can

LIID

ocs

288

90

Parties, advisors and adjudicators agreed that time and money are the main obstacles

parties face when seeking to resolve commercial disputes, followed by uncertainty

about the outcome and lack of knowledge of other options. Mediators were out of step

here as well, putting knowledge first and money/time second.

Participants generally liked the idea of legislation or international conventions to

promote recognition and enforcement of mediation and other settlements and the use of

protocols to promote mediation and other non-adjudicative processes before parties

resort to arbitration or court.

Everyone, including lawyers, overwhelmingly agreed that external lawyers are the most

resistant to change in commercial dispute resolution practices. Interestingly, in-house

lawyers were seen by all to be more open to change. (And I had to laugh when each

group identified one of the other groups – not themselves – as being the most change-

resistant, after external counsel…)

Participants generally thought governments and adjudicative providers (including

judicial and arbitral organizations) are in the best position – and have the greatest

responsibility – to take action to promote more effective dispute resolution.

But parties said in-house and external lawyers had the most potential to influence

change. Clearly, business people look to their legal advisors for guidance on how to

resolve disputes.

There was general consensus that the best way to improve parties’ understanding of

the options available to them is through education and awareness of dispute resolution

options, in business and law schools, as well as the business community generally.

Business people also liked the idea of creating collaborative dispute resolution centers

or hubs. Lawyers and service providers supported procedural rules requiring parties to

attempt – or at least consider – mediation or other alternatives before initiating litigation

or arbitration.

2020

Can

LIID

ocs

288

91

(It’s interesting, I think, that the question focused on attempting

mediation before initiating litigation or arbitration, rather than the common approach of

using mediation to try to settle a case after it is underway, when it may already be too

late.)

Participants agreed that there was a demand for more efficiency in dispute resolution,

but there was little or no consensus on steps governments and others could take that

would be most effective to promote better access to commercial dispute resolution.

Participants also identified the demand for certainty and enforceability of outcomes as a

significant driver of change.

Changes in corporate attitudes and more emphasis on collaborative instead of

adversarial processes were identified as trends that will have the biggest impact on

commercial dispute resolution.

I think both of these surveys help illustrate some important realities about commercial

disputes.

Most business people aren’t happy with litigation and seek to avoid it if possible,

but they really don’t know what alternatives are available. (With some notable

exceptions: USA Today and The New York Times Magazine have reported that

Donald Trump and his companies have been involved in more than 4000

lawsuits over the past 30 years.)

External lawyers aren’t much help – even they acknowledge that they are a

significant barrier to change.

Arbitration are widely seen as a better alternative to litigation, especially for

international disputes, but concerns about time and cost, as well as uncertainty

over arbitrator qualifications and experience, are significant barriers. (Better the

devil you know?)

There is strong support in the business community for non-adjudicative dispute

resolution, including mediation, but we need more awareness and

2020

Can

LIID

ocs

288

92

encouragement to mediate (or try other forms of facilitated negotiation) before

disputes head down the arbitration or litigation path.

There is a demand for better mediator and arbitrator qualifications – administered

by government or industry groups – to give participants more confidence in the

quality and experience of service providers, especially for international disputes.

New ICC Arbitration Rules and Guidelines

Originally published on March 31st 2017

The International Chamber of Commerce has adopted amendments to its Rules of

Arbitration, along with a new, consolidated version of its Note to Parties and Arbitral

Tribunals.

These Rules and guidelines are obviously important for international arbitration, but they

may provide useful guidance on good practice for ad hoc and administered arbitrations

in Canada as well.

The amended ICC Rules came into force on March 1, 2017.

The most significant changes relate to the Expedited Procedure Rules (Article 30 and

Appendix VI) which will now be the default rules for claims under USD 2 million, and

may also be used for larger claims by agreement of the parties.

Among the notable features of the Expedited Procedure:

The dispute will be heard by a single arbitrator, even if the parties have agreed to

otherwise in an arbitration agreement.

After consulting the parties, the tribunal may decide the dispute on the basis of

documents and written evidence, with no oral hearing or examination of

witnesses.

2020

Can

LIID

ocs

288

93

If a hearing is held, the tribunal may conduct it by videoconference, telephone or

similar means.

The deadline for rendering an award is 6 months, starting from the date of the

initial case management conference (which is to be held within 15 days of the

tribunal receiving the file).

The arbitrator’s fees are roughly 20% lower than the usual ICC fee range. The

ICC administrative fees are the same.

The ICC has recognized that delays in receiving awards is a problem in international

arbitration. Section 25 of the Note to Parties and Arbitral Tribunals says:

Arbitrators have a duty to devote to the arbitration the time necessary to conduct the proceedings as diligently, efficiently and expeditiously as possible. Accordingly, prospective arbitrators must indicate in the Statement the number of arbitrations in which they are currently acting, specifying whether they are acting as president, sole arbitrator, co-arbitrator or counsel to a party, as well as any other commitments and their availability over the next 24 months.

And the Note includes (in Article VIII) the potential for higher fees for arbitrators when

draft awards are delivered early and the threat of reduced fees when they are delivered

late. We can also expect the court to be more active in ensuring that arbitrators are

accountable for delays in hearing and deciding cases.

The Note also includes new guidance on the conduct of all participants in arbitrations

(Article IV).

It requires arbitrators, parties and their representatives to follow “the highest standards

of integrity and honesty, and to conduct themselves with honor, courtesy and

professionalism.” It encourages witnesses, experts and other participants to do the

same. The Note expressly encourages parties and tribunals to adopt the IBA Guidelines

on Party Representation in International Arbitration, where appropriate.

2020

Can

LIID

ocs

288

94

The Note specifically prohibits ex parte contacts between an arbitrator and a party, with

limited exceptions.

A prospective arbitrator may communicate with a party or party representative on

an ex parte basis to determine his or her expertise, experience, skills, availability,

acceptance and the existence of potential conflicts of interest.

To the extent that the parties so agree, arbitrators may also communicate with

parties or party representatives on an ex parte basis for the purpose of the

selection of the president of the arbitral tribunal.

In all such ex parte communications, an arbitrator or prospective arbitrator shall

refrain from expressing any views on the substance of the dispute.

Alexis Mourre, President of the ICC Court, is quoted on the ICC web page announcing

the new Rules and Note, saying:

“By introducing ethical principles and endorsing the IBA Guidelines on Party Representation, the Court aims at ensuring that the highest standards of honesty and professional conduct are abided with by all participants in the arbitration. It is of fundamental importance that the legitimacy of the arbitral process be protected at all times, and the ICC initiative establishes with clarity the parties’ duty to cooperate in good faith and to behave with integrity for the sake of the fair and efficient resolution of disputes submitted to our rules.”

Some other existing Rules are also worth noting.

Arbitrators must provide full disclosure of any circumstances that might call their

independence and impartiality into question (Article III).

These include, but aren’t limited to situations where the arbitrator (or prospective

arbitrator) or his or her law firm:

represents or advises, or has represented or advised, one of the parties or one of

its affiliates.

acts or has acted against one of the parties or one of its affiliates.

2020

Can

LIID

ocs

288

95

has a business relationship with one of the parties or one of its affiliates, or a

personal interest of any nature in the outcome of the dispute.

acts or has acted on behalf of one of the parties or one of its affiliates as director,

board member, officer, or otherwise.

is or has been involved in the dispute, or has expressed a view on the dispute in

a manner that might affect his or her impartiality.

The arbitrator or prospective arbitrator has a professional or close personal

relationship with counsel to one of the parties or the counsel’s law firm.

They also include situations where the arbitrator or prospective arbitrator:

acts or has acted as arbitrator in a case involving one of the parties or one of its

affiliates.

acts or has acted as arbitrator in a related case.

has in the past been appointed as arbitrator by one of the parties or one of its

affiliates, or by counsel to one of the parties or the counsel’s law firm.

These are ongoing obligations, and the arbitrator must declare any new information

which comes to light during the course of the arbitration. Any doubt must be resolved in

favour or disclosure.

As the Note makes clear:

A disclosure does not imply the existence of a conflict. On the contrary, arbitrators who make disclosures consider themselves to be impartial and independent, notwithstanding the disclosed facts, or else they would decline to serve. In the event of an objection or a challenge, it is for the Court to assess whether the matter disclosed is an impediment to service as arbitrator. Although failure to disclose is not in itself a ground for disqualification, it will however be considered by the Court in assessing whether an objection to confirmation or a challenge is well founded. (section 19)

Some of these rules are not new, but they reflect the principles of full disclosure which

applies in international arbitration. We would do well to pay attention to the continuing

2020

Can

LIID

ocs

288

96

evolution of these guidelines and apply them where appropriate to Canadian arbitration

rules and procedures.

Research Into Use of Dispute Resolution Boards in Large IT Projects

Originally published on February 7th 2017

A new year means new opportunities and challenges.

For me, this means that, after years of gradual transition from being a legal advisor and

advocate to focusing on acting as a neutral mediator and arbitrator, I’ve finally

completed my metamorphosis, formally retiring from the practice of law as of the end of

2016.

One of my new projects for 2017 is with a working group of the International Technology

Law Association (ITechLaw) that is preparing a report on the use of dispute resolution

boards (DRBs) in large, long-term IT development and implementation contracts. We

are also looking at the use of other similar dispute resolution models, such as project

umpires, early neutral evaluation, and combined mediation/arbitration procedures (med-

arb).

I have written about Dispute Resolution Boards and Project Umpires in the past.

(See here for my 2013 SLAW column on project umpires.) The basic idea is to adapt a

dispute resolution process that has been widely used for large construction projects for

almost 50 years for use in other large technology projects.

The dispute board – or individual umpire – is appointed at the beginning of a project and

is available, on call, if a dispute arises. The process is extremely flexible. Some disputes

may be resolved informally, through negotiation and mediation. If the parties can’t

agree, hearings typically proceed quickly and and with minimal procedural formality.

Each party has the opportunity to explain its position, present relevant information and

documents, and respond to the other party’s position. The board or umpire may be

mandated to provide a non-binding recommendation, or a binding decision (e.g. in the

form of an arbitration award).

2020

Can

LIID

ocs

288

97

The experience in the construction field is that dispute boards greatly reduce the time

and cost of resolving disputes and minimize delays in the project itself. The expectation

is that large technology projects would see the same benefits. But there still seems to

have been relatively little experience with dispute boards (or umpires) in the information

technology sector.

Contracts for large IT projects typically include some kind of formal governance

process, often a project steering committee and an agreed escalation process, if there

is a dispute. They may include a mandatory mediation step before the parties go to

arbitration or litigation. And the industry still seems to be divided on whether arbitration

is a good idea or not. There are strong views on both sides.

But, as projects get bigger and more complex, and as they involve more suppliers and

joint efforts, there is a need for more cost-effective ways to resolve the disputes that

inevitably arise.

The ITechLaw research project, therefore, is a welcome step in benchmarking what

dispute resolution processes parties around the world are currently using for large

technology projects.

I would be most interested in hearing from anyone who has any direct experience

working with any of these models – or is aware of their use – in IT or other technology

projects. I’m especially looking for Canadian examples, but also interested in the

experience elsewhere.

In particular, we want to find out:

1. What kinds of dispute resolution clauses are commonly used in large IT

contracts?

2. Examples of IT projects that have used a DRB, single umpire, or similar project

neutral (i.e. named for the duration of the project, in advance of a dispute

arising)?

3. Examples of med-arb or other hybrid processes.

2020

Can

LIID

ocs

288

98

4. What is the experience using the process when a dispute actually arises?

5. Does it work as intended? If not, why?

6. How was the dispute finally resolved?

Any assistance with this research would be most appreciated!

If necessary, information or case studies can be provided in a way that protects the

confidentiality of the parties and the specific project or dispute.

Readers may reply to me privately at michael.erdle@practicalresolutions.ca.

The Science of Bad Decisions

Originally published on December 15th 2016

Freakonomics, is one of my favourite series of books, blogs and audio podcasts. As the

authors proclaim, they look at “the hidden side of everything.”

So imagine my delight when I found a recent podcast that examined how decisions by

adjudicators (baseball umpires, judges and bank loan officers) can be affected by totally

random factors such as the the order in which they are made and time of day.

The problem is, people don’t really understand randomness. They understand that, if

you flip a coin, the odds of landing heads or tails are 50/50. This means that, out of any

10 flips, 5 will be heads, right? Wrong.

It’s quite possible to have 10 heads in a row. Rare, perhaps, but possible. It’s

completely random.

Most people who get two or three heads in a row will expect to get tails on the next flip.

But the odds are still 50/50.

This is called the “gambler’s fallacy.”

2020

Can

LIID

ocs

288

99

“Decision-Making Under the Gambler’s Fallacy: Evidence from Asylum Judges,

Loan Officers, and Baseball Umpires” a research paper published earlier this year by

three U.S. economists found evidence that decisions made by umpires, judges and loan

officers were affected by this fallacy.

The authors looked at Major League Baseball because there is an enormous amount of

data about every pitch thrown in every game. The paper examined data about 1.5

million pitches collected by PITCHf/x, including the type of pitch (curve or fastball),

where it landed, and whether it was called a ball or strike by the umpire.

The authors asked whether the umpire was more likely to call a strike, if the previous

pitch had been a strike or a ball. They focussed on the close calls that could go either

way.

(Umpires were right almost 100% of the time, if the pitch was down the center of the

plate or way outside the strike zone. But on the close calls, the umpires were right only

about 2/3 of the time, when the call was compared with the actual recorded pitch

location. This was consistent among all 127 umpires in the data. These are the best,

most experienced umpires around. High-definition, super-slow-motion video must be

hugely detrimental to their self esteem. Let this be a lesson to all adjudicators,

especially those who can’t easily verify decisions against objective criteria. How sure

are we that we get things right? As certain as baseball umpires?)

In any case, the research also showed, with those same borderline calls, umpires were

about 3.5% less likely to call a strike, if the previous pitch was a strike. And they were

about 5% less likely to call a strike, if the previous two were strikes.

Umpires don’t do this consciously. Baseball umpires – like referees and umpires in all

sports – are trained to make every call independently, and not to think about whether

previous calls were right or wrong.

2020

Can

LIID

ocs

288

100

According to Hunter Wendelstedt, a Major League umpire since 1999 and head of a

leading umpire school, featured on the Freakenomics podcast commenting on the

PITCHf/x data:

“If you miss something – the worst thing to do, you can never make up a call. People are like, ‘That’s a makeup call.’ Well, no, it’s not, because if you try and make up a call – now you’ve missed two. And that’s something that we would never, ever want to do.”

And it’s also not what the research data shows. What it shows is that, regardless of

whether the previous call was right or wrong, the umpire is marginally less likely to

make the same call again on the next pitch, and less likely still to make the same call

three times in a row.

And the paper showed that the same tendency applied to U.S. judges deciding refugee

cases and bank offers in India deciding whether to approve loans to customers.

The research on the Indian bank loans showed the loan officers made bad decisions

(measured by the percentage of approved loans that later went bad) roughly eight

percent of the time, simply because of the order in which they reviewed the applications.

If they approved two or more applications in a row, they were less likely to approve the

next one they saw, even if the application was just as good. And vice versa.

The effect on refugee asylum decisions made by U.S. federal court judges was also

striking.

If cases are randomly assigned, one would expect some consistency in the rate of

decisions for and against applicants. That’s not what the authors found.

(Quite apart from the decision-order effects the authors were studying, they also found

that, in New York, some judges granted asylum in 80% of cases, while others approved

less than 10%. This is an astonishing discrepancy in outcomes in what should be a

random mix of assigned cases.)

2020

Can

LIID

ocs

288

101

To study the effect of the order of cases, the study focussed on judges with more

moderate approval rates. They studied about 150,000 decisions by more than 350

judges. According to Toby Moskowitz, one of the study authors:

“If the previous case was approved by the judge, then the next case is less likely to be approved by almost one percent. Where it gets really interesting is, if the previous two cases were approved, then that drops even further to about one-and-a-half percent. And if these happen on the same day, that goes up even further, closer to 3 percent. And then obviously if it’s two cases in the same day it gets even bigger, it starts to approach about 5 percent.”

And the same difference of up to 5 percent worked the other way too. If the previous

cases were denied, then the next case was more likely to be approved. So an

applicant’s odds of approval in a particular case, due simply to the order cases were

heard, changed by as much as 10%.

The authors had no way to determine the correctness of any of these decisions, but the

statistics are significant – especially for the applicants whose entire future may be

affected by whether a judge approved a previous applicant or not.

As Freakonomics author Stephen Dubner commented on the podcast:

…if I hear that a baseball umpire might be wrong … I think, “Well, but the stakes are not very high.” But in the case of an asylum seeker, this is a binary choice. This is not a one ball or strike out of many. This is I’m either in the country or I’m not in the country.

The podcast also refers to another study, from Israel, which found that time of day can

also have an effect on judges’ decisions. That study found that judges were more likely

to grant parole early in the day or right after lunch.

And there’s a phenomenon known as “sequential contrasts” which says that our our

opinion of a book, or meal, or job applicant, is affected by the last book we read, meal

we ate or applicant we interviewed. Our frame of reference changes and we rate the

next one better or worse, accordingly.

2020

Can

LIID

ocs

288

102

One study of this effect in financial markets showed that investors mistakenly perceive

current earnings news more positively, if the previous day’s earnings news was bad,

and more negatively if the previous news was good.

These studies are all part of a growing body of research into the social science of

decision-making. They shed light, not only on how adjudicators evaluate the merits of

cases, but also on the many extraneous factors and biases that can affect decisions

without our knowledge.

For more on the effect of the gambler’s fallacy on decision making, see:

Chen, Daniel L. and Moskowitz, Tobias J. and Shue, Kelly, Decision-Making Under the

Gambler’s Fallacy: Evidence from Asylum Judges, Loan Officers, and Baseball Umpires

(January 12, 2016). Fama-Miller Working Paper. Available at

SSRN: https://ssrn.com/abstract=2538147 or http://dx.doi.org/10.2139/ssrn.2538147

For more on sequential contrast effects, see:

Hartzmark, Samuel M. and Shue, Kelly, A Tough Act to Follow: Contrast Effects in

Financial Markets (July 15, 2016). Available at

SSRN: https://ssrn.com/abstract=2613702 or http://dx.doi.org/10.2139/ssrn.2613702

And check out other interesting Freakonomics stories at www.freakonomics.com.

Negotiating Advice From the Rolling Stones

Originally published on October 5th 2016

You can’t always get what you want

But if you try sometimes you just might find

You get what you need

– Rolling Stones

2020

Can

LIID

ocs

288

103

I teach a negotiation course several times a year at the University of Toronto School of

Continuing Studies. I am always surprised at the number of students who come into the

course thinking that being a successful negotiator is all about “winning” – getting what

they want.

My hope is, by the end of the course, they have learned that truly successful negotiation

is about finding a way for both (all) parties to get what they need.

Dispute resolution is about negotiation. Most litigation settles before trial. Many

arbitration claims do, too. Mediation is just a facilitated negotiation.

But many dispute resolution professionals, including lawyers and their clients, are

surprisingly poor negotiators. Perhaps it is the adversarial mindset that takes hold in an

intense dispute situation.

Lawyers and clients who are extremely pragmatic and effective when negotiating a

commercial contract or other voluntary agreement, dig themselves into unreasonable

positions when there is a dispute and they believe they (or their clients) have been

wronged.

What they want is validation, vindication or revenge:

“I’m right; you’re wrong.”

“I win; you lose.”

What they need is usually something very different:

Compensation for a real loss.

Acknowledgement of a moral or legal right or obligation.

Or simply a future without conflict.

The interest-based model of negotiation — taught at the Harvard Program on

Negotiation, the groundbreaking book Getting to Yes and elsewhere — is a powerful

tool for helping parties focus on needs, rather than wants; interests, rather than

2020

Can

LIID

ocs

288

104

positions. But too many negotiators either aren’t aware of this model or reject it as being

great in theory, but not in practice

When faced with an aggressive, positional negotiator on the other side, they revert to

positional bargaining themselves. They react to “difficult” people by becoming

adversarial. Or they try to avoid an issue, until that becomes impossible, then take a

hard line to avoid giving in or compromising.

Getting to Yes was followed by Getting Past No, which I think is a more-important book,

because it deals with the inevitable opposition a negotiator faces when trying to resolve

any dispute.

Getting to Yes was originally published in 1981 and Getting Past No in 1991, so their

ideas are not new, but in my experience, most people – especially lawyers – have a

hard time using them consistently.

Maybe it’s our legal training, which teaches us to focus on rights and obligations, to

avoid risk and ambiguity, and the careful parsing of language. We can easily lose sight

of the bigger picture. And we often react negatively to others who take contrary

positions.

The “right solution” in any situation is perfectly obvious to us; just as a different solution

is equally obvious to our counterpart. Neither side is willing to make the effort to

understand the other side’s perspective (although even talking about “sides” in a

negotiation implies that there must be more than one perspective on the problem).

Getting Past No author William Ury has since published several other books on these

and other negotiation challenges, including The Power of a Positive No: How to Say No

and Still Get to Yes (2007) and

Getting to Yes with Yourself (And Other Worthy Opponents) (2015).

The lesson of these books, and all the other thinking about interest-based negotiation

over the past 35 years, is the importance of clearly and resolutely looking for ways to

2020

Can

LIID

ocs

288

105

satisfy the needs of the disputing parties, rather than getting hung up over their

mutually-exclusive wants.

And if you try sometimes you just might find you get what you need.

Cost Consequences of a Failure to Mediate

Originally published on August 2nd 2016

A recent Wednesday: What’s Hot on CanLII drew my attention to an interesting decision

of the Ontario Superior Court of Justice on the scope of a defendant’s obligation to

mediate in a meaningful way – and the potential cost consequences of the failure to do

so. The case also yet another example of the limits on the confidentiality of the

mediation process.

In Dimopoulos v Mustafa, 2016 ONSC 4119 (CanLII), the Court dealt with several

issues arising from an accident victim’s successful claim for damages under the

Insurance Act. A jury awarded $37,000 in general damages, plus $28,800 in future

chiropractic care. The parties couldn’t agree on the amount of the statutory deductible

under the Act, which the court concluded was $30,000, leaving an award of $35,800.

The court also awarded the plaintiff costs of just under $107,000, inclusive of

disbursements and HST, calculated on a partial indemnity basis.

But the issue that caught my eye was that the plaintiff also sought additional costs of

$50,000 as a penalty for the approach the defendant took to settlement and mediation

throughout the action.

The court began by commenting on the “astonishingly aggressive opposition by the

defendant” to any settlement, including all of the post-judgement issues in dispute. The

Insurance Act requires insurers to settle claims as expeditiously as possible and to

mediate disputed claims. The plaintiff argued that the defendant didn’t participate in

mediation in any meaningful way.

2020

Can

LIID

ocs

288

106

To make its case, the plaintiff asked to Court to “lift the cloak of privilege” over the

mediation process and to consider the defendant’s mediation brief, which stated

categorically that: “it is the defendant’s position that the plaintiff will be shut out at trial

and will be liable for the defendant’s costs. For the purposes of mediation, this

defendant is only willing to negotiation [sic] the quantum of costs payable to this

defendant.” [para. 26]

[27] In further support of the lifting of the privilege to the defendant’s mediation brief, plaintiff’s counsel argued that the purpose of the communication, i.e., the mediation brief, must be to attempt to effect a settlement. “Where that is not the bona fide or genuine purpose of the communications, the privilege does not protect the communications”, see Bercovitch v. Resnick, 2011 ONSC 5083, at p.29. See also East Guardian SPC v. Mazur, 2014 ONSC 6403 (CanLII) at paras. 35-38.

The defendant strenuously objected to the court lifting the mediation privilege, including

disclosure of the mediation brief or any information relating to its conduct at the

mediation. The court suggested that admitting the mediation brief would actually help

the court to evaluate whether the defendant had mediated in good faith, but the

defendant continued to oppose disclosure.

The court concluded that the issue of the defendant’s bona fides justified making an

exception to the general principle of confidentiality and ordered the disclosure of the

mediation brief itself (but not the full contents of the mediation).

The brief detailed the defendant’s assessment of the merits of the plaintiff’s claim and

the reasons why it didn’t think the claim would be successful. Therefore, the defendant

concluded that it was not willing to pay anything to settle the case.

The court commented that all defendants are entitled to take their case to trial if they

wish, and to accept the risk of damages and an award of costs if they lose. An

unwillingness to settle is not the same thing as a failure or refusal to mediate in good

faith.

[34] Whether or not the court ultimately agreed with the defendant’s assessment is immaterial to the court’s assessment of the defendant’s bona

2020

Can

LIID

ocs

288

107

fides approach to the mediation. The mediation brief reflected a meaningful participation in the process by the defendant. Even if a settlement of the claim was not forthcoming, it enabled the plaintiff to obtain an understanding of the defendant’s position and the reasons for that position. That outcome, while obviously not optimal for the plaintiff, was nonetheless meaningful as it allowed the plaintiff to review his risks and trial strategy and approach. The defendant came to the mediation and explained the reasons for which it concluded that the claim would not succeed. Accordingly, I am unable to agree with the plaintiff’s contention that the defendant’s conduct in the mediation was contrary to the requirements of s.258.6 of the Insurance Act, such that it ought to attract punitive cost sanctions against the defendant.

As the court noted, it’s ironic that the defendant so strongly opposed disclosure of its

mediation brief, when the brief itself demonstrated its willingness to engage in mediation

– though not to put any money on the table.

This decision stands in stark contrast to previous cases where insurers have faced

serious cost consequences for refusing to mediate at all. See for example, the Court of

Appeal’s decision in Keam v. Caddey 2010 ONCA 0565, where the defendant refused

to mediate on the grounds that the plaintiff’s claim did not meet the statutory threshold

for damages. The plaintiff was successful at trial and was awarded substantial

damages, however, the trial judge declined to award additional costs because the

defendant put forward a “genuinely available position” to deny liability. The Court of

Appeal said that reasoning was wrong and awarded an additional $40,000 in costs to

“reflect the censure of the court and to provide an appropriately significant recovery [for

the plaintiff].” (para. 32)

Though not mentioned by the court in the Dimopoulos decision, I also find it ironic that

the result once again demonstrates the merits of a mediated solution to such claims.

Although the plaintiff was successful at trial, and ultimately awarded costs as well, it was

only a partial indemnity. Therefore, while the case cost the defendant more than

$140,000 due to its refusal to settle – not to mention defendant’s own legal fees which

must have been considerable – it appears that at the end of the day, the plaintiff gets

very little of that amount.

2020

Can

LIID

ocs

288

108

I can understand an insurer’s reasons for adopting a tough stand on what it considers to

be frivolous or nuisance claims, but in this case that seems to have been taken too far.

Recently, I’ve been giving a series of CLE presentations to in-house counsel on the

lawyer’s duty to encourage settlement of legal disputes and to recommend alternative

dispute resolution – Rule 3.2-4 of the Federation of Law Societies of Canada Model

Code of Professional Conduct. Of course, this must be balanced against counsel’s duty

of zealous advocacy (Rule 5.1). It is always a difficult balance to find.

As this and other cases show, the positive obligations to consider settlement and

engage in mediation require parties and counsel to do so in good faith, but not

necessarily to compromise their legal position, no matter how wrong it may ultimately

be.

The Role of Arbitrator Disclosure in International Arbitration

Originally published on June 3rd 2016

There is a very natural human tendency to claim the game is rigged when one loses.

“The referee was obviously biased against us,” the coach says, explaining the team’s

loss.

Donald Trump kept complaining that the Republican Party primary rules were rigged

against him, even though he was winning.

So, too, in arbitration, when the losing party seeks to overturn an unfavourable award.

This is particularly evident in international arbitration, where there is no right of appeal.

Also, in some domestic arbitration cases, where appeals are increasingly limited.

In these situations, lack of jurisdiction or arbitrator bias may be the only way to have an

award set aside or block enforcement. But it’s a high-risk strategy that can backfire on

the unhappy loser.

2020

Can

LIID

ocs

288

109

This was illustrated in a recent Ontario case, which the presiding judge called “a thinly

disguised attempt to avoid the consequences of an adverse decision on the merits,” and

awarded significant costs against the applicant “to deter losing parties in international

commercial arbitrations from launching baseless ex post facto challenges to an

arbitrator’s impartiality.”

The issue in Jacob Securities Inc. v Typhoon Capital B.V., was whether an arbitrator’s

failure to disclose a potential conflict of interest involving his former law firm gave rise to

justifiable doubts as to his independence or impartiality and a reasonable apprehension

of bias.

Thomas Heintzman, an experienced Toronto litigator and retired partner of McCathy

Tetreault, was appointed sole arbitrator under the arbitration clause in an Engagement

Agreement between Jacob and Typhoon.

Jacob, a Canadian investment bank, had been engaged to raise financing for energy

projects promoted by Typhoon, a Dutch company. The dispute related to Jacob’s claim

for compensation for financing provided by Northland Power Inc. and Northland Capital

Inc. (“Northland”). A Northland executive was a witness in the arbitration.

Mr. Heintzman had confirmed that he was not aware of any conflict relating to the

parties or their principals when he was appointed. The parties also confirmed they were

not aware of any conflict or grounds to object to the appointment.

But after Mr. Heintzman dismissed Jacob’s claim, Jacob retained new lawyers to

challenge the award. Jacob did some research and found that McCarthy’s had acted for

Northland and its underwriters on several transactions while Mr. Heintzman was still a

partner of the firm.

This was enough to tempt Jacob to ask the court to throw out the award and order a

new arbitration.

2020

Can

LIID

ocs

288

110

Everyone agreed that Mr. Heintzman had no actual knowledge of the relationship

between McCarthy’s and Northland when he was appointed or at any point during the

arbitration, but Jacob argued that he should have done a search with his former firm

and disclosed the conflict.

Justice Greame Mew reviewed the current law and international guidelines relating to

arbitrator disclosure and decided that it was not reasonable to expect an arbitrator to go

to those lengths to discover potential conflicts. It is reasonable to expect a current

partner of a law firm to do such a conflict check, but not a former partner, he concluded.

In any event, firms owe a duty to their clients not to disclose confidential information

about their clients to third parties, including former partners.

It is worth noting that the information about McCarthy’s representation was public and

the parties could have found it out, if they had looked. But no one did, until after the

award was issued.

This question of arbitrator disclosure keeps surfacing in international arbitration,

because it is an effective way to challenge an award.

Justice Mew referred to the decision of the Paris Court of Appeal in SA Auto

Guadeloupe Investissements v Colombus Acquisitions Inc, RG 13/13459 (cour d’appel

de Paris, 14 October 2014), in which the court declined to enforce an award because

Canadian arbitrator Henri Alvarez did not fully disclose a conflict of interest relating to

his law firm, Fasken Martineau. The arbitrator’s declaration stated that although his firm

had previously represented a parent company of the claimant, it was no longer doing

so. Unknown to the arbitrator, however, the firm had continued to represent the parent

company. The court considered this work as an important engagement for the firm and

therefore its nondisclosure undermined the arbitrator’s independence and impartiality.

That decision was recently confirmed by the French Cour de Cassation (Civ. 1, 16

December 2015, N°D14-26.279), under the Code of Civil Procedure which requires that:

2020

Can

LIID

ocs

288

111

“Before accepting a mandate, an arbitrator shall disclose any circumstance that may affect his or her independence or impartiality. He or she shall also disclose promptly any such circumstance that may arise after accepting the mandate“. (Article 1456)

Although this provision came into effect after the arbitration had commenced, the court

found that it simply reflected the existing strict standard of disclosure under French law.

In particular, there is a continuous obligation to disclose both personal relationships with

participants in the arbitration and factual circumstances involving the arbitrator’s law

firm.

Contrast this strict interpretation with the decision of the English High Court in a case

involving another Canadian arbitrator, David Haigh. W Limited v. M Sdn Bhd arose from

a London Court of International Arbitration proceeding where, shortly after Mr. Haigh’s

appointment, the parent company of the claimant in the arbitration acquired a company

that was a client of Mr. Haigh’s law firm. He was not aware of the acquisition or the

relationship between the two companies.

The court acknowledged that this situation fell squarely within the “Non-Waivable Red

List” of the International Bar Association’s Guidelines on Conflicts of Interest in

International Arbitration, which refers to situations where “the arbitrator or his or her firm

regularly advises the party, or an affiliate of the party, and the arbitrator or his or her firm

derives significant financial income therefrom.” However, the court found that the

Guidelines are not binding under English law and that the proper test was whether the

failure to disclose was “such as to reasonably cause a doubt regarding the

independence and impartiality of the arbitrator”.

It is interesting that, in finding no such reasonable doubt in this case, the court relied

heavily on an affidavit submitted by Mr. Haigh describing his relationship with the firm,

and the ongoing conflict checks he conducted which did not disclose the relationship

between the firm’s client and the claimant in the arbitration.

The court also criticized the IBA’s “Non-Waivable Red List”, questioning why the parties

should not have the discretion to waive a potential conflict if it has been disclosed.\

2020

Can

LIID

ocs

288

112

I would add a further comment that the idea of a non-waivable list of prohibited

relationships seems particularly draconian when a situation arises – or is discovered

and disclosed – after the arbitration has begun. Why should the parties be forced to

throw away the time and money they have already spent and start again with another

arbitrator?

It is important to remember that in all of these cases there was no direct relationship

between the arbitrator and the client of their current or former law firm. And there was

no personal knowledge of the relationship or the potential conflict.

Nevertheless, they reinforce the critical importance of full and timely disclosure of any

relationship that could be viewed as a conflict, especially in international arbitration.

And, as it becomes more difficult to challenge domestic arbitration awards on the merits,

it will be interesting to see whether Canadian courts will follow the strict rules of the

French courts or the more pragmatic approach of the English courts.

Justice Mew’s decision in the Jacob Securities case suggests it may be the latter.

The Problem With Experts

Originally published on April 7th 2016

Litigation and arbitration are teeming with experts these days.

There are technical experts to explain what happened. Others to say whose fault it was.

And another bunch to quantify the damages.

Almost every sizable case has at least one expert on the witness list. Well, never just

one. Each side must have their own expert. And, of course, they never agree.

That’s the problem with experts. Recent studies have shown that people have a very

hard time understanding what experts say and giving appropriate weight to conflicting

expert opinions. Adjudicators are no different from anyone else.

2020

Can

LIID

ocs

288

113

Derek Koehler, a psychology professor at University of Waterloo, recently wrote in The

New York Times about experiments he conducted to assess how scientific debates are

reported in the news media.

Media try to give “balance” to their reporting by including the views of dissenting

experts. Often the weight of the expert opinion is very strongly on one side of an issue –

for example, climate change or the safety of vaccines or certain foods. But the very fact

of including the dissenting opinion may give a false impression of disagreement when

there is really almost unanimous consensus on a particular point.

In one study Koehler conducted, participants were given a numerical summary of a

range of expert opinion on various economic issues. On some issues, a large majority

of experts agreed on a conclusion; on others there was more disagreement. (For

example, on one issue 93 experts agreed, 2 disagreed and 5 were uncertain; while on

another the split was 38/36/27.)

The study found that, when participants were given a written comment from an expert

on each side of the question, in addition to the raw numbers, they had much more

difficulty distinguishing between the high-consensus and low-consensus opinions. The

participants gave much more weight to the dissenting opinions than the raw numbers

warranted.

“This distorting influence affected not only the participants’ perception of the degree of

consensus, but also their judgments of whether there was sufficient consensus to use it

to guide public policy,” Koehler concluded.

What causes this response? According to Koehler:

One possibility is that when we are presented with comments from experts on either side of an issue, we produce a mental representation of the disagreement that takes the form of one person on either side, which somehow contaminates our impression of the distribution of opinions in the larger population of experts. Another possibility is that we may just have difficulty discounting the weight of a plausible argument, even when we know it comes from an expert whose opinion is held by only a small fraction of his

2020

Can

LIID

ocs

288

114

or her peers. It’s also possible that the mere presence of conflict (in the form of contradictory expert comments) triggers a general sense of uncertainty in our minds, which in turn colors our perceptions of the accuracy of current expert understanding of an issue.

This is not only a problem for media reporting on public policy issues such as how to

deal with climate change, drug or food safety. It has profound implications for expert

evidence in arbitration or litigation as well.

What is an adjudicator to think when faced with experts on either side who are well-

qualified, articulate and credible in their opinions?

Piling on more experts doesn’t help: “I’ll see your PhD and raise you two…”

This simply adds to the cost for each of the parties and does nothing to resolve the

problem.

Perhaps, in situations where there is a strong consensus of opinion on one side or the

other, a party can present evidence on that consensus, but I think the situations where

that would resolve a disputed issue are very rare.

Usually, the experts are being asked to apply their expertise to the facts of a particular

case. So while there may be a consensus on the basic principles that apply, there is

none on the final conclusion. There is just an opinion on either side – and each opinion

depends on the assumptions, experience and analysis of that particular expert with

respect to those specific facts.

Counsel may try to undermine the opposing expert by attacking their assumptions or the

methodology they used to arrive at a conclusion. Maybe they can drag up some prior

inconsistent research or statement made by the expert. Or perhaps a series of

hypotheticals can be presented to the expert which cause him or her to hedge or qualify

the opinion to some degree.

None of which really answers the question the adjudicator must face: Which expert is

right?

2020

Can

LIID

ocs

288

115

So what does the decision-maker do?

Maybe some of the other evidence in the case is weak. Or perhaps there are credibility

issues with other witnesses. So the decision-maker relies on that evidence to come to a

conclusion on the critical issues. The expert evidence on one side or the other can then

be thrown in to support the reasons for the decision that has been made.

If that’s what really happens, parties are spending an awful lot of money on experts for

very little benefit.

But if the case truly turns on the experts, the adjudicator must be given better tools to

weigh the conflicting expert evidence.

Counsel need to present the expert evidence in ways that allow adjudicators to better

assess when an expert is basing an opinion on a set of facts or principles on which

there is a strong consensus and when the expert is expressing a minority or dissenting

opinion that is not widely supported.

Having said that, we must also keep in mind that there are cases where the contrarian

opinion is the correct one. Many of the greatest scientists fought against the tide of

accepted wisdom until their observations, experiments, arguments and theories were

accepted and, in turn, became the consensus.

The psychological research shows that we are unduly influenced by a good story, even

if it runs counter to the expert consensus on a particular issue. We have difficulty simply

determining what that consensus is and what it means. We are also unduly influenced

by experts who opinions agree with our own perception or world view.

Adjudicators must always be aware of this and guard against their own biases in

assessing expert evidence.

Med-Arb: The Debate Continues

Originally published on February 5th 2016

2020

Can

LIID

ocs

288

116

A couple years ago Slaw columnists Kari D. Boyle and Ian Mackenzie collaborated on a

pair of excellent articles on Med-Arb – Kerri from the mediator perspective and Ian from

the adjudication perspective.

These articles insightfully highlight many of the legal, ethical and practical issues

surrounding the idea of having a single person act as both mediator and arbitrator –

issues that continue to be hotly debated among mediators and arbitrators.

Med-arb has become widely accepted in labour, family and other areas. The main

reason is efficiency.

There are many different models of med-arb. All of them rest on the foundation of

express informed consent of the parties to engage in both mediation and arbitration. In

most cases, there is a pre-existing agreement to arbitrate –either in a contract or under

some other adjudication process. The decision to mediate usually comes later, after the

dispute has arisen.

There is nothing unusual in a decision to try to mediate a solution, then arbitrate any

issues that remain unresolved. It is the idea that a single neutral can do both that raises

the unique risks and opportunities of med-arb.

In January, I had the pleasure of moderating a panel discussion on med-arb for the

ADR Institute of Ontario’s business and commercial section. Panel members David

McCutcheon and Stephen Morrison focussed on some of the practical challenges

neutrals and counsel face when adopting this model for resolving commercial disputes,

in particular. (The ADRIO panel built on a med-arb session at the ADR Institute of

Canada annual conference in Calgary which generated a lively discussion on the

benefits and risks. Recordings of both panels are available from the ADR Institute.)

Many people who question the benefits of med-arb say you should look for the best

mediator and the best arbitrator for each specific case. It’s difficult or impossible to find

someone who will excel in both roles, they say. Why compromise one or both

processes?

2020

Can

LIID

ocs

288

117

Because it works in practice, advocates say.

Everyone can save time and money if the same person acts as mediator and arbitrator.

No need to get two people up to speed on the issues.

Putting the arbitration on hold for a short time and actively engaging with the parties to

facilitate a settlement is often successful. The parties may resolve all the issues, or may

narrow the scope of the arbitration to one or two issues that can be decided relatively

quickly.

But even the strongest advocates acknowledge that there are real concerns about

confidentiality and impartiality.

Can the mediator be effective if he or she cannot meet privately with the parties and

receive information regarding the dispute and settlement option in confidence?

Can the arbitrator be truly impartial and make a decision based on the evidence, if he or

she does meet with parties privately and has information from one that the other doesn’t

know about?

One question that keeps coming up is whether a mediator/arbitrator who learns

something during the mediation that hurts one party or another can set that information

aside during the arbitration and render a fair decision, based only on the evidence. Will

that information inevitably influence the decision? (See: Keeping a Secret from

Yourself? Confidentiality When the Same Neutral Serves Both as Mediator and as

Arbitrator in the Same Case)

But arbitrators do that all the time. So do judges. They hear arguments about

admissibility of evidence and, if they decide it’s not admissible (or relevant), they set

that evidence aside.

As an arbitrator, I have had situations where I have had to rule on whether certain

documents should be produced. I have had to decide whether evidence was admissible

and what evidence was relevant to the issues in dispute.

2020

Can

LIID

ocs

288

118

I feel that I was able set aside inadmissible or irrelevant information. But maybe I’m just

deluding myself: some argue that this is an impossible task and that judges and

arbitrators alike are always influenced to some extent. We must always be conscious of

this risk of subconscious bias – my point is that it exists in every form of adjudication,

not just med-arb.

Parties will often try to influence the neutral during mediation, with information that may

not be relevant to the matter in dispute, but tends to paint their opponent as dishonest

or unreliable.

One can’t refuse to hear this kind of information as a mediator. All one can really do is

ask: “Why are you telling me this? How is this relevant?”

One suggestion, made by Stephen Morrison at the ADRIO meeting, is that the neutral

explain to the parties up front that there is a difference between “information” and

“evidence”. Everything the neutral hears at the mediation phase is information; it isn’t

evidence. Some of it may become evidence later, if the dispute goes to arbitration.

Much of it will not.

Again, this is no different from any other arbitration. In many cases, there will be a pre-

hearing conference with the parties and their counsel, to lay out the issues in dispute

and make decisions about procedure and scheduling. In my experience, each party will

make very broad claims about their case, position themself as the “good guy” and paint

a negative picture of the other side. This is just a normal part of arbitration advocacy.

The same will happen during opening statements at the hearing. These statements may

or may not be supported by the actual evidence.

One would hope that this same kind of advocacy, attacking the credibility or integrity of

the other side, doesn’t happen at mediation, where the focus should be on settlement.

But it does.

2020

Can

LIID

ocs

288

119

One of the real practical limitations of med-arb, I think, is that the parties always look at

the neutral as a decision maker, rather than as a facilitator. This may limit their candour

about potential settlement options.

Everything a party or counsel says at the mediation phase, is screened through a filter

that asks: “How will this affect the decision, if this goes to arbitration?”

Parties are less willing to concede any factual or legal weakness in their position and,

as a result, may be less willing to make the concessions needed for settlement.

Take for example, a commercial dispute where the claim is $1 million in damages. The

claimant may be reluctant to talk about settling for half that amount for fear that the

arbitrator will take it as an admission that the claim is worth only that much and will

reduce the ultimate award. The respondent may be afraid to offer any money at all for

fear that it will be taken as an admission of some liability.

The neutral must make every effort to reassure the parties that this is not the case. The

parties must be free to discuss a wide range of settlement options, knowing that none of

them will affect the ultimate decision if the matter goes to arbitration.

I had a med-arb case several years ago that illustrates how this can work. I was

appointed arbitrator in a contract billing dispute. The parties had decided up front that

they wanted it to be a med-arb and I agreed to do that. The arbitration claim turned on

the interpretation of a particular clause in the contract. As it turned out, the mediation

completely ignored the troublesome clause, and focused on several options to extend

the contract in a way that would increase the value for both sides. The potential gains

were seen to be more than the amount in dispute and both sides were willing to give up

some of those gains to make the dispute go away.

So, virtually nothing discussed during the mediation session had any bearing on the

issues in dispute in the arbitration. Both sides understood, I think, that if they didn’t

settle, there would be a win-lose decision on the contract interpretation.

2020

Can

LIID

ocs

288

120

Neither side ever asked me what I thought of the contract clause in issue. If they had, I

would have said I had no view on it one way or the other, but both sides should be

aware that their interpretation might be wrong. That risk – plus the additional cost of

arbitration – should be some incentive to settle. And it was.

That brings us to another practical aspect of med-arb. In commercial mediation, the

parties often expect the neutral to offer an evaluation of the merits of their case. That is

something the med-arb neutral cannot do.

The neutral can “kick the tires” to test the issues in dispute. Gently in some cases; more

vigorously in others. But the neutral must make it clear that he or she is doing this with

both sides. Otherwise, one party may conclude that the neutral is leaning in favour of

the other.

At the ADRIO meeting, it was suggested that some of the risks of med-arb might be

reduced or eliminated if the mediation proceeded without any separate meetings with

the parties. (This is a model taught by Robert Mnookin and Gary Friedman at

the Harvard Program on Negotiation and there are many advocates who say this should

be the default for all mediations, not just med-arb).

I think that this is something that parties should seriously consider. It certainly changes

the dynamic of the mediation phase, but it may help protect the integrity of the

arbitration phase. There are always trade-offs.

The take-away from the recent ADR Institute sessions and from other discussions on

med-arb is that it is a very useful, practical approach to resolving all kinds of disputes,

as long as everyone involved is aware of the potential pitfalls and takes proactive steps

to avoid them.

Consumer Arbitration Lessons From South of the Border

Originally published on December 7th 2015

2020

Can

LIID

ocs

288

121

The New York Times recently published a pair of scathing articles about the state of

arbitration in the United States. The articles focus mainly on the effect of arbitration on

consumer and class action litigation and raise important issues of fairness, transparency

and access to justice.

Arbitration Everywhere, Stacking the Deck of Justice (Oct.31, 2015) details how it

has become almost impossible for a consumer or small business to apply for a credit

card, use a cellphone, get cable or Internet service, or shop online without agreeing to

private arbitration. The same applies to getting a job, renting a car or obtaining medical

or nursing care.

In Arbitration, a ‘Privatization of the Justice System’ (Nov. 1, 2015) looks at claims

that arbitrators are biased in favour of the companies who most often use arbitration

and how “[t]he secretive nature of the process makes it difficult to ascertain how fairly

the proceedings are conducted.”

The Times says it looked at more than 25,000 arbitrations between 2010 and 2014 and

interviewed hundreds of lawyers, arbitrators, plaintiffs and judges in 35 states. It

uncovered many troubling cases.

In an effort to avoid the flood of consumer and employee class actions in the United

States, businesses have increasingly turned to arbitration and class action waiver

clauses in their standard form contracts. The courts have generally upheld the validity of

these clauses, despite the fact that consumers, small businesses, and employees have

no bargaining power to refuse them.

Under US law, apparently, the Federal Arbitration Act trumps consumer protection and

class action laws.

In 2005, the US Congress passed a law which moved some class actions out of

consumer-friendly state courts into federal courts. When the federal courts upheld the

validity of mandatory arbitration and class action waivers for those claims, it forced

many plaintiffs into arbitration, The Times reported.

2020

Can

LIID

ocs

288

122

In 2010, the US Supreme Court ruled against a California law which prohibited class

action bans in consumer arbitration agreements (AT&T v. Concepcion). This increased

the trend toward including such waivers in many contracts.

Class action advocates say most individuals and small businesses simply can’t afford to

arbitrate claims that are worth a few hundred or thousand dollars. According to the

statistics reported by The Times, the costs of arbitration are too high and the odds of

success are too low.

The Times articles also claim that US consumer and employment arbitration lacks

transparency and accountability.

“Unfettered by strict judicial rules against conflicts of interest, companies can steer

cases to friendly arbitrators,” The Times says. “In turn, interviews and records show,

some arbitrators cultivate close ties with companies to get business.”

The Times cites 41 arbitrators who each handled 10 or more cases for a single

company over the four-year period the paper examined. The system of private arbitrator

appointments encourages a cozy relationship between some arbitrators and the

companies that send them work.

All-in-all, the articles paint a bleak picture of a system that lacks basic consumer (or

employee) protection, and favours those with deep pockets and powerful political

lobbies. No different than the US court system, in other words…

I think the situation is different in Canada.

Consumer protection legislation in many provinces forbids mandatory arbitration

clauses or class action waivers in consumer contracts. Consumers can agree to

arbitration when a dispute arises, but can’t be forced to do so.

Arbitration statutes and rules require arbitrators to disclose potential conflicts of interest.

For example, the ADR Institute of Canada (ADRIC) Arbitration Rules require every

proposed arbitrator to sign a declaration that he or she knows of nothing likely to give

2020

Can

LIID

ocs

288

123

rise to justifiable doubts as to independence or impartiality and to disclose any such

circumstance that arises during the arbitration process. One might question what is a

“justifiable doubt”, but Canadian courts have interpreted these rules quite strictly. (See

for example, MDG Computers Canada Inc. et al. v. MDG Kingston Inc. et al., 2013

ONSC 5436 (CanLII), where the court removed an arbitrator because of a prior

connection with an expert witness who was to testify in the arbitration. I commented on

the decision in a previous Slaw column.)

Nevertheless, the American experience should give us pause to reflect on the

development of arbitration as a supposedly more efficient alternative to litigation,

particularly in areas where the law struggles to keep up with changes in consumer

behaviour, such as online and mobile commerce.

While privacy and confidentiality are a real benefit of arbitration in disputes between

businesses which may not want to “air their dirty laundry,” that may not be appropriate

for consumer disputes. Publication of arbitration decisions allows for more transparency

and provides a body of law which – while not binding on other tribunals – facilitates

resolution of similar cases.

This is currently done under some provincial statutes. In British Columbia, for example,

ICBC publishes arbitration decisions related to underinsured motorist protection claims.

The Financial Services Commission of Ontario publishes a database of arbitration and

appeal decisions.

In the private sphere, decisions in domain name disputes are made public under the

Canadian Internet Registration Authority (CIRA) rules and under the ICANN dispute

resolution policy (UDRP). The WIPO maintains a comprehensive database of domain

name decisions by its arbitrators, which is a vital reference for those either making or

defending claims.

We should also heed the concerns about arbitrator bias and procedural unfairness.

Regardless of whether the stories reported in The Times are the exception or the rule,

2020

Can

LIID

ocs

288

124

the perception that arbitrators are not accountable casts a shadow over the whole

system.

ADRIC – and other administrators such as the British Columbia International

Commercial Arbitration Center (BCICAC) or ICDR Canada – play an important role in

ensuring arbitrator independence and impartiality by creating rosters of qualified

arbitrators and making appointments where parties cannot agree. [Full disclosure, I am

on some of these panels.]

Domestic rules and international guidelines – such as the International Bar Association

(IBA) Guidelines on Conflicts of Interest in International Arbitration (available here) –

provide standards that should be followed in consumer arbitration as well.

ADRIC also administers the national Chartered Arbitrator designation in Canada,

providing the only national standard for training and qualification of arbitrators.

Internationally, the Chartered Institution of Arbitrators provides training and certification

of arbitrators with its Fellow and Chartered Arbitrator designations.

When arbitration was used mainly by sophisticated commercial entities (or in the labour

field by unions and large companies) parties could choose qualified arbitrators based on

personal knowledge and experience. That is not the case with consumers and small

business who haven’t had any experience with arbitration.

I think independently-administered rosters and designations are a useful way to

promote confidence in the arbitration process. And roster members and designation

holders can be held accountable by the administering bodies if they don’t follow the

ethical standards of independence and impartiality.

There are many lessons we can learn from the United States experience. The most

important may be that, with arbitration, as with any court process, justice must not only

be done, it must be seen to be done.

2020

Can

LIID

ocs

288

125

Legal Profession in the 21st Century: Does It Include ADR?

Originally published on October 13th 2015

Supreme Court of Canada Chief Justice Beverley McLachlin’s keynote address to the

Canadian Bar Association’s 2015 Annual Meeting this summer looked at “The Legal

Profession in the 21st Century”. (Thanks to Malcom Mercer for posting the text of the

Chief Justice’s address — and for the additional insights in his recent Slaw

column “Innovate or be Innovated?”)

The Chief Justice talks about many challenges facing the legal profession today. She

also talks about the challenge of access to justice. But, sadly, she gives little thought to

the role of alternatives to court in addressing either of those challenges.

“The cry for access to justice is rising from what was once a dull murmer to a crescendo. Other actors – including courts and governments – bear much of the responsibility. But lawyers can be a big part of the solution. Everyone needs justice. Lawyers hold the key to exclusive domain called justice. But they open the doors only to a privileged few, the critics charge.”

…

“In the age of the Internet, people are questioning why they, the consumers of legal product, should be forced to go to expensive lawyers working in expensive office buildings located in expensive urban centres. …Why are simple disputes not resolved in simple, cost-effective mediation rather than by elaborate and expensive court proceedings? Public attitudes and demands are changing.”

This is the only reference to mediation in the Chief Justice’s remarks. There is no

reference to arbitration. Nor to other methods of dispute resolution, such as restorative

justice or collaborative law.

It is understandable, perhaps, that the view from the Supreme Court would focus on

making the existing system more effective and affordable. And the Chief Justice’s topic

was the future of the legal profession.

2020

Can

LIID

ocs

288

126

But I think it illustrates a view of the profession as adversarial advocates which is still

widely held by the public and by the profession itself. It downplays the equally-important

role of lawyers as problem-solvers who use their training and experience to work

collaboratively to achieve positive solutions for their clients.

Access to justice is not just a question of cost. It is also a question of time – getting to

court takes far too long – and a question of utility – all too often courts are simply unable

to deliver the remedies parties are really seeking.

What good does it do to win a case in court if the judgement is not collectable, or fails to

cover the legal costs to get there, or the “winner” goes broke in the meantime? And in

many cases, the limited remedies a court can provide are not to most optimal solution

for the parties. It’s a “lose-lose” situation.

Making lawyers better, cheaper adversaries will not solve these fundamental problems.

Nor will the use of technology to make lawyers and courts more efficient. These things

may be necessary, but they are not sufficient to address the issues the Chief Justice

lays out so clearly.

“As servants of justice, lawyers have a duty to help solve the access to justice crisis that plagues our legal systems,” she says. “It is vital to the rule of law.”

To my mind, lawyers have a duty to their clients that goes beyond being zealous

advocates. There is a broader duty to an individual’s personal, family or business

interests. Or to the long-term interests of a business client. And to the public interest.

I think most lawyers recognize these duties and do their best to meet them. But we are

often hampered by client expectations: “I want a lawyer who’s a bulldog. Someone who

never gives up; never settles.”

We also face systemic problems.

2020

Can

LIID

ocs

288

127

In 2010, Ontario Chief Justice Warren Winkler (as he then was) offered “Some

Reflections On Judicial Mediation: Reality Or Fantasy?” to the University of Western

Ontario Faculty of Law. He said:

In Canada, mediation is no longer a matter of indifference to the public, the Bar and the Bench. To the contrary, mediation, including judicial mediation, is now considered by most to be an essential service that it ought to be embedded at long last within our civil justice system.

For the public, the issue, quite simply, is one of access to justice….

To the Bar, judicial mediation is an important ingredient in solving cases.

To the Bench, judicial mediation is a far more controversial subject. Some judges consider that it is inappropriate for them to engage in any form of mediation. They maintain that the judiciary is trained to decide cases, not to broker deals. Mediation, they say, requires them to descend “into an arena,” a place antithetical to judging. In increasing numbers, I believe, other judges feel that judicial mediation is now part of the lifeblood of an ever-evolving system of civil justice; we must have it to keep up with the changing needs and expectations of litigants. According to this view, to best serve the public, mediation must be an integral component of any modern and effective civil justice system.

Despite these forward-thinking views, we are five years on and Canadian courts and

administrative tribunals still do little to encourage mediation or other alternatives.

In 2013, the Report of the Ontario Bar Association Judicial Mediation Taskforce, “A

Different ‘Day in Court’ The Role of the Judiciary in Facilitating Settlements” found that,

while each of the provinces had rules that provided for judicial role in mediation or other

settlement processes, their practices varied widely.

“There are no fundamental aspects of JDR [Judicial Dispute Resolution] that are universal with the exception that where JDR is provided, it is judge-led and there is no fee. Different provinces deal with critical aspects differently…”

In some provinces participation is entirely voluntary. In others, the parties can be

ordered to participate in a judicial settlement conference, as part of case management.

2020

Can

LIID

ocs

288

128

In Alberta, the rules require parties to participate in some form of ADR, which may

involve a Court process, including JDR or private mediation. But the Court of Queen’s

Bench suspended enforcement of the rule in 2013, due to lack of resources to handle

the demand for JDR.

In Ontario, the mandatory mediation “pilot” – launched in three locations in 1999 –

stalled there despite a generally positive assessment in 2001. Though there have been

some tweaks over the years, there doesn’t seem to be any great desire to expand the

program.

As the OBA Task Force concluded in 2013, “JDR is already a part of the litigation

landscape in Ontario and has been for many years. However, it currently exists in the

periphery of the system as it is not formally recognized in legislation or the Rules of Civil

Procedure.” This leads to uncertainly about the process, limited availability of judicial

resources, and insufficient time or incentives for mediation or meaningful settlement

discussions.

“Overemphasis on trial door JDR also ignores the legitimate need for JDR at earlier

stages of a lawsuit, before the parties have spent the resources necessary for trial

preparation,” the Report said.

Little or nothing has changed in recent years.

In Britain, Hong Kong and other jurisdictions there are meaningful cost sanctions for

failing to engage in mediation. That rarely happens in Canada.

As lawyers, we need to show clients that there are real practical benefits to engage in

alternative forms of dispute resolution. The courts can encourage alternatives by

providing more resources for judicial dispute resolution and by directing parties to

private settlement or mediation.

2020

Can

LIID

ocs

288

129

Disputing parties benefit from being able to resolve their disputes more efficiently;

members of the legal profession benefit from better serving their clients’ interests; and

the public benefits by making courts more accessible to those who really need them.

Those principles, I think, must also guide the legal profession in the 21st century.

Proposed New “Uniform Arbitration Act” Bears Careful Study

Originally published on August 14th 2015

The working group on arbitration legislation of the Uniform Law Conference of Canada

(ULCC) has circulated a Discussion Paper on proposed changes to the Uniform

Arbitration Act (for domestic arbitrations in Canada). The proposals – and the drafting of

the Act – have not yet been reviewed or approved by the ULCC. The goal is the present

the proposals to the ULCC at its annual meeting this summer.

This is the second phase of a project that started several years ago to update the

ULCC’s Uniform International Commercial Arbitration Act and Uniform Arbitration

Act, which have been widely implemented by provincial and territorial legislation.

Proposed changes to the International Act were approved by the ULCC in 2014. Now

the working group is proposing similar changes to the domestic act.

There is a large number of proposed changes in this draft. Some are intended to make

domestic arbitration more consistent with international norms and practices. Some

clarify the powers of arbitrators to determine their own jurisdiction and control the

conduct of the arbitration. Others address specific drafting issues with the previous

Uniform Act.

The proposed changes bear careful study and analysis. They could have a profound

impact on domestic arbitration in Canada. The efforts of the working group appear to be

very thorough and thoughtful. They have also sought input from the legal and arbitrator

community on many of the proposed changes. It will be interesting to see what the

ULCC does with this first draft.

2020

Can

LIID

ocs

288

130

Here are a few initial thoughts on some of the proposals in this draft.

The most significant changes aim to clarify – and to the extent possible, limit – the

situations in which domestic courts may intervene in arbitration proceedings or set aside

arbitral awards. This appears to be in response to conflicting case law in many

provinces, which has caused uncertainty and encouraged court challenges.

Section 6 – Court Intervention

There have been efforts to limit court intervention in previous versions of the Uniform

Act (and in provincial legislation). Nevertheless, courts still seem to intervene whenever

they deem it necessary. In response to this, the ULCC previously added wording

enumerating the specific purposes for which a court could intervene: to assist the

arbitration process, to ensure the arbitration is in accordance with the parties’

agreement, to prevent unfair or unequal treatment or to enforce awards. Some courts

interpreted these provisions as giving more discretion to intervene, which was the

opposite of what was intended. So the ULCC has now gone back to a very simple and

direct statement:

No court may intervene in matters governed by this Act, except as expressly provided by this Act.

Section 7 – Stay of Court Proceedings

The working group says this is one of the most important provisions in the Uniform Act.

It sets out an express requirement to stay court proceedings that a party alleges are the

subject of an arbitration agreement, with very limited exceptions. Those exceptions are:

The court proceeding is not in respect to any matter that is the subject of an

arbitration agreement (emphasis added).

A party entered into the arbitration agreement under a legal incapacity.

The arbitration agreement does not exist or is null and void or unenforceable.

The dispute is not capable of being the subject of arbitration on applicable law.

2020

Can

LIID

ocs

288

131

The proposed provisions also clarify that these are questions that may be left to the

arbitration tribunal to determine in the first instance.

The working group says this is consistent with the decision of the Supreme Court of

Canada in Dell Computer Corp v Union des consommateurs 2007 SCC 34 that, except

in very limited circumstances –where it is possible for the court to decide an issue on

the basis of documents and pleadings filed by the parties without having to hear

evidence or make findings about its relevance and reliability — a court should refer all

issues concerning arbitrator jurisdiction, including issues relating to the validity or

applicability of the arbitration agreement, to the arbitral tribunal. The working group says

these issues are often complex issues of fact, which ought to be determined in the

arbitration, rather than in a summary stay proceeding.

Previously, the Uniform Act allowed a court to grant a partial stay, with respect to

matters dealt with in an arbitration agreement, and continue the court proceeding with

respect to other matters, if it found it “reasonable” to separate the matters. The concern

there was that a court might consider it unreasonable to have to parallel proceedings.

Parties might wish to avoid that result as well. However, the working group found a

consensus that “the risk of multiple proceedings or conflicting decisions should not

outweigh the risk that parties wishing to avoid their commitment to arbitrate, or to delay

or disrupt arbitral proceedings, might commence an action which includes claims that

are both within and without the scope of the arbitration agreement or unnecessarily

names persons who are not parties to the arbitration agreement for tactical reasons.”

Therefore, the working group has proposed removing those provisions from the new

Uniform Act, leaving the obligation to stay and refer to arbitration all matters that are

subject to arbitration.

One of the issues that often arises in applications to stay court proceedings is whether

the matter is within the scope of the arbitration agreement or not. This may turn on the

drafting of the arbitration clause itself. It would be useful to have some guidance, from

the ULCC or some other group, on the drafting of arbitration clauses, to assist parties in

drafting clauses that minimize the risk of multiplicity of proceedings.

2020

Can

LIID

ocs

288

132

Section 56 – Appeals

The existing Uniform Act allows appeals on questions of law. It also allows appeals on

questions of fact or mixed fact and law, if the arbitration agreement expressly allows

such appeals. There is a consensus among the members of the working group that

appeals on questions of fact or mixed fact and law should not be allowed. The proposed

changes to the Uniform Act would prohibit such appeals, even if the parties have

expressly agreed to allow them. This section is one of the few provisions that parties

cannot contract out of.

The working group says there is no consensus on whether appeals should be allowed

at all, even on questions of law. Some believe that one of the main advantages of

arbitration is that decisions are final, with no appeals. Appeals just add to the time and

cost. As the working group notes in the commentary:

In Sattva Capital [2014] S.C.J. No 53, the process lasted 5 ½ years and advanced the resolution of the dispute no further than to have the highest court in the province pronounce the award to be “absurd” and the highest court in the country pronounce it to be “not unreasonable.” [I have commented on the decision of the BC Court of Appeal in the Sattva case in an earlier column.]

This raises a number of policy issues, including the basic principle of party autonomy.

Why shouldn’t parties have a right of appeal, either to a court or to a second arbitral

tribunal, and whether it’s a question of law or one of fact, or both, if that’s what they

have agreed? Some parties may be reluctant to agree to arbitration in the first place, if

they have no recourse if the arbitrator “gets it wrong”. They may be concerned that an

arbitrator may make a decision that flies in the face of the evidence, or that the arbitrator

may misinterpret the law. An appeal on questions of law is fine, as far as it goes, but

pure questions of law may be relatively rare. (On the other hand, it seems that if a court

wants to hear an appeal of an arbitration decision, it can find that almost anything is a

question of law.)

The draft also leaves open the question of whether parties should be required to opt in

or opt out of the any right of appeal. And what wording is sufficient to opt in or opt out?

2020

Can

LIID

ocs

288

133

Some courts have found that wording in an arbitration clause which says the arbitrator’s

decision is “final and binding” is sufficient to opt out of any right of appeal.

Section 57 – Setting Aside Awards

The proposed Uniform Act significantly overhauls and clarifies the grounds for setting

aside an award.

They are:

(a) legal incapacity;

(b) the arbitration agreement does not exist or is null and void or unenforceable;

(c) the award is beyond the scope of the arbitration agreement;

(d) improper composition of the arbitral tribunal;

(e) the dispute is not capable of being the subject of arbitration under applicable law;

(f) the applicant was not given a reasonable opportunity to present its case or to answer the case presented against it by other parties or was not given proper notice of the arbitration or of the appointment of an arbitrator;

(g) justifiable doubt as to the independence or impartiality of the arbitral tribunal [but it is unclear whether the “justifiable doubt” is subjective or objective];

(h) the award was the result of fraud or corruption by a member of the arbitral tribunal or obtained by fraud of a party or its representatives in the conduct of the arbitration [distinguished from fraud with respect to the original dispute being arbitrated].

The wording in (f) tracks the new wording of the proposed section 22 of the Act, which

refers to “reasonable opportunity” rather than parties being treated “equally and fairly”.

This is a significant change in the standard for arbitration hearings and is intended to

give the arbitral tribunal greater power to control the arbitration process, without fear of

the award being set aside. Concerns have been voiced that the current wording could

open the door to unsuccessful parties claiming they weren’t given an equal opportunity

2020

Can

LIID

ocs

288

134

to present evidence as a result of limitations on document disclosure or discovery, time

limits at an oral hearing, or other procedural decisions. Now they will have to show that

there was no reasonable opportunity to make their case.

Among the grounds that have been removed from the proposed new Uniform Act is the

failure to comply with the procedural requirements of the Act. Parties often waive strict

compliance with procedural rules during the course of arbitration simply by their conduct

of the arbitration. So an application to set aside may come down to whether the

procedural rule was waived or not, which involves questions of fact that a court may

have difficulty deciding. In any case, the working group determined that unless the

failure amounts to a jurisdictional error or denies a party a reasonable opportunity to

make its case — which are already separate grounds for setting aside — it should not

be grounds to set the award aside.

The working group also looked at the ground of “public policy” (“public order” in

Quebec), which is contained in the United Nations Model Law and concluded that it is

not necessary to have such a broad general exception in the Uniform Act. The

enumerated list above is enough to deal with matters that are of fundamental concern, it

concluded.

Section 61 – Limitation Period

The proposed changes include a ten-year limitation period for applications seeking

recognition and enforcement of awards. This is longer than the current legislation in

some provinces, and longer than the two-year limitation period under the existing

Uniform Arbitration Act. But it is consistent with the limitation period under the ULCC’s

new Uniform International Arbitration Act. The working group says it is important to

ensure that the limitation periods for recognition and enforcement of domestic arbitral

awards are no shorter than those for international awards, to avoid any argument that

that Canada is in breach of its obligations under the New York Convention.

2020

Can

LIID

ocs

288

135

There are also interesting new provisions on arbitrator independence and impartiality,

majority decisions, whether arbitrators may also act as mediators in the same matter,

and assessment of arbitration fees.

Section 15 – Independence and Impartiality

The proposed Uniform Act says arbitrators must be independent and impartial, which is

not new or controversial.

But the question arises whether the parties may be permitted to waive independence in

certain situations. Arguably, the parties should be able to choose anyone they want, as

long as there is full disclosure and the arbitrator acts impartially. In some situations, the

arbitrator could be a member of a group or organization (e.g. a member of an industry

or professional association) and may not be completely independent.

The working group also asks what the appropriate level of disclosure of prior contacts

should be. The proposed Uniform Act says the arbitrator must disclose “any

circumstances of which the person is aware.” This applies both before appointment and

during the proceeding. There is no positive obligation to make any degree of inquiry (for

example within a current or former law firm or other organization). The working group

concluded that the appropriate degree of inquiry is fact and case specific and says

arbitrators should consult the evolving guidelines published by institutions such as the

IBA and the Chartered Institute of Arbitrators.

One area that seems to be missing from the Uniform Act – but is covered by some of

the conflict guidelines – is a positive obligation on the parties to disclose any

relationship between the arbitrator and the parties, related entities or individuals, their

counsel, potential witnesses, etc. Such disclosure would seem to be a matter of

common sense, to pre-empt to possibility of a later challenge to the arbitrator and avoid

wasting time and cost. Perhaps cost sanctions against a party that fails to disclose, for

extra time and cost incurred, is sufficient to discourage such behaviour, but it is an issue

that does arise and it may be worth including an express obligation to disclose in the

Uniform Act.

2020

Can

LIID

ocs

288

136

Section 34 – Mediation

The proposed Uniform Act permits an arbitrator to act as mediator, conciliator, or in a

similar capacity, if all parties and the tribunal agree. The working group notes that there

is still a wide range of opinion on such a dual role should be permitted or not, or whether

it should be encouraged.

The commentary notes that “med-arb” and similar processes are common in non-

commercial cases and occasionally in commercial cases in Canada and concludes that

mediation should be permitted “on such terms and conditions as the parties and the

arbitral tribunal agree.” This flags, without prescribing, the need for agreement on such

things as the admissibility of information disclosed in the mediation, the appropriateness

of separate caucusing with the parties during mediation, the discretion of the arbitrator

to withdraw if he or she believes that impartiality has been compromised and other

issues that may arise.

The draft provides that the arbitrator’s participation in the mediation will not constitute

grounds to remove the arbitrator or challenge the award if the arbitration continues after

or concurrently with mediation. This is to prevent a party from using the unsuccessful

mediation as an excuse to derail the arbitration if it doesn’t seem to be going their way.

The draft doesn’t include an express right for the arbitrator to withdraw if they believe

they are no longer impartial as a result of the mediation. The working group concluded

that this was not necessary, because the obligation of impartiality is set out elsewhere in

the Act. It is a mandatory provision that the parties cannot waive. Nevertheless, an

arbitrator who agrees to act as mediator may wish to include the right to withdraw as a

condition of agreeing to do so.

My own view, having acted as mediator-arbitrator in a number of commercial disputes,

is that the med-arb process is more appropriate for commercial cases than the working

group seems to think. While it may be advisable to have separate mediation and

arbitration processes in very large commercial disputes, in many cases t can be more

cost-effective to have a single neutral act in both roles. But it is also true that the parties

2020

Can

LIID

ocs

288

137

and the neutral must have a clear agreement on the ground rules for the mediation in

order to avoid compromising the impartiality of the arbitrator and the enforceability of the

award if there is no settlement.

Section 44 – Majority Decision

The proposed wording says that if there is more than one arbitrator, the decision shall

be made by a majority of the tribunal. However, it has dropped the provision in the

current Uniform Act that, if there is no majority, the decision of the chair shall govern.

The commentary says: “the Working Group considers that this is an issue to be

addressed by agreement of the parties rather than by way of a default statutory

provision… “ However, there may be situations where the parties do not agree. In those

cases, there should be some default provision. Decisions with no majority are

presumably very rare. Parties would not likely turn their minds to this possibility in

advance of the arbitration; it would be difficult or impossible to get any agreement after

the fact, if it does happen. The parties may then be left with uncertain award — or no

enforceable award at all.

Section 51 – Costs

The ULCC is recommending that the tribunal have the power to award “actual,

reasonable” legal fees and disbursements and not be limited to the kind of tariff

normally applied by the courts. The tribunal can also award recovery of expert witness

fees and arbitration fees and expenses. The provision in the existing Uniform Act

allowing arbitrators to refer costs questions to a court taxing officer has been removed.

The ULCC believes the tribunal is in a better position to determine whether costs are

reasonable and who should pay.

Urgent Interim Relief Available Under New ADRIC Arbitration Rules

Originally published on June 15th 2015

2020

Can

LIID

ocs

288

138

One of the new features of the updated ADR Institute of Canada (ADRIC) Arbitration

Rules, which came into effect at the end of 2014, is the express provision for “Urgent

Interim Measures”.

Unlike Superior Court judges, arbitrators have no inherent jurisdiction. They depend

upon the Act and the arbitration agreement for their jurisdiction. In some situations, it

has been unclear whether an arbitrator has the authority to grant interim relief. In others,

delays in the appointment of the arbitrator made it impossible to obtain urgent relief. If

parties have to go to court for such relief, it may result in more cost and delay.

The ADRIC Arbitration Rules now include, in section 3.7, specific provisions for the

appointment of an interim arbitrator and the granting of interim relief.

A party may apply to the Institute for Urgent Interim Measures either before a tribunal

has been appointed –before or after a notice of request to arbitrate has been delivered

– or if the appointment of an arbitrator has been challenged. This means a party can get

urgent relief even if a procedural wrangle has delayed the arbitration.

The interim arbitrator can be appointed even if the tribunal’s jurisdiction is disputed, so a

party can seek urgent interim measures in a situation where the other party is denying

that the dispute is subject to arbitration or is refusing to co-operate in the appointment of

an arbitrator.

The applicant must provide a statement of the interim measures it is seeking and the

reasons why they can’t wait for the tribunal to be constituted. The application can be

made on notice to the other parties to the arbitration, or if the circumstances warrant, it

can be made without notice.

The Institute must appoint an interim arbitrator as soon as possible, normally within two

days of receiving the application. Any challenge to the appointment must be made

within 24 hours.

2020

Can

LIID

ocs

288

139

The interim arbitrator is required to set the procedure for the urgent interim measures

application as quickly as possible, normally within two days of being appointed, and

must conduct the proceedings in a manner that takes the nature and urgency of the

application into account. The interim arbitrator is also required to take into account the

fundamental purpose of the Rules, which state:

The Rules’ purpose is to enable parties involved in a dispute to reach a just, speedy, and cost-effective determination of it, taking into account the values that distinguish arbitration from litigation.

Rule 3.7 further states that the interim arbitrator’s decision must be make within 15 days

unless the parties agree or the interim arbitrator orders otherwise.

This gives the interim arbitrator an explicit mandate to conduct the application for urgent

interim measures quickly and expeditiously.

The determination of the application is made in the form of an order and is binding on

the parties.

The interim arbitrator has the full authority and discretion to grant any interim relief he or

she considers appropriate, taking into account the need for the requested relief, the

urgency of the matter and the effect on the parties of granting or refusing the relief. This

includes the power to grant immediate relief until a decision is made on the application

for Urgent Interim Measures.

If interim relief is granted without notice, the interim arbitrator must give the other parties

the opportunity to be heard as soon as practicable and the order is valid only until a

further decision is rendered on notice to all the parties.

An interim arbitrator’s order does not bind the tribunal with respect to the issues decided

in the order. The tribunal has full discretion to modify, terminate or annul an interim

arbitrator’s order. So does the interim arbitrator, if either party requests it. The parties

may pursue further claims related to the Urgent Interim Measures application, including

2020

Can

LIID

ocs

288

140

recovery of the costs of the application and claims related to compliance or non-

compliance with an order.

There are some limitations to the scope of Rule 3.7. It applies only to parties who are

signatories to an arbitration agreement and their successors. And it does not apply if the

parties have agreed to another procedure that provides for conservatory, interim, or

similar measures.

Nothing in Rule 3.7 prevents a party from seeking interim measures in court, either

before or after applying for Urgent Interim Measures under the ADRIC Rules.

I was appointed interim arbitrator in an application for Urgent Interim Measures earlier

this year. It was a commercial dispute flowing from the termination of a contract and

involved issues relating to the performance of the contract and the payment of

outstanding invoices. The application for Urgent Interim Measures related to a request

for the delivery of property that the applicant claimed belonged to it under the terms of

the contract.

The application was dealt with in 15 days from the date of appointment to the date of

the order. There is no doubt that this aggressive schedule was hard on the parties and

their counsel. It was also a challenge for the arbitrator who had to review the material to

prepare for a hearing and render a decision very quickly.

The evidence at the hearing included affidavits and exhibits from both sides, including

significant detail about all of the issues in dispute, not just those relating to the interim

relief that was requested. In most cases, I suppose, the equities claimed on both sides

will include some of the broader issues in dispute.

A half-day hearing was held, at which each side had the opportunity to cross examine

the other on their affidavits. Each side also provided the arbitrator with briefs of their

legal arguments and made oral arguments at the hearing.

The order was delivered three days later.

2020

Can

LIID

ocs

288

141

The schedule was roughly this:

Day 1 – appointment of arbitrator

Day 2 – initial conference call with counsel to set schedule

Day 6 – response to application and respondent’s affidavits due (over a

weekend)

Day 8 – reply affidavits due

Day 11 – factum due from each party

Day 12 – hearing

Day 15 – Order made

After the order was delivered, the parties sought clarification and amendment on certain

aspects of the order. Beyond that, as far as the arbitrator is aware, the parties complied

with the order and the arbitration did not proceed any further. Whether that means the

other issues in dispute were resolved or not is not known.

A few additional observations:

As noted above, Rule 3.7 does not apply if the parties have agreed to another

procedure that provides for conservatory, interim, or similar measures. This means that

the typical arbitration clause that excludes certain matters from arbitration, such as

injunctive relief or disputes over ownership of intellectual property, may preclude an

application for Urgent Interim Measures. Courts often measure urgent relief in months,

rather than days or weeks. Commercial lawyers may want to take another look at their

standard arbitration clauses in light of the new ADRIC Arbitration Rules.

The 15-day deadline in the Rule is very aggressive. In almost every case, at least one

of the parties (usually the respondent) will argue for extra time. In some cases, both

sides may want more time. But the wording of the Rule is mandatory. The decision must

be made within that time unless the parties agree otherwise, or the arbitrator decides

more time is needed. Extensions can be granted, but the Rule implies that they should

not be automatic and should be as short as possible.

2020

Can

LIID

ocs

288

142

Nothing in the interim order is final. Each party can ask the interim arbitrator for a further

order, if they wish. And they can raise any of the issues again with the tribunal. This

would seem to make it appealing for parties to seek Urgent Interim Measures where

appropriate. They have very little to lose. If the relief sought is denied, the applicant can

still seek the same relief from the arbitration tribunal. If relief is granted, it may

effectively end the arbitration or at least take those issues off the table. On the other

hand, the respondent can seek to have the order modified or annulled and can seek

further redress from the tribunal if it disagrees with the decision of the interim arbitrator.

Ontario Joins Wider Move Toward Online Dispute Resolution to Ease Court Burdens

Originally published on March 25th 2015

As John Gregory reported in a recent SLAW post, the Ontario government is looking at

online dispute resolution (ODR) for a variety of provincial offences. The system could

start with minor traffic offences, and be expanded to other provincial and municipal

offences, such as parking and by-law violations.

The proposal reflects a growing trend toward ODR for both civil and administrative

matters.

The Ontario consultation document notes the high cost of dealing with provincial

offences, with about 1.6 million charges laid annually. In Toronto alone, for example,

provincial offences courts cost about $50 million a year, plus $5.5 million paid to police

to appear in court.

The inconvenience, time and cost for a person to go to court are also major deterrents

to fight a ticket and, therefore, a barrier to access to justice.

The Ministry of the Attorney General says it is looking for ideas for an online system

that:

2020

Can

LIID

ocs

288

143

provides educational and legal resources to help users understand and navigate

the system.

uses independent hearing officers, rather than judges.

moves as many straightforward infractions out of the courts as possible.

resolves disputes through an informal, fair and accessible hearing process.

Technically, the ODR system would result in “administrative monetary penalties,” rather

than judicial fines, but for all practical purposes it amounts to the same thing.

The consultation paper talks about “proportionality” as an important access to justice

principle. Scarce resources, including judges and court facilities, ought to be used for

the most serious matters. Other offences can be dealt with through more informal

procedures.

The paper notes that other provinces have launched initiatives to resolve civil disputes

using online technology. BC is using ODR for tenancy and consumer disputes, as well

as property assessment appeals.

Alberta has launched a pilot program to take traffic offenses out of court, to be heard by

an independent adjudicator (though that program still requires an appearance in person,

rather than online adjudication).

In the UK, the Civil Justice Council is proposing an online system for adjudicating

smaller civil claims (up to £25,000) without having to appear in person to give evidence.

As reported by the Independent newspaper, judges would decide cases online after

analyzing documents submitted electronically, with an option of telephone hearings. The

proposal is said to be modeled on the eBay and PayPal Resolution Centers, which are

the largest ODR platforms in the world, resolving more than 60 million disputes a year.

The UK already has an online system, run by the Traffic Penalty Tribunal, which

arbitrates disputes between motorists and local municipalities in England and Wales.

The online portal allows people to appeal fines, upload evidence and follow cases and

2020

Can

LIID

ocs

288

144

hearings. Each government authority also has a dashboard showing current cases,

enabling them to submit evidence and follow the progress of hearings and decisions.

This seems to be very similar to the Ontario proposal, although the consultation

document notes that “the design elements of a delivery model, such as an online

dispute resolution system, will require further consultation with technology and legal

experts.” There will also have to be future consultation with the public and local

authorities on how to implement a province-wide ODR system.

Technical resources are bound to be an issue in rolling out any ODR project. Ontario is

already far behind many jurisdictions in making its courts accessible electronically.

In the UK, members of the legal profession complain that the government has not spent

enough money to support existing initiatives, let alone the new ODR plan being

proposed. Civil courts lack both staff and IT resources, they say, and recent budget cuts

are making the situation worse.

And in Europe, where the “Regulation on Consumer Online Dispute Resolution” (ODR

Regulation) and the “Directive on Consumer Alternative Dispute Resolution” (ADR

Directive), adopted in 2013, are leading to the creation of out-of-court dispute resolution

systems for consumer transactions, commentators are debating how to ensure online

systems are fair, accessible and respect due process.

The ADR Directive allows consumers to refer disputes over goods and services

purchased online and offline to private dispute resolution entities. Disputes arising from

online transactions will be referred to a EU-wide ODR platform, which will then transfer

the case to an appropriate ADR entity. It is expected that the ODR platform will be

launched in 2016.

Guest columnist Anastasia Konina, writing recently in the online journal Jurist, says: “the

proposed system of consumer rights enforcement has been heavily criticized for a

number of reasons, such as “putting efficiency above judicial scrutiny,” loss of public

2020

Can

LIID

ocs

288

145

access, pressure due to general confidentiality of ADR and ODR proceedings and

banning access to courts.”

These are all issues that will have to be considered in Ontario’s proposal to adopt ODR

and administrative penalties for provincial offences.

The Ontario Ministry is accepting submissions (electronic or paper) until April 14, 2015.

New Year, New Arbitration Rules

Originally published on January 28th 2015

The ADR Institute of Canada has adopted new arbitration rules, which came into effect

in December 2014. The new Rules are significant because they apply to any new

arbitration commenced under the ADR Institute rules after December 1. Although the

Rules are designed mainly for domestic commercial arbitration, they can also be used

for international and non-commercial disputes.

First adopted in 2002 to provide a comprehensive set of national arbitration rules, the

last major revision of the Rules was in 2008. The new Rules are the product of an in-

depth review and broad consultation that began in 2012. This included a review of

Canadian court decisions since 2002 to identify any judicial concerns regarding the

previous rules.

The Rules committee concluded that it wasn’t necessary to completely overhaul the

existing rules, especially since they have been adopted in many contracts, which will

carry on into the future.

Some things have not changed under the new Rules. For example, they default to a

single arbitrator, unless the parties agree otherwise. There is still a simplified procedure,

with shorter time periods and an expedited process, if the parties choose to adopt it.

Some of the changes are cosmetic – for example simplified wording, structure and

numbering, to make the Rules easier to follow. Some changes are administrative – for

2020

Can

LIID

ocs

288

146

example, they now spell out the Institute’s responsibilities in administering arbitrations

under the Rules, and set a new fee schedule. The Rules now expressly allow parties to

opt out of administration, if they wish.

Some of the more significant changes in the Rules:

Interim Arbitrator – A party may apply to the Institute for urgent interim measures

before a tribunal is appointed or if an arbitrator is challenged. The Institute will

appoint an interim arbitrator as soon as possible, normally within two days. The

procedure for hearing the application will be set quickly, again normally within

two days, and the interim arbitrator has the full power to grant any interim relief

he or she considers appropriate. The interim application may be made, and

interim relief may be granted, without notice to the other parties. But the interim

arbitrator must give the other parties the chance to be heard as soon as possible.

And any order made without notice is valid only until the arbitrator renders a

decision on notice to all parties. The Institute must end any interim proceedings if

it doesn’t receive a notice of request to arbitrate or submission to arbitration

within 10 days following the application for urgent interim measures.

Adding Parties – A party may be added to an arbitration following appointment of

the Tribunal, if the existing parties and the new party all consent. Previously,

there was no provision in the Rules for adding parties, although there was a Rule

that allowed pleadings to be amended. Parties could seek to amend a claim,

defence or counterclaim to add parties to the arbitration, so long as the

amendment did not go beyond the scope of the arbitration agreement or

submission to arbitration and there was no prejudicial delay in seeking the

amendment. Although the provision regarding amendments to pleadings has not

changed substantially, the new rule on the addition of parties makes it clear that

this can only be done with the consent of all concerned.

Document production – The new Rules follow the International Bar Association

model. Parties must deliver a list of documents on which they intend to rely. They

may also deliver a Request to Produce to the other parties. The request must

identify the documents sought, explain how they are relevant and material to the

2020

Can

LIID

ocs

288

147

dispute, state that they are not in the possession of the requesting party (or if in

its possession, would be “unreasonably burdensome” to produce). The party

receiving the Request to Produce may object to production on specific grounds

listed in the Rules. These include:

Lack of relevance or materiality

Legal impediment or privilege

Unreasonable burden to produce them

Loss or destruction; confidentiality; special sensitivity (e.g. classified as

secret)

“Considerations of procedural economy, proportionality, fairness or

equality of the parties”

It will be up to the tribunal to determine whether the documents should be produced.

The effect, one hopes, is to rein in the kind of unlimited electronic document discovery

that causes litigation and arbitration costs to soar, but the wording still leaves the door

open to pre-hearing wrangling over the scope of document production.

Pre-hearing discovery – Parties have no right to any oral examinations before the

hearing unless the tribunal considers it necessary for a fair hearing. The tribunal

may order a party or party representative to be examined on specific issues in

dispute. The tribunal may also order a party to respond to written questions. The

response is in the form of a written affidavit or other sworn declaration.

Privacy and confidentiality – Arbitration proceedings must take place in private,

unless the parties agree otherwise. Confidential information (including the

existence of the arbitration, communications, documents, evidence, awards,

rulings, orders and decisions of the tribunal) must be kept confidential, with

limited exceptions for enforcement or the appeal of an award or as “otherwise

required by law.” Parties may disclose information to their lawyer, auditor, insurer

or other advisors, but those persons must keep it confidential and use it only for

purposes of the arbitration. The previous rules allowed the Institute to publish

awards, if the parties did not object. That has been removed from the new Rules.

2020

Can

LIID

ocs

288

148

Powers of the Tribunal – The new Rules clarify the power to make procedural

rulings, interim awards and final awards. This includes interim measures for

protection, security for costs and preservation of property. It also includes the

express power to grant injunctions, specific performance and other equitable

relief. These powers were included in the previous rules, but they included

wording which some had argued limited the power of tribunals in certain

circumstances. The Rules now frame these powers much more broadly.

Document delivery – The Rules include specific provisions regarding delivery of

documents and other communications to the parties and to the Institute. They

define how they may be delivered and when delivery occurs with each method of

delivery.

The Rules Committee of the ADR Institute is continuing to review the Rules and will

revise them as needed. The committee is encouraging comments and suggestions for

further improvement as people gain experience with the new Rules.

Confidentiality of Mediation and Arbitration

Originally published on January 15th 2015

Confidentiality and privacy are often mentioned as advantages of mediation and

arbitration over litigation in commercial disputes.

In some cases, of course, the threat of publicity can be a tactical advantage for one

party. But, going into an agreement at least, both parties usually have an interest in

protecting trade secrets and business goodwill. Even after a dispute arises, private and

public-sector organizations may be reluctant to air their disputes in public, for a variety

of reasons. So they want any agreed dispute resolution process to be private and

confidential.

Recent cases in Canada and elsewhere illustrate the care parties must take to ensure

that this intention is realized – especially, in situations where one of them later decides

that they would gain an advantage if they are able to make some details public.

2020

Can

LIID

ocs

288

149

Supreme Court of Canada’s unanimous decision earlier this year in Union Carbide Inc.

v. Bombardier Inc., 2014 SCC 35, recognizes a broad public policy in favour of

maintaining the confidentiality of settlement discussions, including mediation. But there

are limits.

The case involved efforts to enforce the terms of a settlement agreement reached

following mediation. The parties disagreed whether the settlement applied globally or

just to Canadian litigation. When Bombardier brought a motion to enforce payment of

the settlement amount, supported by documents it said proved the narrower scope of

the settlement, Union Carbide brought a motion to strike on the basis that it referred to

documents exchanged and discussions that had taken place in the course of mediation.

A standard mediation agreement signed by the parties contained the following

confidentiality clause: “Nothing which transpires in the Mediation will be alleged,

referred to or sought to be put into evidence in any proceeding.”

In light of the clause, the motions judge found that the mediation process was

confidential and could not be referred to in enforcement proceedings. The Quebec

Court of Appeal disagreed. When mediation results in a settlement agreement,

communications made in the course of the mediation cease to be privileged, the court

said. Settlement privilege does not prevent a party from producing evidence of

confidential communications to prove the existence of a disputed settlement agreement

arising from mediation or to assist in the interpretation or enforcement of the settlement.

The Supreme Court of Canada agreed with the result, but for different reasons. The

court recognized that the parties may agree, in their mediation agreement, to expand or

limit the scope of the default rules relating to confidentiality (whether under the Civil

Code in Quebec or common law elsewhere). But they must do so in a very clear and

explicit way. A standard boilerplate confidentiality clause is not enough to show an

intention to change the rules that normally apply to the confidentiality of all settlement

discussions.

2020

Can

LIID

ocs

288

150

The same logic would apply in other circumstances where a party may seek to avoid the

confidentiality of mediation or arbitration.

Internationally, some jurisdictions recognize obligations of confidentiality in arbitration,

but there little or no consistency about the scope of those obligations or even who they

apply to: the parties, witnesses, counsel, or even the tribunal itself.

In the UK, courts have said arbitration is inherently meant to be private, and the

confidentiality obligations apply to all concerned. But in other countries, including

Canada and the United States, courts have said there is no default confidentiality

obligation. They must be expressly stated in the governing law, the procedural rules or

the agreement of the parties.

And of course, arbitration awards and proceedings become public to some extent every

time a party seeks enforcement in the courts or – unhappy with the process or the result

– seeks to have an arbitration award set aside.

Journalist Jan Wong learned a very expensive lesson on the risk of disclosing the

confidential terms of a settlement, achieved as a result of mediation during the

arbitration of her wrongful dismissal claim against the Globe and Mail. In November

2014, the Ontario Divisional Court, 2014 ONSC 6372 , dismissed her application for

judicial review of the arbitrator’s award that she repay $209,912 that she had been paid

by the newspaper. Despite a confidentiality clause in the settlement agreement, she

wrote a book entitled “Out Of The Blue” about her legal dispute with the Globe in which

she said, among other things, she had been “paid a pile of money to go away” and that

she received “a big, fat check.”

The Ontario court found no fault in the arbitrator’s decision to enforce the terms of

settlement agreement and require repayment of the settlement amount. To add insult to

injury, the court also awarded costs against Ms. Wong in favour not only of the

newspaper but also her union, which she alleged had acted “reprehensibly” in not

properly representing her at the arbitration.

2020

Can

LIID

ocs

288

151

What is perhaps most interesting in the arbitration award, is the areas in which the

arbitrator found that Wong did not breach the terms of her settlement agreement.

The arbitrator looked carefully at the chapter that dealt with the settlement and observed

that:

…the style, structure and language used convey to the reader that [Wong] had negotiated very favourable terms which included a substantial payment…and that the Employer “had caved.” (page 235) The tone and tenor of many portions of the book about which the Employer complains suggest the terms of the…settlement were a vindication of [Wong] positions …

The book reveals how the arbitration and mediation unfolded and talks about many

details that were not part of the final settlement.

[Wong’s] public disclosure of matters discussed and considered during the mediation which led to the [settlement agreement] is inappropriate. (Correspondence from her own lawyer…, as well as [Wong’s] notes of the mediation…, indicate she was aware that discussions held during mediation were confidential). However, such disclosure, although inappropriate, does not disclose “the terms of the settlement”.

The lesson, in all of this, is that parties must give very careful thought to whether they

want their dispute to be resolved privately, and whether they want it to remain

confidential, come what may. The must think about whether there may be situations,

like those in Union Carbide, where they may need to disclose some information about

the mediation or arbitration in order to enforce a settlement or an award, or to seek

some other remedy.

They must also think about the scope of the confidentiality provisions in their settlement

agreement.

As the Supreme Court of Canada said in Union Carbide: “There is indeed a delicate

balance to be struck.”

2020

Can

LIID

ocs

288

152

The Eyes Have It

Originally published on October 3rd 2014

There has been a fair bit of discussion recently about the pros and cons on online

dispute resolution (ODR).

Using technology to help people resolve disputes does have many advantages. It can

increase access to justice –both collaborative (mediation) and adjudicative (arbitration).

It can be faster and cheaper than other options.

The availability of ODR tools is an important factor in consumer confidence for

electronic commerce. People are simply more willing to buy things online if they know

there is a way to resolve problems.

But there is one inherent problem with many ODR systems. You can’t look your

opponent in the eye.

Making eye contact is perhaps the most powerful emotional and psychological

connection for most people.

The marketing folks who sell us cereal and cookies have known this for a long time. In a

study published earlier this year in the journal Environment and Behavior, researchers

looked at the effects of eye contact on buying habits of consumers. They found that, if

they manipulated the gaze of characters on cereal boxes, they could make the products

more appealing to both adults and children. For example, they found that adults were

more likely to buy Trix cereal, if the cartoon rabbit on the box looked directly at them,

rather than looking away. And, if the characters looked down from the shelf, they were

more likely to appeal to children. (Musicus, Tal and Wansink, Eyes in the Aisles: Why Is

Cap’n Crunch Looking Down at My Child?)

“Making eye contact even with a character on a cereal box inspires powerful feelings of

connection,” co-author Brian Wansink, of Cornell University told the New York Times.

2020

Can

LIID

ocs

288

153

There is plenty of research showing that eye contact is one of the first things we all

learn as infants. Failure to develop that ability early, for whatever reason, can lead to

serious lifelong emotional and psychological problems.

According to another researcher quoted in the New York Times, there is no real

substitute for personal eye contact, which instantly activates the parts of the brain that

allow us to process another person’s feelings and intentions.

This is evident in our increasing reliance on impersonal email and text communications.

People use emoticons and other shorthand to try to convey nuance – I’m kidding, angry,

confused, etc. – but it doesn’t always work.

Telephone is a bit better. We can pick up many cues from tone of voice. But it is not

nearly as good as looking someone in the eyes.

Video conference or Skype is better than audio alone, because it allows us to see the

other participants. But the visual cues are often diffused or disjointed. Limits in the

technology often degrade the video quality. The picture is jerky; light levels aren’t

perfect. There are other distractions.

Our natural ability to read other people, understand their thoughts and emotions is most

effective when we are in the same room with them, able to make direct eye contact.

“A richer mode of communication is possible right after making eye contact,” says Dr.

Atsushi Senju, a cognitive neuroscientist at the Centre for Brain and Cognitive

Development at University of London. “It amplifies your ability to compute all the signals

so you are able to read the other person’s brain.”

Eye contact makes us socially aware and empathetic. It gives us the ability to accurately

read others’ intentions, both good and bad. Making eye contact makes people more

likeable. Avoiding eye contact is a strong negative signal in most situations. (But too

much eye contact can be negative as well. Look, but don’t stare.)

2020

Can

LIID

ocs

288

154

This may explain why some forms of dispute resolution are more effective than others.

In particular, it explains why some are more psychologically satisfying for the

participants, even if the objective outcome is the same.

Experiments with automated resolution of large volume, small value disputes have not

had great success. Systems that are great in theory have flopped in practice.

In some ways, an automated system may be too easy. Although the participants may

rationally understand that an automated system of offers and counter-offers can lead to

a fair settlement, there is often an emotional and psychological need to face one’s

opponent and see them make concessions to reach a settlement. A bloodless computer

solution doesn’t fulfill that deep need.

I also think mediators are too quick to separate disputing parties. In many cases, the

principals are never in the same room at all. Of course there are some disputes that are

so emotionally volatile (or even physically dangerous) that the parties cannot be

together. But, in most situations, sitting across from an opponent and look them in the

eye is an important step in reaching a resolution (or in determining that settlement is not

possible). It also leads to stronger commitment to and satisfaction with the settlement.

As the research on eye contact shows, we are programmed to make very fast and

accurate judgments about another person’s state of mind when we look them in the

eyes. A single look can build trust and facilitate more effective communication and open

dialogue. Or it can tell us trust is not justified and act as a warning to proceed carefully.

As with many things, this ability is a two-edged sword. Eye contact can reveal both

strength and weakness. A bully is encouraged to be more intimidating when someone

looks away. And the best way to tell a convincing lie is to look someone straight in the

eye.

Face-to-face dispute resolution is not perfect. Tone of voice, body language and eye

contact all play a part in the power dynamics of any negotiation. Someone who has

difficulty making eye contact will generally be at a disadvantage in mediation. (They will

2020

Can

LIID

ocs

288

155

also be at a disadvantage in arbitration and litigation, as they will be perceived to be

less credible.)

New insights into the importance of eye contact in human interaction can help mediators

and counsel design and implement more effective dispute resolution processes.

It can also enable us to help parties engage more effectively in dispute resolution by

making them more aware of how they present themselves and how they react to others.

Become a “Mediation Freak”: Understanding the Role of Incentives in Mediation

Originally published on August 15th 2014

In their recently published book Think Like a Freak, Freakonomics authors Steven Levitt

and Stephen Dubner offer a simple set of rules to explain the role of incentives in many

forms of financial and non-financial interactions.

1. Figure out what people really care about, not what they say they care about.

2. Incentivize them on the dimensions that are valuable to them but cheap for you

to provide.

3. Pay attention to how people respond; if their response surprises you or frustrates

you, learn from it and try something different.

4. Whenever possible, create incentives that switch the frame from adversarial to

cooperative.

5. Never, ever think that people will do something just because it is the “right” thing

to do.

6. Know that some people will do everything they can to game the system, finding

ways to win that you never could have imagined.

I love Freakonomics and listen regularly to their podcasts. Reading this new book –

there is a whole chapter on the role of incentives and their often unintended

consequences – got me thinking about how these simple rules provide a particularly

insightful way to think about mediation.

2020

Can

LIID

ocs

288

156

All of the actors in a mediation – the parties as well as their counsel and other advisors

– are responding to particular known and unknown incentives. One of the mediators’

most important roles is to help the participants discover or better understand those

incentives and how to respond to them.

Don’t forget the mediator has incentives, too!

Parties and mediators should think carefully about their incentives, and those of the

other participants, both before and during the mediation. And if the mediation doesn’t

immediately lead to settlement, think about these rules and reconsider the incentives.

Figure Out What People Really Care About

A couple years ago, Freakonomics ran an episode (available on their podcast) about

how much people lie to pollsters, and themselves, about their future intentions –

everything from voting, to quitting smoking, to saving the planet.

When questioned about positions, beliefs, or intentions, people will often tell the

interviewer what they think he or she wants to hear. Or they will give a socially-

acceptable answer. The same is true in a dispute.

You often hear: “It’s a matter of principle.” What they really mean is: “I just want to make

that SOB suffer.”

Parties often have undisclosed interests and incentives in a dispute. At times, they may

not even recognize those interests and incentives themselves.

While there may be strong financial incentives to settle a dispute, there may be stronger

emotional or psychological incentives to keep fighting. A party (or their counsel) may not

want to appear weak in even agreeing to discuss settlement. Or they may be looking for

a way to save face, rather than admit making a mistake.

What people say is often at odds with what they do. To better understand interests and

incentives, examine their actions and responses to questions or suggestions.

2020

Can

LIID

ocs

288

157

Think About the Relative Value of Incentives

This is one of the fundamental rules of the “win-win” approach in classic texts such

as Getting to Yes. Take the example of the cooks arguing over a crate of lemons. One

wants the juice for a salad dressing; the other needs rind for baking. Each can have

what she wants at no cost to the other.

Life is never that easy, but it is true that parties to a dispute generally value incentives

differently. The challenge is to discover and take advantage of those differences – a

kind of “settlement arbitrage”.

The mediator’s method is to ask questions, probe for each party’s interests and explore

options. What do the parties really value, and why?

Learn from People’s Responses

The only way to learn whether particular incentives have value is to ask questions and

make offers. Watch how opposing parties react to those offers.

Are they angry? Insulted? Surprised? Interested?

More importantly, why did they react as they did? If you are you surprised by that

reaction, perhaps you don’t fully understand the incentives that have been offered.

Something that one party believes is a strong incentive (from their own perspective)

may have little or no appeal to the other party. Even worse, it may be seen as a

disincentive to settlement.

Switch the Frame from Adversarial to Cooperative

This, too, is the holy grail of dispute resolution, particularly mediation. Like the other

rules, it is usually easier said than done. There is a psychological tendency to demonize

the other party to a dispute; to attribute evil intentions where none exist.

2020

Can

LIID

ocs

288

158

For many people – organizations, too – it takes a great deal of psychic energy to

engage in a dispute. There must be a strong incentive. So there must be an even

stronger incentive to back off and be willing to cooperate in pursuit of a resolution.

Don’t Assume People Will Do the Right Thing

There are many studies that show that “doing the right thing” is a very weak incentive

compared to such things as personal benefit, social stigma, or peer pressure.

I recall an earlier Freakonomics story, where an energy conservation program looked at

homeowners’ responses to various incentive campaigns. A brochure that talked about

how saving energy was good for the environment had almost no effect. One that said

how much money a homeowner could save was much more effective. But so was one

that showed how much the homeowner was saving compared to their neighbors. I

suppose it’s some kind of reverse “keeping up with the Joneses.”

Another Freakonomics podcast explored how peer pressure – and good, old-fashioned

shame – can push people to do the right thing. But so can offering them the right

incentives, whether financial, social or psychological.

Expect People to Try to “Game The System”

The rule says “some people”, but I think it’s safe to assume everyone does this.

Consider the story of co-author Steven Levitt’s three-year-old daughter. The offer of a

candy reward was a perfect incentive for potty training – for a few days, until she

learned to “game the system” by heading to the toilet several times an hour. Lessons

learned: everyone responds to incentives and everyone quickly figures out how to use

them to their advantage.

In another example, when Mexico City imposed traffic restrictions which prohibited

driving on specific days, according to the car’s license plate number, a World Bank

study showed that those who could afford it went out and bought a second car which

enabled them to drive on the remaining days. The result was an increase in total driving

2020

Can

LIID

ocs

288

159

and, because the second cars tended to be older and less fuel efficient, an increase in

the city’s air pollution.

Those involved in resolving disputes – or designing dispute resolution systems – also

need to be aware of potential ways parties can game the system to try to gain an

advantage. Look for hidden incentives to act a particular way.

For more Freakonomics, go to their excellent website for blogs, podcasts, and links to

interesting stories.

Effective Negotiation Strategy Is an Essential Element of Litigation

Originally published on June 18th 2014

Negotiation theory is generally based on two models of negotiation:

– positional negotiation, which includes terms such as “distributive,” “competitive” and/or “adversarial,” bargaining

– interest-based negotiation, which includes terms such as “integrative,” “problem-solving,” or “cooperative problem-solving,” or “collaborative” bargaining

Prof. John Lande, of the University of Missouri School of Law’s Center for the Study of

Dispute Resolution, also theorizes a third model, which he calls “ordinary legal

negotiation”, which is a hybrid based on norms that develop in certain practice areas,

geographical regions or under specific court or ethical rules.

In a pair of forthcoming articles in the Cardozo Journal of Conflict Resolution, Prof.

Lande, argues that:

The prevailing negotiation theory tries to fit lots of square pegs into just two round holes–adversarial or cooperative bargaining. In the real world, negotiation comes in many different shapes, not just circles and squares.

2020

Can

LIID

ocs

288

160

John Lande, “A Framework for Advancing Negotiation Theory: Implications from a Study

of How Lawyers Reach Agreement in Pretrial Litigation”, 16 CARDOZO JOURNAL OF

CONFLICT RESOLUTION

The articles are based on a series of interviews with US trial lawyers in a variety of

practice areas. Study participants said every step in litigation is part of an overall

settlement negotiation strategy.

During pretrial litigation, lawyers regularly reach numerous agreements with many different people on the path toward resolving their cases. Most obviously, lawyers negotiate with each other about matters such as “acceptance of service of process, extension of filing deadlines, scheduling of depositions, resolution of discovery disputes, and numerous other procedural matters.” Lawyers agree with clients about the tasks that they each will perform and how the lawyer will to respond to the other side at various points during the litigation. Lawyers reach agreements with people such as co-workers in their firms, process servers, investigators, court reporters, technical experts, financial professionals, and mediators. Lawyers regularly reach agreements with judges about case management issues such as discovery plans and schedules, referral to ADR procedures, and ultimate issues during judicial settlement conferences. Although the process of resolving difficult disputes with counterparts about the ultimate issues merits serious attention, focusing exclusively on those interactions overlooks the vast number of lawyers’ interactions in which they try to reach agreement. Indeed, the instances of lawyers seeking agreement without difficult disputes are so plentiful and obvious that it is as if they are hiding in plain sight. [Lande, Framework, p 14-15]

In a second article based on the same lawyer interviews, Prof. Lande argues that it is

generally better for parties to “get to yes” sooner rather than later and proposes

strategies for lawyers to negotiate better settlement agreements.

John Lande, “Good Pretrial Lawyering: Planning to Get to Yes Sooner, Cheaper, and

Better” 16 CARDOZO JOURNAL OF CONFLICT RESOLUTION

The lawyers in the Landes study generally said it is smart to negotiate early in any

litigation case.

2020

Can

LIID

ocs

288

161

He also quotes retired Judge Robert Alsdorf [Washington state] who says, “Being willing

to negotiate doesn’t make you look weak. Being afraid to negotiate makes you look

weak.”

Just because lawyers work in adversarial system, they do not have to be adversarial

with each other, Landessays. He refers to “counterparts” rather than “opposing counsel”

to reflect this idea that lawyers must be willing to work together. They are advocates,

not simply adversaries.

Negotiation literature describes a “competitive / problem-solving” approach in which

negotiators get favorable results for themselves in a process in which they act in a

congenial manner. [Good Pretrial Lawyering, at p. 40]

The word “trust” comes up often in the Lande study. If counterpart lawyers believe they

can trust each other, they can much more effectively communicate their own client’s

needs, wants and fears and better understand those of the other parties in the dispute.

This does not imply that trust is blind to the motives of the other parties to the

negotiation. But it does allow lawyers to be tough when they need to be; co-operative

when that will help to advance the case toward resolution.

Having good relationships [with counterparts] can help lawyers “create” value in negotiation. Considering that many litigants go to trial when they would have been better off by accepting their counterpart’s last offer, just reaching an agreement typically creates value for the parties… [Good Pretrial Lawyering, p. 41]

The big challenge in creating value is that parties normally do not disclose their interests to their counterparts because they fear the counterparts would take advantage of the information. [p. 42]

If counterpart lawyers have a good relationship, they are more open to discussion, communicate more easily, trust each other more, are more candid, and take more reasonable positions, which obviously can make it easier to reach agreement and to save clients’ time and money. [p. 40]

One’s counterparts normally will not negotiate seriously until they can reasonably evaluate their cases. As one lawyer put it, “people can’t negotiate

2020

Can

LIID

ocs

288

162

until the cards are on the table.” Therefore lawyers should efficiently share information so that both sides are prepared to negotiate. [p. 34]

In cases that are likely to settle, lawyers must find the right balance between under-

preparation and over-preparation. The essence of the problem is developing a sufficient

understanding of the case, given cost constraints, incomplete or inaccurate information

(including clients who are less than forthcoming about the facts).

[I]t is not always possible to develop good relationships and trust counterparts. “Some lawyers or clients are completely selfish, have no concern for others, are not open to evidence or reason, and may actually enjoy conflict and inflicting suffering on others.” Lawyers may worry that their counterparts have such motivations, though these situations probably are less common than they many people think. It is usually worth trying to develop good relationships and if the counterparts rebuff the effort, this is an important signal that can prompt lawyers to be appropriately vigilant. [Good Pretrial Lawyering, p. 31]

Some lawyers may not want to start negotiating early because they are not open to

early negotiation, either generally or in particular cases. The lawyers in the Lande study

said they personally were open to early negotiation in appropriate cases, but several

suggested that other lawyers do not consider negotiation early in a case due to habit,

procrastination, “inattention” to their cases, or heavy case loads. [p. 12]

ADR practitioners frequently hear these kinds of comments. Everyone thinks they are

being reasonable and willing to negotiate, but “the other side” is not ready, willing or

able to negotiate seriously. Sometimes, it is the lawyer’s own client that is not prepared

to negotiate. The result, often, is to delay negotiation until the client or the other side is

more amenable to settlement. This may simply be a factor of time and rising costs, or it

may be the result of disclosure of new information that changes the assessment of the

case. But in most cases, delaying negotiations will increase costs and reduce the range

of acceptable settlements.

Lande concludes that good negotiation strategy involves developing conscious plans

about goals and timing of the process, taking control from the outset, managing the

2020

Can

LIID

ocs

288

163

process effectively, generally trying to develop good relationships with counterparts, and

looking for opportunities to create value in negotiation. [Good Pretrial Lawyering, p. 43]

In his Framework article, Lande says:

[U]nderstanding negotiation requires scholars to focus on litigotiation [litigation negotiation], “the strategicpursuit of a settlement through mobilizing the court process.” In practice, lawyers know that most cases will not be tried. Although lawyers may prepare and posture as if a case will be tried, most realize that pretrial maneuvering is designed primarily for leverage to get the best possible settlement. Good lawyers “prepare for settlement from day one of the lawsuit.” [Framework, p.53]

There is significant confusion in negotiation theory about the traditional models of negotiation. Although there is a general consensus about the existence of two traditional models, there is no consensus about the defining features of these models, which probably is why there is a profusion of different terms for them. [Framework, p.54]

The Lande articles show how the traditional negotiation theories are applied in practice.

They attempt to “unbundle” the features of the different models – including his own

“ordinary legal negotiation” framework.

Most legal settlement negotiations do not fall at the extreme ends of an

adversarial/collaborative continuum. They fall at various points in the middle. The

framework Lande proposes can help both scholars and practitioners analyze negotiation

strategies and develop more nuanced and effective approaches for particular situations.

Apple v. Samsung – the Saga Continues

Originally published on April 3rd 2014

The news, reported in late February, that Apple and Samsung had once again failed to

resolve their smartphone patent dispute through mediation did not come as a big

surprise. At this writing, the technology giants were preparing to go to trial in California

in late March, although there was still some prospect that continuing discussions with

the mediator could produce a last minute breakthrough.

2020

Can

LIID

ocs

288

164

Published reports citing court filings stated that company executives met with the

mediator in a full-day session, followed by a number of phone calls, without success.

The background of this dispute includes significant wins by Apple in prior rounds of

patent litigation with Samsung (which I have commented on previously on Slaw),

resulting in almost $1 billion in awarded damages. I’m sure those prior victories did not

encourage Apple to settle the current claims relating to newer smartphone technology.

But this litigation remains a high-risk strategy for both companies. If Apple wins, it may

get another big money judgment, but even $1 billion pales in comparison to Apple’s

January 2014 reported quarterly revenue of $57.6 billion and profit of $13.1 billion. And

if Samsung wins, it could invalidate patents on the smartphone technology and open the

door to new competitors for both companies. Maybe Samsung thinks it has a big

enough market lead that it doesn’t have to worry about new competitors, but I imagine

Blackberry – and Nokia before them – thought the same.

And this isn’t the first time that Apple has been embroiled in long-running IP litigation.

For almost three decades – 1978 to 2007 – Apple Computer was locked in a trademark

battle with Apple Corps, the record company founded by the Beatles. A truce was

declared in the early 80s, when the computer company agreed not to get into the music

business and the record company agreed not to get into the computer business. That

lasted until 1989, when Apple added music capability to its computers. There was

another settlement in 1991, in which Apple Corps retained the exclusive right to use

Apple on any “creative works whose principal content is music”, while Apple Computer

retained the right to use Apple on “goods or services… used to reproduce, run, play or

otherwise deliver such content”, but not on content distributed on physical media. Then

iTunes came along in 2003, and the whole thing blew up again. This time, the case

went to trial and Apple Computer won, in the basis that this new use (iTunes) was

permitted under the previous settlement agreement. Apple Corps appealed; the parties

settled. Apple Computers eventually bought the rights to the APPLE trademark from

Apple Corps. and, in 2010, the Beatles catalog was finally added to the iTunes Store.

2020

Can

LIID

ocs

288

165

The irony is that the Beatles immediately became an iTunes best seller, with more than

5 million single song and 1 million album downloads in the first two months, according

to published reports at the time.

So, the question remains: why are disputes like this so hard to settle, when there is so

much risk in continuing the litigation (Apple Corps was hit with legal costs estimated at

£2 million when it lost its case in 2006) and so much to gain from a settlement (a whole

new generation of fans paying for songs from the Apple Corps catalog)?

Perhaps, companies like Apple are naturally litigious and would rather fight than settle;

or perhaps they are targets for all kinds of litigation (check out the voluminous Wikipedia

entry for “Apple Litigation”) and feel that they must vigorously defend their rights. This is

not intended to single out Apple for particularly criticism. Many large organizations take

the same approach to disputes.

Why should they mediate technology and intellectual property disputes?

Well, one obvious reason is that mediation can open the door to direct communication

between senior executives (rather than their legal counsel) and generate new ideas for

mutually-beneficial settlement options. For example, Samsung used to be one of

Apple’s largest suppliers of touchscreens, before they became direct competitors. If the

two companies could work together again to develop new technology and steal a march

on other competitors, it would be an obvious win for both of them. This is probably

something that was discussed during the recent mediation sessions (very little detail on

those sessions has leaked out in the press, other than the fact that they did meet and

were still willing to continue talking up to the trial date).

Another reason is to avoid potentially greater harm from continuing the dispute. No-

holds barred litigation is fine if you have nothing to lose. For example, a litigant on the

verge of bankruptcy or otherwise judgment proof might as well roll the dice. Or if the

litigant will almost certainly have to pay some amount in damages, it may be worth

delaying the payment as long as possible, even if the cost may be greater in the end. Or

if a monopoly or other competitive advantage can be extended by continuing the

2020

Can

LIID

ocs

288

166

litigation, even if the litigant ultimately loses. But in almost every other scenario, a

negotiated or mediated settlement will be better than litigation, win or lose.

And perhaps the most important reason to mediate is to send a message that the party

is acting from a position of strength. Start the litigation to send a message that you are

serious; then shift to settlement mode as quickly as possible. The timing of the shift

must be consistent with a reasonable prospect for a negotiated or mediated settlement

– the other party may not be ready to talk seriously. But when both sides are ready to

talk, the one that initiates the discussion is most likely to have the advantage.

It will be interesting to see how the Apple Samsung case plays out. Maybe the parties

will be more inclined to settle on the eve of trial, or even after the trial if the decision is

appealed – as was the case in the Apple v. Apple case.

Assessing an Arbitrator’s “Predilection for Bias”

Originally published on February 6th 2014

Arbitrator independence and fairness are the cornerstones of arbitration. They seem to

be coming under greater scrutiny, both in Canada and abroad.

There are many sources of bias in any adjudication system, whether it is court or

arbitration. (This may be a topic for another column, but see for example arbitrator Edna

Sussman’s paper, “Arbitrator Decision Making: Unconscious Psychological Influences

and What You Can Do About Them,” December 20, 2013, American Review of

International Arbitration, Vol., No. 3, 2013 available online here.)

The accepted test for arbitrator bias in Canada was established by the Supreme Court

of Canada 60 years ago. That is: whether an informed person, viewing the matter

realistically and practically, and having thought the matter through, would conclude that

the arbitrator has attitude or predilection for bias, so that the arbitrator must be taken to

have prejudged the matter. It is meant to be an objective test; it is not necessary to

show actual bias on the part of the arbitrator. Szilard v. Szasz, 1954 CanLII 4 (SCC),

[1955] S. C. R. 3.

2020

Can

LIID

ocs

288

167

The problem is with how courts apply this test. Many judges seem to believe that, while

they can put outside influences aside and decide issues strictly according to the law and

the evidence, arbitrators and other mere mortals are unable to do so. Therefore, the

informed person (the judge), viewing the matter “realistically and practically”, concludes

that the arbitrator is incapable of an unbiased judgment.

A recent decision of the Superior Court of Justice in Ontario illustrates the problem of

deciding whether there is a “reasonable” apprehension of bias in any particular case.

In MDG Computers Canada Inc. et al. v. MDG Kingston Inc. et al., 2013 ONSC 5436

(CanLII), the court removed an arbitrator because of a prior connection with an expert

witness who was to testify in the arbitration.

The arbitration involved a dispute between a franchisee and franchisor over compliance

with Ontario’s franchise disclosure legislation, the Wishart Act. The arbitrator was an

experienced franchise lawyer and the parties were aware that he acted for a franchisee

in a case that involved similar issues. However, when the franchisee delivered an expert

report shortly before the scheduled arbitration hearing, it emerged that the arbitrator had

retained the same expert in other franchise cases where he was acting as counsel. The

franchisor asked arbitrator to remove himself. When the arbitrator refused to do so, the

franchisor went to court.

The franchisor argued that, even though the other cases had been settled, there was a

reasonable apprehension that the arbitrator was biased in favour of the expert he had

previously retained. Therefore, the arbitrator could not fairly determine the expert’s

qualifications, expertise and credibility, or assess the expert evidence proffered in the

arbitration regarding similar issues.

The franchisee argued that the particular expert was one of many the arbitrator had

worked with in the past and there was no evidence of any actual bias. The franchisee

also argued that the franchise area is small and specialized, with a small pool of

experts. A finding of reasonable apprehension of bias in these circumstances may make

it more difficult for future arbitrator-practitioners in specialized areas.

2020

Can

LIID

ocs

288

168

However, the court found that the professional relationship between the arbitrator and

the expert on a number of similar franchise disputes did give rise to a reasonable

apprehension of bias. The arbitrator was removed and the parties were directed to

appoint a new arbitrator from a list of three candidates proposed by the franchisor.

Based on this decision, can any practicing litigator ever act as an arbitrator in a

specialty area of practice? There will almost always be current or recent contacts with

party counsel, experts or other witnesses on other files.

It is no mere coincidence, I think, that this challenge occurred in a case where the

dispute between the parties has been going on for more than five years, with no end in

sight. The franchisee originally brought its claim in the Ontario court in 2007. The

franchisor invoked the arbitration clause in the franchise agreement and sought a stay.

The franchisee opposed the stay and sought summary judgment. Summary judgment

was granted; that decision was overturned on appeal to the Ontario Court of Appeal; the

franchisee then sought leave to appeal to the Supreme Court of Canada, which was

refused in 2010.

The franchisee brought another application in Ontario court in 2011 for the appointment

of an arbitrator, but the parties subsequently agreed on the appointment of Steven

Goldman, a well-known franchise lawyer.

So, no surprise perhaps, that the franchisor jumped on a chance to remove the

arbitrator two years later and delay the matter even further.

It is interesting to note that the parties were already aware that Mr. Goldman was acting

as counsel on other cases that involved similar issues as those in dispute in the

arbitration. (A quick look at the Goldman Hines website shows that the firm acts for both

franchisors and franchisees, so presumably the parties waived any suggestion of bias in

that regard and chose Mr. Goldman because of his expertise in franchise law, generally,

and the statutory remedies which were in dispute.)

2020

Can

LIID

ocs

288

169

Of course, one understands why a party would attack the impartiality or integrity of the

arbitrator after an award is made against them. In most cases, it is the only way to

challenge a final, binding arbitration award.

But it is hard not to be skeptical when a party seeks to remove an arbitrator just before,

during or after the hearing. Perhaps things don’t seem to be going their way and they

are looking for an escape hatch. Or maybe there is a perceived advantage in delaying

the process or final decision.

This ruling seems to encourage such attacks and may make it very difficult for an active

litigator to act as an arbitrator, particularly in specialized areas such as franchising,

intellectual property, real estate. It could also open the door to more challenges in other

areas such as labour and employment or family law, where neutrals may have had prior

relationships with established experts or other professionals.

The logic applied by the judge in this decision also goes beyond a perception of bias

toward an expert that the arbitrator has previously retained. What about someone who

has previously been on the other side of a case where the arbitrator has acted as

counsel? If counsel is doing a thorough job, he or she will have questioned the

credentials and credibility of an expert on the other side. Does that mean there is an

apprehension of bias against that expert in any future arbitration?

And what about an expert or other witness who has appeared before the arbitrator in a

previous arbitration? Could either party successfully argue that the arbitrator is biased

for or against them because of a previous ruling on an expert’s credentials, evidence or

credibility?

If this is the standard of impartiality the courts are going to apply, there is a real risk that

a reluctant party can frustrate the arbitration, simply by engaging an expert known to

have a prior professional relationship with the arbitrator. I think this opens the door to a

huge potential abuse of the arbitration process.

2020

Can

LIID

ocs

288

170

In the MDG case, the identity of the expert and the prior relationship was not known

until the expert report was completed and delivered. Does this mean that parties in

arbitration must disclose all of their potential witnesses (and the arbitrator disclose any

prior contacts with those witnesses) as soon as they have been identified?

And what to do when an arbitrator identifies a prior relationship?

There is no problem, if both parties agree that the arbitrator can continue (or that the

arbitrator must withdraw).

But if there is no agreement, the party proposing the witness must decide whether to

withdraw the witness and retain someone else. How seriously would that prejudice the

case? Are there other suitably qualified and experienced witnesses? Do they also have

potential conflicts? And what about the costs thrown away on the expert(s) who must be

replaced?

Perhaps the MDG decision was based on the particular circumstances and the timing of

the separate retainer of the expert on the other files, but that is not evident from the

reasoning in the judgment. The reasons could just as easily be read as saying an

arbitrator cannot act as an advocate in other similar cases without running a risk of

being accused of bias.

The Courts and Arbitration – an Australian View

Originally published on December 17th 2013

As the courts in Canada continue to struggle with difficult issues relating to the

enforcement of arbitration agreements and the enforcement of arbitral awards, it is

worth looking at how courts in other common law jurisdictions see the relationship

between the courts and arbitration.

The Hon James Allsop, Chief Justice of the Federal Court of Australia, gave a very

thoughtful address at 2013 Clayton Utz University of Sydney International Arbitration

Lecture (29 October 2013).

2020

Can

LIID

ocs

288

171

Like others, he sees serious problems with the trend in many countries toward “over-

elaborate, over-lawyered, and slow and costly [arbitration] hearings. …[R]ecalcitrance

and excessive demands for time and procedural steps lie at the root of costly

inefficiency,” he said.

But he said the prevailing attitudes of the courts and the legal profession toward

requirements of equality and fairness are a big part of this trend. If the courts are

reluctant to enforce arbitration agreements or awards, or quick to second-guess

arbitrator’s decisions, on the basis that the arbitration process lacks some of the

procedural protections offered by those courts, then arbitration will inevitably come to

look more and more like litigation.

The arbitrator’s authority stems from the agreement of the parties. This defines the

power the arbitrator exercises. That power is also defined by the applicable law and

requirements of equality and fairness that underlie the arbitration process. But those

broad concepts are susceptible to manipulation by parties seeking procedural

advantages over their adversaries. This can happen in any arbitration case, domestic or

international, regardless of the value of the claim. It is, perhaps, a natural consequence

of any adversarial process.

To the extent that the courts reward those procedural tactics, parties and their counsel

will continue to be encouraged to use them.

In international commercial agreements, arbitration clauses must be construed against

the background of a presumed intention that a single tribunal will determine all of the

parties’ disputes and the arbitration clause must be given a broad interpretation.

This raises difficult questions of policy for the courts. Should arbitrators be free from

judicial control based on legal errors, in order to encourage the freedom to arbitrate? If

arbitrators are subject to such control, what is the appropriate standard of review?

These considerations apply in any jurisdiction that encourages arbitration as a means of

resolving commercial disputes, either to promote international trade or simply to divert

2020

Can

LIID

ocs

288

172

such cases from the domestic courts. Nevertheless, courts everywhere seem reluctant

to relinquish their residual authority, whether it is over arbitration or any kind of

administrative tribunal. So parties are continually encouraged to resort the courts to

argue questions of jurisdiction, procedure and enforcement, if they are not satisfied with

the arbitrator’s decision on the merits of the case.

Justice Allsop refers to the recent situation in Australia where the courts interpreted the

words “manifest error” in the arbitration legislation to mean, not only obvious error, but

any error capable of be discerned in the award. This, he says, was completely contrary

to the intent of the Australian parliament when they added “manifest” to the legislation in

order to restrict the scope of judicial review.

More recently, however, the Australian High Court unequivocally affirmed the

constitutional validity of their International Arbitration Act and in doing so established the

independence of arbitral authority from review for legal error. TCL Air Conditioner

(Zhongshan) Co Ltd v The Judges of the Federal Court of Australia [2013] HCA 5. [See

more detailed commentary here.]

The court looked to the UNCITRAL Model Law in support of the independence of the

international commercial arbitration process from review for legal error. Justice Allsop

cites several important points made by the Australian court

First, the authority or power exercised by the arbitrator to determine the parties’ rights

was by reference to private law and private power derived from contract, and not public

power. While this constrains the arbitrator’s authority and power to the scope conferred

by the contract, it also insulates the arbitrator from any implied term that the chosen law

be applied correctly.

Second, the courts rejected the argument that public policy requires court supervision

on a “correctness” standard, because such a role for national courts in arbitral

proceedings is contrary to the presumed intention of the parties that their dispute be

resolved by one tribunal.

2020

Can

LIID

ocs

288

173

Article 18 of the Model Law expresses the fundamental norms of equality and fairness:

The parties are to be treated with equality and each party shall be given a full opportunity of presenting his case.

This principle does not only bind the tribunal. It also binds the parties. That means the

parties also have an obligation to act fairly. As Justice Allsop puts it:

If the parties have agreed to submit their dispute to arbitration, that contractual submission may be taken as having implicit within it a duty to act honestly and reasonably in the efficient resolution of that dispute.

Any obligation to co-operate and act reasonably efficiently in the conduct of the reference must inform the authority of the arbitrator. He or she must be able to take it that, subject to any express provision of the reference concerning procedure to the contrary, the parties are obliged to act honestly, reasonably and with a reasonable degree of co-operation to bring about an efficient resolution of the dispute. This is to be assessed by the arbitrator in his or her conduct of the reference. Combined with the obligation to act equally and fairly to both parties, the arbitrator’s authority to assess what is reasonably required for a full opportunity to be heard is ample. It is then up to the supervising court to recognise and support those informing conceptions.

Although the parties are free to agree on procedure, and failing such agreement the

tribunal may conduct the arbitration in the manner it considers appropriate, that freedom

is subject to the other provisions of the Model Law, including Article 18.

The Model Law does not define “equality” and “full opportunity”. These concepts depend

largely on the context of the dispute. They must be interpreted reasonably. And this is

the job of the arbitral tribunal, not the courts.

There is no real difference between “a full opportunity” and “a reasonable opportunity to

be heard,” Justice Allsop says.

Clearly, the provision does not entitle a party to obstruct an arbitration by dilatory or specious tactics, merely because the party thinks, even if honestly, that it needs that time or needs to take that step. To permit such would impinge on the equal and fair treatment of the other party… Yet to deny such obviously inappropriate conduct is not to answer the dilemma faced by arbitrators (and, indeed, judges) on a daily basis: how do I balance

2020

Can

LIID

ocs

288

174

considerations of efficiency, despatch, cost and time in how I treat these parties?

Whether one refers to natural justice, procedural fairness, due process, the right or opportunity to be heard, the principle of contradiction (le principe de la contradiction) or the right to equal treatment, the underlying conception of fairness is the same. … It is, however, the translation of the norm into the resolution of a particular dispute and the personal requirement upon the arbitrator to convert conceptions of justice into precise directions and orders about the conduct of a reference that may not be straightforward.

The legal culture of the supervising court plays a critical role in determining how much

autonomy the arbitration process should have. The question then becomes whether the

courts in the jurisdiction(s) where the award is to be enforced will grant the same

deference to either the arbitral tribunal or to the courts where the tribunal was seated.

Efficient, skilled and experienced commercial courts have a part to play in fostering and encouraging this development [of healthy arbitration]. They do so by fostering the legal culture of efficiency and despatch in the support of arbitrations in the jurisdiction. They also do so by constantly maintaining and developing their own efficiencies in the despatch of their business. It is of the utmost importance for the health of arbitration in any jurisdiction that the commercial courts of the jurisdiction are viewed both as skilful and efficient and knowledgeable of commercial matters, and knowledgeable of, and sympathetic to, arbitration as the choice of the commercial community if that choice be made.

…[I]t is ultimately the support of the courts, supervising and enforcing (especially the former), that is essential for the empowerment of the arbitrator by the support of his or her authority flowing from these underlying conceptions that have such a close relationship to each other: equality, fairness, co-operation and reasonable efficiency.

The … notions of equality and fairness, reflected in a full (that is, reasonable) opportunity to be heard do not require acceptance of protracted submissions, unnecessary discovery and delay. It is wrong to consider that the arbitral culture, drawing upon the very best practices of good commercial courts, does not empower the arbitrator, the tribunal and the institution to require efficient and fair process based on cooperation in good faith of parties.

The arbitrator or tribunal or institution that builds a reputation for lack of tolerance for delay and waste and which is supported by its court of supervision reflecting similar ideals will truly be providing equality and fairness as well as the promptness demanded always by commerce.

2020

Can

LIID

ocs

288

175

The source of the authority to demand these things lies in the inhering norms of commerce and any legal order for dispute resolution: good faith, equality and fair treatment. In commerce these notions contain a demand for cooperation for expedited resolution of only the real issues in dispute.

Read the full text of Justice Allsop’s insightful remarks here.

Drafting Arbitration Clauses

Originally published on October 3rd 2013

Over the years I have seen dozens of contracts with dreadful arbitration clauses.

They are generally found near the end of the agreement, with the other so-called

“boilerplate”. One often wonders whether the lawyers even read them before the

contract was signed. Almost certainly, the business people didn’t. One consequence of

this neglect is that, if and when the clause must be dusted off and used in a dispute, it

may not work as intended. And unworkable arbitration clauses tend to give the process

as a whole a bad name.

There are 7 essential elements of an effective arbitration clause.

1. There must be a binding agreement to arbitrate. Avoid wording such as “the

parties may submit the dispute to arbitration.” The current trend is toward dispute

resolution clauses that involve some form of escalation and negotiation, or

mediation, before the parties can go to arbitration. On the whole, this is a good

thing. However, the clause must be clear when the parties can trigger arbitration.

There have been many cases fought over whether arbitration is mandatory or

not, and if so, when. (For example, A.G. Clark Holdings Ltd. v HOOPP Realty

Inc., 2013 ABCA 101, where arbitration was stayed by the court because the

parties had failed to take steps set out in the contract which were determined to

be pre-conditions to arbitration.)

2. The scope of arbitration must be defined. Are all disputes subject to arbitration or

only specific matters? Many standard clauses automatically exclude certain

matters, such as intellectual property claims, from mediation or arbitration. That

2020

Can

LIID

ocs

288

176

may not be wise. It may mean that the parties have to fight separate but related

claims in two places and run the risk of incomplete, inconsistent or contradictory

results.

3. The arbitration rules (or applicable arbitration statute) must be determined and

should be expressly stated. Some assume that this is covered by the general

choice of law clause in the contract. It’s not. And simply saying “…in accordance

with the [Arbitration Act]…” is also usually not enough. If the parties want to use

the Rules of a particular administrative body (e.g. the ADR Institute of Canada,

the American Arbitration Association or the International Chamber of Commerce)

that needs to be clearly stated. Careful consideration should be given to the

choice of Rules. There can be significant differences in time and cost.

4. There must be clear time limits. This applies to any pre-arbitration steps, such as

negotiation or mediation, to the appointment of the arbitrator, any pre-hearing

steps in the arbitration, the hearing itself and the rendering of the award. Most

arbitration statutes or administrative rules give the arbitrator the power to set time

limits, one he or she is appointed, but many cases get hung up before there is an

appointment. And strict time limits in the arbitration clause will help keep the

process moving if one of the parties is dragging their feet.

5. State the place and language of the arbitration. The “seat” is not necessarily the

same as the physical location of the hearings. The governing law of the contract

will determine substantial legal issues; but the law of the seat or venue of the

arbitration may determine many procedural matters, including questions about

the jurisdiction and powers of the tribunal and enforcement of the award. Parties

may be drawn to the idea of specifying a neutral location for arbitration, but they

must be careful to choose a suitable venue.

6. Specify the qualifications of the arbitrator(s), if that expertise is one of the

reasons for choosing arbitration. But be careful not to specify qualifications that

are so narrow that they cannot easily be met. It may then be impossible to get an

arbitrator who meets the criteria.

7. Determine whether there should be one arbitrator or three. One is usually quicker

and cheaper, but there is often a fear that the arbitrator could make the wrong

2020

Can

LIID

ocs

288

177

decision, especially if there is no appeal. Three is more expensive, and

coordinating schedules is that much more challenging, but three heads may be

better than one.

To get all of the potential benefits of arbitration – simplified procedure, speed,

confidentiality, expert adjudicator – these things must be clearly set out in the arbitration

clause. If they aren’t, a reluctant party has many opportunities to drag things out and

frustrate the original intentions of the parties.

Other matters, which the parties may choose to include in the arbitration clause,

include:

Expedited arbitration, with shorter time limits and simplified procedure, for certain

matters. For example, this could include billing disputes under a specified dollar

limit.

Limited rights of appeal, for example on questions of law. If confidentiality is a

concern, the appeal could be to a separate panel of arbitrators.

Limitations on discovery, particularly electronic discovery. This is one of the

factors driving up the costs of commercial arbitration. Often there is very little to

be gained by either party, particularly in situations where both parties usually

have access to the information they need to present their case. Sure, there may

be a “smoking gun” in some internal email, which will open the door to a fraud or

misrepresentation claim, but more often the only thing the parties get from

extensive discovery is a big legal bill.

Confidentiality. Arbitration is private; it is not necessarily confidential. So if

confidentiality is important (such as a dispute over trade secrets) it is generally a

good idea to expressly state that both the arbitration itself and all information

disclosed during the process is confidential.

For a simple, but functional, arbitration clause, look to the sample clauses published by

one of the arbitration bodies. The ADR Institute of Canada model clauses are

available here.

2020

Can

LIID

ocs

288

178

The International Centre for Dispute Resolution, which is the international division of the

American Arbitration Association, has model clauses for international contracts,

including wording for common variations. The American Arbitration Association also has

a Clause Builder Tool for commercial and construction mediation and arbitration.

Although the tool is designed for US domestic arbitration, it provides a useful checklist

of additional clauses that may be used in any arbitration agreement. (The AAA website

indicates that an international clause builder tool is coming soon.)

The Clause Builder also demonstrates one of the dangers inherent in the unlimited

flexibility of arbitration. It is all too easy to vary the standard clause to deal with a

multitude of specific issues, until it becomes far too long and cumbersome. Far better, I

think, to stick to a tested standard clause and add only those terms that are necessary

to vary unwanted default rules or to reflect the specific intent of the parties.

“Effective Practices” for Resolution of Intellectual Property Disputes

Originally published on August 14th 2013

There is a perceived reluctance to use private dispute resolution (either mediation or

arbitration) to resolve intellectual property (IP) disputes.

One reason is that IP rights (patents, trademarks and copyright) are statutory

monopolies, granted on a national basis. Therefore, rights holders must look to

government authorities and national courts to establish and enforce these rights.

However, the most valuable IP rights are commercialized internationally, so national

enforcement and dispute resolution is very costly, time-consuming and inefficient. IP

litigation is also public and potentially fatal to confidential information and trade secrets.

That’s why there is a compelling case for both owners and users of IP to look to private

dispute resolution.

The International Institute for Conflict Prevention and Resolution (CPR) has been a

pioneer in seeking improvements to private resolution of IP disputes. In 2010, CPR

formed a Patent Mediation Task Force to examine the benefits of mediation in resolving

2020

Can

LIID

ocs

288

179

patent disputes in particular, and to identify and overcome barriers to the effective use

of mediation.

The Task Force has published an “Effective Practices Protocol” to dispel some of the

common business myths about mediation and to promote the strengths of mediation as

a means for resolving patent disputes and saving companies from ruinous litigation.

The CPR has also promoted mediation through its Corporate Policy Statement on

Alternatives to Litigation©, which has been signed by over 4,000 companies. The Policy

Statement does not commit companies to do anything more than “explore … resolution

of the dispute through negotiation or ADR techniques before pursuing full-scale

litigation.” If either party believes the dispute is not suitable for ADR, or if ADR does not

produce satisfactory results, either party may proceed with litigation.

In-house counsel who are considering mediation, can refer to the CPR website to see if

the other party to a dispute is a signatory. The list, available here, includes many major

multinational companies, but leading Canadian corporations are surprisingly

conspicuous by their absence.

Other IP groups have recognized the value of specialized private dispute resolution.

The World Intellectual Property Organization (WIPO) Arbitration and Mediation

Center provides a host of dispute resolution services, including domain name

arbitration. WIPO has recommended contract clauses, rules that parties can adopt in

international agreements and rosters of mediators and arbitrators. The International

Trademark Association (INTA) has established a Trademark Mediators Network and

cites recent surveys that show mediation settlement rates for IP disputes as high as

70%. In Canada, a group of IP professionals launched IP Neutrals of Canada a few

years ago to provide a roster of trained neutrals and to educate the Canadian business

and legal community about the benefits of mediation of IP disputes. [Full disclosure: I

am a member of the WIPO, INTA and IP Neutrals of Canada mediator and arbitrator

panels.]

2020

Can

LIID

ocs

288

180

It’s surprising how confused many business people (and their advisors) still are about

the differences between mediation and arbitration/litigation. The CPR Task Force notes

that reluctance to consider mediation is often due to a fear of the unknown. Clients need

to understand that mediation is not a sign of weakness, that it is voluntary and provides

a means for them to retain full control over the resolution of their dispute.

The Task Force Protocol recommends:

Including mediation clauses in license agreements. This is an effective way to

avoid the perception that seeking mediation is a sign of weakness; if it’s in the

contract, the parties have to do it.

Proposing mediation as early as possible. Although parties need enough

information about the dispute to evaluate the strengths and weaknesses of their

positions, there is a real advantage to mediation before the parties have incurred

significant litigation expenses or become entrenched.

Avoiding full discovery, especially electronic discovery, prior to mediation. The

mediator can often facilitate the voluntary disclosure of documents and

information needed for the purposes of mediation. Counsel should execute a

“bullet-proof” confidentiality agreement to limit the use of the information

exchanged solely to the mediation. Confidential financial information may be

disclosed in confidence to the mediator. Technical information may be disclosed

to a neutral third party for a confidential evaluation (for example, on the validity or

infringement of a patent) without having to disclose it to the other party or the

mediator.

Use of Early Case Assessment and Decision Trees to facilitate informed and

expedited decision-making at the early stages of a dispute. Early Case

Assessment calls for a small team to work quickly to: (a) gather the facts and law

relating to the dispute; (b) identify the key business issues; (c) assess risks and

costs; and (d) make an informed choice or recommendation on how to handle the

dispute. Decision Trees demonstrate the economic impact of litigation and are

particularly useful in IP cases as a tool for counsel to communicate effectively

with clients about the costs associated with the various steps in the litigation and

2020

Can

LIID

ocs

288

181

the likely outcome of their strategic decisions. Focus groups agreed that both

tools improved the chances of success at mediation by enabling parties to be

better prepared and focus on the critical business issues driving the dispute.

Focusing on mediation skills and experience, when selecting a mediator.

Mediation skills (including experience mediating IP cases, and a thorough

understanding of IP law and litigation) trump specific experience with the

technology in issue or general technical expertise, according to the Task Force. It

is always possible to get outside, neutral technical advice if necessary.

Viewing the mediator as “the adult in the room.” The mediator’s integrity and

“people skills”, as well as his or her ability to obtain the trust of the parties, is

critical to the success of mediation. The key qualities identified by the task force

participants include: unwavering neutrality, respect for confidential

communications, willingness to work with the parties to create and maintain an

effective mediation environment, and sensitivity to cultural issues. The mediator

must have strong empathy and communication skills to deal with difficult people

and problems.

Ensuring that retired judges have suitable mediation training and experience.

Often chosen for their instant credibility or subject matter expertise, they may be

great judges, but lousy facilitators. The parties may also expect them to provide

an opinion on who will win or lose, if the dispute is not settled. This may be

counterproductive to the mediation process.

Many of these observations and recommendations apply to mediation of any kind of

dispute. But the Task Force has taken pains to directly address many of the frequently-

heard objections to mediation of technology and intellectual property disputes.

The bottom line is there is no special magic to IP disputes. The keys to successful

dispute resolution are early intervention, preparation, understanding the essential

elements of the dispute, choosing the right neutral and crafting the dispute resolution

process to meet the specific needs of the parties. That is something that litigation

cannot do.

2020

Can

LIID

ocs

288

182

“What if They Get It Wrong?”

Originally published on June 13th 2013

One of the fears we often hear from business people and lawyers who are reluctant to

put “final and binding” arbitration clauses in contracts is: “What if the arbitrator gets it

wrong?”

The recent decision of the British Columbia Court of Appeal in Creston Moly Corp. v.

Sattva Capital Corp., 2012 BCCA 329 (CanLII) offers an object lesson in how the courts

may still be too eager to review arbitration decisions and may even get the result

“wrong” in situations where the arbitrator actually “got it right”.

The case involved a dispute over the payment of a finder’s fee in a mining deal. In 2006,

Sattva brought Creston (formerly called Georgia Ventures) a potential acquisition of a

mine in Mexico. They agreed that Sattva would get a finder’s fee if the acquisition

closed. The amount of the fee was subject to approval of the TSX Venture Exchange

(VE) and was payable in shares. Under the TSX VE rules, the amount of the finder’s fee

was $1.5 million, based on the value of the deal. There was no dispute about that.

However there was a dispute about the value of the shares, which was submitted to

arbitration.

When the companies signed the finder’s fee agreement, and before the acquisition deal

was signed, GVI had issued a number of shares at $0.15. Trading in GVI shares was

halted pending announcement of the deal. Soon after it was announced, GVI raised

more money at $0.70 a share.

Sattva claimed payment of its finder’s fee in shares at $0.15 a share. Georgia offered to

pay either in cash or in $0.70 shares. In seeking approval of the finder’s fee from the

TSX VE and its own shareholders, Georgia apparently only sought approval of the

payment of $1.5 million in cash. It did not disclose Sattva’s claim for shares at $0.15.

The Court of Appeal summarized the relevant portions of the arbitrator’s award as

follows:

2020

Can

LIID

ocs

288

183

[14] The arbitrator addressed the import of the Agreement at paragraph 23 of the Award:

In summary, then, as of March 27, 2007 it was clear and beyond argument that under the Agreement:

(a) Sattva was entitled to a fee equal to the maximum amount payable pursuant to the rules and policies of the TSX Venture Exchange – section [3.3]. It is common ground that the quantum of this fee is US$1,500,000.

(b) The fee was payable in shares based on the Market Price, as defined in the Agreement, unless Sattva elected to take it in cash or a combination of cash and shares.

(c) The Market Price, as defined in the Agreement, was $0.15.

[15] He decided Georgia breached the Agreement by failing to act in good faith and honour the “best efforts” obligation the Agreement required. He found Georgia’s conduct in unilaterally obtaining TSXV approval of a finder’s fee payable in cash, without trying to obtain approval for payment in shares valued at $0.15, as Sattva demanded, had rendered it less likely the TSXV would have approved payment by the latter method. He observed the TSXV had discretion in applying its policies, and concluded that if Georgia had properly conducted the approval process there was an 85% probability the TSXV would have approved payment of the finder’s fee in $0.15 shares.

[16] The arbitrator calculated Sattva’s damages by converting the $1.5 million US finder’s fee to Canadian funds, and dividing that figure by $0.15, resulting in 11,459,853 shares. He found Sattva could have sold those shares in an orderly manner by the end of 2007 for gross proceeds of $0.40 to $0.44 a share, resulting in a loss of between $4,583,914 and $5,156,934. He assessed damages at 85% of the average of those amounts, producing an Award of $4,140,000.

[17] Georgia has made a cash payment of $1.5 million US (or the equivalent in Canadian dollars) to Sattva on account of the arbitrator’s award. The balance of the damage award is held in the trust account of Sattva’s solicitors pending determination of these proceedings.

Those funds were destined to sit in the trust account for four years.

Georgia sought leave to appeal the arbitrator’s award to the B.C. Supreme Court under

the B.C. Commercial Arbitration Act. That Act, provides for appeals on questions of law,

with leave from the court, if:

2020

Can

LIID

ocs

288

184

(a) the importance of the result of the arbitration to the parties justifies the intervention of the court and the determination of the point of law may prevent a miscarriage of justice,

(b) the point of law is of importance to some class or body of persons of which the applicant is a member, or

(c) the point of law is of general or public importance.

The Court found that the issue was not a question of law, but a question of fact or mixed

fact and law. Even if it was purely a question of law, the court would have exercised its

discretion not to grant leave, on account of Georgia’s conduct in misrepresenting the

finder’s fee agreement to the TSX VE and in misrepresenting the TSX VE’s position to

Sattva, when it said the exchange wouldn’t approve anything other than a cash payment

(paragraph 39 of the decision).

The judge made a further observation, which is interesting in the context of the ultimate

decision in the case.

[41] I would further deny leave to appeal on the principle that one of the objectives of the Act is to foster and preserve the integrity of the arbitration system. This is one of the factors mandated to be considered by a judge in exercising discretion on a leave application…

The judge went on to cite earlier decisions of the B.C. Courts, which commented that:

“Arbitration is intended to provide a speedy and final resolution of the issues. No party may appeal any aspect of an arbitration award as of right. The court retains a certain discretion … to grant or refuse leave after weighing the importance of the result of the arbitration and the point of law invoked. … After most arbitrations, one party or the other, perhaps both, will be unhappy with the result. The substantial constraints on the granting of leave to appeal play an important role in preserving the integrity of the arbitration system. If leave were granted too readily, one of the beneficial and distinguishing features of arbitration (its finality) would be lost. Elk Valley Coal Partnership v. Westshore Terminals Ltd., 2008 BCCA 154 (CanLII), quoting from Ed Bulley Ventures Ltd. v. Eton-West Construction Inc., 2002 BCSC 826 (CanLII), at para 5.

2020

Can

LIID

ocs

288

185

In this case, however, the Court of Appeal did not see it that way. The decision was

reversed, leave to appeal was granted and the matter was sent back to the B.C.

Supreme Court for consideration of the arbitration award.

Once again the B.C. Supreme Court (a different judge from the first leave application)

saw no reason to change the arbitrator’s decision. Once again, the B.C. Court of Appeal

disagreed.

After reviewing the facts and the arbitrator’s award in some detail, the Court of Appeal

noted that: “the interpretation of the Agreement is a question of law alone, reviewable

on a standard of correctness.” The Court of Appeal concluded that neither the arbitrator

nor the court below had given adequate attention to the “tension” in the contract

between the maximum fee allowable under the TSX VE rules and the agreement to pay

the fee in shares. It concluded that the maximum value of the finder’s fee was $1.5

million, regardless of whether it was paid in cash or shares. Therefore, there was no

breach of contract.

In the end, one is left with the question: “Who got it wrong, the arbitrator or the courts?”

If the goal is to give effect to the original agreement of the parties, then it seems clear

that the arbitrator actually got it right. The parties agreed that the fee would be $1.5

million, payable in shares at the market value immediately before the acquisition was

announced. The arbitrator found that the parties must have anticipated that the value of

the shares would go up after the acquisition. Why do it, otherwise. As noted by both the

arbitrator and the court, Satva was also taking the risk that the shares could go down in

value. The commercial intent of the agreement could not have been simpler – or

clearer.

The B. C. Supreme Court clearly understood this: finding no reviewable question of law

in the first instance; then upholding the award in the second go-round.

Of course, another arbitrator faced with the same facts could have come to a different

decision.

2020

Can

LIID

ocs

288

186

For example, one might argue that the arbitrator should not have discounted the award

by 15%. He determined that this was the risk that the TSX VE would not have approved

the payment, if given all the relevant information. However, having determined on a

balance of probabilities that the exchange would have approved payment in lower-

priced shares, perhaps he should have awarded Sattva the full value of those shares.

On the other hand, the arbitrator could have concluded that the contract was impossible

of performance, as written. If the TSX VE rules would not have allowed the payment in

shares at the lower price, then the arbitrator could simply have awarded payment of the

finder’s fee in cash.

This is what the Court of Appeal ultimately did. But they had to take a long, winding path

to get there. Because the court could not reject the arbitrator’s findings of fact, they had

to come up with a question of law (contract interpretation) and completely ignore the

original intent of the parties.

In the process, the parties lost all of speed and cost benefits of arbitration.

The contract was made early in 2007. The arbitration award was rendered in 2008. After

two trips to the B.C. Supreme Court and Court of Appeal, the decision reversing the

award was released in 2012. (Surprisingly speedy, as litigation goes, but still five years

after the fact.)

And the legal costs must have eaten up much of the amount in dispute. Both parties

were awarded costs at various stages along the way. Nevertheless, each of them must

have borne significant unrecoverable costs.

When all is said and done, it is difficult to see what important question of law or

miscarriage of justice required the courts to intervene in this case. The facts of this case

are interesting and unusual, but the contract terms in dispute may never arise again.

So those who worry about the final and binding nature of arbitration awards should be

careful what they wish for. They may be far worse off going to court.

2020

Can

LIID

ocs

288

187

For those interested in following the full saga of Creston Moly Corp. v. Sattva Capital

Corp, here are links to all of the B.C. court decisions.

Round 1 – Leave to Appeal Application

British Columbia Supreme Court

British Columbia Court of Appeal

Round 2 – Appeal of Arbitration Award

British Columbia Supreme Court

British Columbia Court of Appeal

“Project Umpire” — Alternative Approach to Governance of Complex Projects

Originally published on April 12th 2013

As winter turns to spring and hockey gives way to baseball and soccer, I can’t help but

think about the role of referees and umpires and wonder why we don’t use them more

for commercial dispute resolution.

Every competitive sport needs a referee or umpire. Even in recreational leagues,

players know there will be disputed plays, broken rules and conflicts.

Business is highly competitive. Technology projects, in particular, need on-the-spot

umpires who can make calls quickly and settle conflicts efficiently.

Contracts for large, complex projects typically require disputes to be escalated to senior

executives or a project steering committee before going to litigation or arbitration. Some

contracts also include mediation as a “circuit breaker” before a dispute heads down the

arbitration/litigation path.

2020

Can

LIID

ocs

288

188

Escalation can be effective, if the executives or steering committee have the authority

and motivation to negotiate a resolution. Often, however, it just hardens positions on

both sides.

No one likes to admit they made mistakes. Project managers fear they will be blamed

for problems they are unable to solve. Senior executives may have other priorities or be

unwilling to deal with the issues. So conflicts do not get escalated; or if they are, they

may not be resolved effectively. The escalation process – if it takes place at all – is

often just a restatement of each party’s existing position. There is little incentive or

opportunity for a meaningful discussion to resolve the problem.

In the meantime, the dispute causes delays and extra costs for both sides. Litigation is

not an effective option. Courts are simply too slow and expensive.

This is where a project umpire comes in. A neutral party, with subject-matter expertise

and dispute resolution experience, can help the parties quickly and efficiently resolve

the dispute.

The project umpire role is based on dispute resolution boards (DRBs), which have been

used in the construction industry for more than 40 years. Where DRBs usually have

three members, due to the size and technical complexity of large construction projects,

smaller projects may achieve the same result with a single project umpire.

Unlike other forms of dispute resolution, which are activated only after a dispute has

arisen, the project umpire is appointed at the beginning of the project. The umpire is an

integral part of the project management process, available as needed, for the duration

of the project.

The umpire is given all of the contract documents and briefed on the project at a kick-off

meeting. He or she receives regular progress reports and minutes of project meetings

throughout the project. Meetings are held with the project managers or steering

committee – in construction, these meetings are often combined with a site visit, to see

first-hand how the work is progressing.

2020

Can

LIID

ocs

288

189

The umpire is briefed on potential disputes as soon as they arise. Some disputes can

be resolved by an informal discussion between the umpire and the parties, with the

umpire acting as a facilitator or mediator. If there is no resolution, the umpire will

adjudicate the dispute and render a decision.

Usually, there is an informal hearing and written report. At the hearing, each party has

the opportunity to explain its position and present any relevant information and

documents. The other party has an opportunity to respond. The umpire can ask

questions and seek additional information. The intent is to determine the facts as

expeditiously as possible.

The umpire’s report can take a number of forms, depending on what the parties want. It

may simply be a neutral evaluation of the pros and cons of each side’s position. It may a

non-binding recommendation or a binding decision.

In the construction context, in Canada and the United States, DRB recommendations

are usually non-binding. In international projects, such as those sponsored by the World

Bank and those that adopt the dispute process of the International Chamber of

Commerce, DRB recommendations are binding unless one of the parties elects to

appeal.

In most cases, when a neutral, independent umpire renders a decision based on the

contract and the evidence submitted by both parties, it allows the parties to put that

issue behind them and move on with the project, even if they are not completely happy

with the result.

Experience has shown that the parties usually accept decisions, regardless of whether

they are legally binding or not, because the panel is impartial and fully informed of all

the facts. The parties have confidence in the umpire’s judgment because he or she has

been involved in the project since the beginning. And the umpire will continue to be

involved. So there’s a strong incentive to either accept the decision or recommendation

– or to us it as the basis to negotiate another acceptable resolution of the dispute.

2020

Can

LIID

ocs

288

190

As with any mediation or arbitration, the umpire process is private and confidential.

Statements made to the umpire by the parties cannot be used against them in

subsequent proceedings. In practice, though, it would be very awkward for either party

to later deny evidence given or arguments made to the umpire. And a failure to disclose

relevant evidence to the umpire would be very damaging to a party’s credibility.

In commercial disputes, as in sports, umpires will sometimes make the wrong call. If

project umpire decisions are to be binding, the parties may want to have a right of

appeal if the umpire “gets it wrong.” The appeal may be limited to questions of law,

including contract interpretation, or it may include findings of fact. Either way, this avoids

one of the greatest fears many parties have regarding binding arbitration as the first and

final step in dispute resolution.

In many construction projects, appeals can only be made at the end of the project. This

is the case in the UK, where construction adjudication decisions can be appealed but

only after the work is completed. Experience there has shown that, in most cases, when

all is said and done, decisions balance themselves out and neither party is interested in

appealing them any more.

You win some; you lose some.

Many of the types of disputes that arise in technology projects are ideally suited to

resolution by a project umpire. They include:

Ownership of jointly-developed technology

The scope of license rights in a specific “field of use”

Whether specific services or deliverables are “in scope”

Changes in business requirements or technical specifications

The cost and timing of changes

Testing and approval of deliverables

Whether service levels have been met and the consequences if they have not

Billing disputes (payment milestones; usage-based billing; etc.)

2020

Can

LIID

ocs

288

191

The umpire can also be used to resolved contract interpretation disputes. Each party

reads a clause differently and they need a neutral interpretation to proceed to the next

step.

In all of these cases, the parties need to continue to work together. They can’t afford to

let these disputes hold up the project. If they can’t agree between themselves, it makes

sense to let an umpire decide.

The key is to determine the terms of reference for the umpire at the beginning of the

project. Otherwise, the dispute resolution process itself can just become another matter

for dispute.

In 25 years of negotiating technology contracts I have constantly been amazed at how

much faith both lawyers business people put in contracts. They seem to believe that the

contract will resolve every issue and there will never be any disputes.

Anyone who has played – or even watched – competitive sports knows that this is

simply not the case. There will always be disputes that need to be resolved quickly and

fairly, so play can continue. The umpire or referee plays an essential role in every

competition.

Mediator Saves NHL & Players From Themselves

Originally published on February 4th 2013

The pivotal role of Scot Beckenbaugh, Deputy Director of the United States Federal

Mediation and Conciliation Service, in resolving the 113-day National Hockey League

lockout provides an excellent case study in the art of high-stakes mediation.

Published accounts of Beckenbaugh’s role in the final week of make-or-break

negotiations illustrate the key attributes that disputing parties should seek in any

mediator.

Subject matter expertise:

2020

Can

LIID

ocs

288

192

Beckenbaugh was brought into the negotiations for his mediation skills, not his

knowledge of the specific financial issues in dispute. He is not a “hockey guy”. His bio

on the FMCS website mentions “extensive experience in public sector dispute

mediation, as well as regulatory negotiations, public policy, land use and civil rights

disputes” and notes his role in mediating national agreements in the cereal, heavy

equipment manufacturing, aluminum and meatpacking industries.

But he does know professional sports. He was involved (unsuccessfully) in mediating

the previous NHL lockout, which scrubbed the 2004-2005 season. According to

the Globe and Mail,

… Beckenbaugh is developing a reputation as the go-to guy for stalemated pro-sports labour disputes. He helped end the National Football League referees strike last fall. He was among those called upon to assist with National Basketball Association labour talks in 2011, as well as Major League Soccer negotiations in 2010, and the unsuccessful attempt to rescue the NHL’s 2004-05 season.

This background was important for the mediator’s credibility with both sides, while

retaining the independence and distance which was necessary to be an effective

neutral. He was able to focus on the negotiation process, not the substantive issues in

dispute. But he knows enough about the sports business to understand the interests

behind the positions each side took – as well as their mutual interests in resolving the

dispute and getting back to business. He could appreciate where each side had room to

move and their reasons for doing so.

Building (or rebuilding) trust:

The negotiations were characterized by misunderstandings and lack of trust on both

sides, particularly since the fight was very public and the parties did not meet for long

periods of time. Leaks and speculation abounded.

Neither side has ever really recovered from the poisoned atmosphere caused by the

2004-05 lockout. At various times in the current dispute, each accused the other of not

being serious and acting in bad faith. The league complained that the players failed to

2020

Can

LIID

ocs

288

193

respond to proposals when they promised to do so and of scheduled meetings being

delayed or cancelled. Negotiators for the players’ union thought the league was trying to

take back previously-agreed points when they tabled new proposals with undisclosed

changes.

For example, as reported in the Globe and Mail, a new offer tabled by the NHL on

January 2 did not include some important language relating to the team salary caps.

The changes would lead to a day of nasty exchanges through the media.” David Shoalts reported in his January 12 Globe and Mail column, The untold story: How Shane Doan’s sincerity paved the way to the deal, which gave a day-by-day breakdown of the final week of negotiations. “Accusations were made through favoured reporters by both sides…

Beckenbaugh was able to sort out that dispute though the shuttle negotiations that

eventually brought both sides back to the same room.

The mediator’s constant three-block walks over 13 hours Friday [January 4] between the NHL office and the hotel in which union representatives were staying laid the groundwork, calmed the anger, built the trust, and brought the sides back to the bargaining table for the 16-hour talks that finally led to an agreement,

according to an Associated Press story carried in The National Post.

Persistence:

Beckenbaugh was first brought in as mediator back in November, but his efforts did not

result in a deal.

Observers have suggested many reasons why the January talks were more successful

than earlier negotiations, including the looming deadline to salvage half a season and

pressure from sponsors and broadcasters.

“When the moment is right, a deal will be done very quickly,” Steve Fehr, the union’s

special counsel and the brother of NHLPA boss Donald Fehr, predicted in November.

Quickly, perhaps, but not painlessly.

2020

Can

LIID

ocs

288

194

Dan Oldfield, lead negotiator for the Canadian Media Guild and former journalist, noted

in a commentary on the CBC website that:

[B]oth participants and observers…repeatedly questioned the involvement of a mediator; some even suggesting efforts to mediate had failed. That view is understandable if you assume that success has to be measured against the outcome of every meeting between the parties. But, as I’ve said before …, negotiations are a process — not an event.

So, whether it was because the time was right or simply because all other efforts had

failed, when Beckenbaugh was brought back into the negotiations in January, he was

able to convince both sides to keep talking, make some key concessions and reach a

deal.

As another commentator on the CBC website (Hawk43) saw things:

[T]he deadline may have been a factor but helping the parties finding middle ground and keeping egos and spite out of the negotiations certainly helped. Keeping them separated until anger subsided and cooler heads prevailed…

As Oldfield explained it:

You can bet he constantly reminded them how close they were. You can bet he reminded them of what was at stake, what they owed the fans and each other. And you can bet he offered lots and lots of suggestions. But primarily he kept them at the task.

When he realized the parties were close to a deal he brought them together and there was no way they were getting out of that room without one.

“At times during the final hours of talking, Beckenbaugh waited in the background while

the sides continued to work,” reported Ira Podell, of the Associated Press. “Negotiations

kept going without him, but the bargaining was buoyed because the NHL and the union

knew he was there if trouble arose again.”

“These talks knew plenty of trouble and breakdowns and mistrust. As recently as talks

that stretched into early Thursday [January 3], the process broke down. Beckenbaugh

was there to fix the holes and get negotiations back on track,” Podell reported.

2020

Can

LIID

ocs

288

195

USA Today hockey writer Kevin Allen reported that when

negotiations, contentious throughout the process, boiled over … Beckenbaugh brought down the temperature … with some shuttle diplomacy and mediation. He went back and forth between the sides to determine where they had room to move on their positions.

“I’d been told by family and friends, ‘Lock yourselves in a room and don’t come out,’ ”

Phoenix Coyotes captain Shane Doan was quoted by the Sporting News. “The mediator

kind of did that. He kind of kept us going, and that was huge. Both sides got involved

and got it done, and that was good.”

Acting as a neutral sounding-board

Negotiators for the league and the players were able to test new ideas on the mediator

and to use him to float proposals.

“Scot was great for a number of reasons,” said Winnipeg Jets defenceman Ron

Hainsey, a member of the player’s negotiating team. “When it got to points you didn’t

know what to do next, you could go to him and talk to him about it and there was a way

to work your ideas through a third party who was really able to help the process.”

Confidentiality and discretion:

There has been no shortage of accolades for Beckenbaugh since the settlement was

announced. Fans and commentators have suggested he should receive the Order of

Canada or the Hart trophy, as the league’s Most Valuable Player, even a place in the

Hockey Hall of Fame.

“If there ever was a hockey god, Beckenbaugh would be amongst the most supreme

choir of angels,” said Andrew Hewitt, on the Hewitt Sports Network blog.

Meanwhile, Beckenbaugh himself has been determined to stay firmly in the background.

Both during and after the negotiations, Beckenbaugh let others do all the public talking.

2020

Can

LIID

ocs

288

196

NHL Commissioner Gary Bettman made a point of thanking him at the press conference

announcing the settlement. So did several player representatives.

“Scot Beckenbaugh, next time I’m in NYC, dinner is on me,” Edmonton Oilers center

Sam Gagner said on Twitter. “Thanks for helping get us back on the ice.”

In a statement made after the settlement, Beckenbaugh’s boss, FMCS director George

H. Cohen, said,

I want to recognize the extraordinary contribution that my colleague, Scot Beckenbaugh, Deputy Director for Mediation Services, made in providing herculean assistance of the highest caliber to the parties throughout the most critical periods in the negotiations.

On Twitter, @michaelgrange said: We asked Scot Beckenbaugh for comment on his

status as the NHL’s off-season Hart winner he declined: “I’m as famous as I want to be.”

In response to a request for an interview from Hockey Night in Canada

Radio Beckenbaugh wrote in an email:

I am … deeply touched and grateful for all the kind words and good wishes expressed by hockey fans everywhere. Especially, of course, from Canada…

The ethics of my profession always prohibit the discussion of specifics of any mediation that I conduct. The responsibilities of my position only add to those ethical obligations.

…this is still an “active case” for me and will remain so until an agreement is fully executed and ratified. There are still very important steps to be taken and decisions that must occur.

Jesse Spector of the Sporting News summed it up perfectly:

Beckenbaugh’s role in ending the lockout cannot be overstated. The level of distrust between the NHL and NHLPA was tremendous, with the league believing that Fehr had little interest in making a deal, and the union finding unadvertised poison pills in proposal after proposal from ownership. While little separated them on the key issues for the last month, actually getting a deal done required putting aside greater differences. Beckenbaugh was the man for the job.

2020

Can

LIID

ocs

288

197

Will UNCITRAL Online Dispute Resolution Rules Work for Consumers?

Originally published on December 4th 2012

The United Nations working group for online dispute resolution (ODR) of cross-border

electronic commerce transactions (UNCITRAL Working Group III) met in Vienna early in

November to continue its work on procedural rules for ODR. This effort has been

underway since 2010 and should be nearing completion, but the approach taken by the

working group has drawn some criticism from those concerned that its focus is too

narrow and its proposed rules will be ineffective.

Professor Vikki Rogers, Director of the Pace Institute of International Commercial Law,

one of the facilitators of the 2010 colloquium that put ODR on the UNCITRAL agenda,

has observed that the Working Group’s approach ignores the two most effective existing

models to address disputes arising from low-value e-commerce transactions — the

credit card chargeback system and the Paypal ODR process.

In a recent online post Prof. Rogers argues that there are several advantages to these

systems:

sellers that use the payment system are required to use the dispute resolution

system – so they bind sellers to the dispute resolution process, without binding

the buyer;

they are part of the payment process, so consumers are aware of and can easily

access them;

recourse is available within the payment system, so enforcement is simple;

parties still have recourse to the courts (although this is seldom used);

they are funded by fees charged to sellers, which increase for sellers with

multiple chargebacks, so it encourages settlement;

payment processors can aggregate information and track cases against sellers to

detect fraudulent practices.

2020

Can

LIID

ocs

288

198

Instead of following and adapting this model for cross-border electronic commerce, the

Working Group has proposed a two-tiered binding dispute resolution process, using a

combination of mediation and arbitration, that will operate entirely outside the

transaction channel. Both parties to a dispute will have to opt into the ODR process,

either at the time of the original transaction or later, when a dispute arises. There is little

apparent incentive to participate or penalty for refusing to do so.

Since the process is divorced from the means of payment, enforcement may be difficult

or impossible. Although proponents of the Working Group’s approach are correct in

arguing that making it part of the existing regime of international commercial arbitration

will make awards widely enforceable under the New York Convention, local

mechanisms for judicial enforcement of arbitration awards can still be expensive and

time-consuming.

The approach taken by the Working Group seems more suitable for business-to-

business ecommerce disputes than for consumer disputes. Indeed, there has been

much debate about whether consumer disputes should be included in the UNCITRAL

ODR process at all. The whole notion of binding arbitration of consumer claims is

anathema to consumer advocates in many countries, including Canada. But cross-

border online consumer transactions is where ODR should hold the most promise for

fast, cheap, accessible dispute resolution.

The key, as Prof. Rogers correctly points out, is to make enforcement quick and easy as

well. To do that, the ODR process must include the online payment mechanism. In most

cases, the only practical way for consumers to enforce mediated settlements or

arbitration awards in their favour is to have access to a hassle-free refund of their

money. Even resolutions that involve the repair or replacement of goods or services

ultimately depend on the threat of a refund to force the seller to comply.

For example, Consumer Protection BC is currently running an ODR pilot project, which

provides a set of online tools BC businesses and consumers can use to attempt to

resolve disputes through direct negotiation or a neutral third party. But the process is

2020

Can

LIID

ocs

288

199

entirely voluntary and non-binding, unless there’s a mutually agreed settlement. And the

ODR webite itself notes that: “It is up to both parties to follow through with the

agreement….if either party does not follow through, it is up to the party to enforce the

agreement.”

Existing consumer-protection laws are largely ineffective when it comes to online

transactions, whether domestic or cross-border. The nature of online transactions

makes it difficult or impossible for sellers to comply with disclosure and notice

requirements, even if they want to. Individual consumers can’t afford to exercise their

legal remedies, while class action claims are usually far more lucrative for plaintiff’s

lawyers than the plaintiffs themselves. These problems are compounded when it comes

to cross-border electronic transactions.

The Working Group is scheduled to continue its deliberations over the rules with a

meeting in New York in May, 2013. One hopes that it will soon emerge with effective

ODR rules for international business transactions; the prospects for effective

international consumer ODR appear to be less promising.

Apple v. Samsung — Who’s the Big Loser Here?

Originally published on September 25th 2012

The worldwide patent litigation between Apple Corporation and Samsung Electronics is

a perfect illustration of the “lose-lose” nature of high-stakes IP litigation.

While the headlines have focused on the $1 billion U.S. jury award Apple won at the

end of August, in the long run Apple may turn out to have been a loser in this struggle

as well.

Some brief history.

Apple and Samsung are long-time business partners. Samsung holds many patents on

touch screen technology. It supplied screens for the iPod and iPhone. Samsung still

makes the touch screen for Apple’s iPad tablet computers. It won the contract earlier

2020

Can

LIID

ocs

288

200

this year, despite the smartphone litigation, when other companies were unable to meet

Apple’s technical requirements for larger screens. Samsung also makes the chips that

power the iPhone and iPad.

Just days before the US jury decision in August, a court in Korea ruled that both Apple

and Samsung had infringed each other’s patents, but awarded only nominal damages

because there was no possibility any consumers could have confused one company’s

products for the other’s.

The Korean court found that Apple had violated two of Samsung’s wireless technology

patents, while Samsung violated one of Apple’s technology patents. The icons

Samsung uses on its devices do not violate Apple’s design patents, the court decided.

Throughout 2011 and 2012, parallel cases in Japan, Europe, the UK and Australia have

resulted in wins and losses for both companies on many of the same technical and

design claims. Each of them has sought injunctions to block sales of the other’s

products.

In the latest US case, the jury decided that some, but not all, Samsung products

infringed Apple’s utility and design patents. It also upheld Apple’s “trade dress” claims

relating the look-and-feel of some, but again not all, iPhone products.

The jury found Apple did not infringe Samsung’s utility patents. But it did side with

Samsung over Apple’s antitrust claims relating to technical standards.

Samsung – and many commentators – predictably said the decision was a win for Apple

but a big loss for consumers. Apple claimed complete vindication, but I think the verdict

is still out on that front. Despite the headline-grabbing damage award, Apple did lose

some of its claims and may be vulnerable to Samsung and other competitors in some

areas.

Appeals in this case will likely drag on for years. Meanwhile, a separate case between

Apple and Samsung over other telephone technology is also working its way through

2020

Can

LIID

ocs

288

201

the US courts. There may be another big trial over these claims in 2014. And the latest

development in September saw speculation that Samsung would launch yet another

lawsuit against Apple over the new iPhone5.

For Apple, all of this litigation may have opened the door to more competition. Until now,

many smartphone makers were content to simply follow in Apple’s footsteps. This made

Apple the de facto standard for smart phones. Witness the beatings RIM and Nokia

have taken in the marketplace.

In many ways, all of this copying favoured Apple. No one lined up all night to get the

latest Samsung Galaxy, the way they did for the iPhone. Now, everyone will be forced

to come up with new innovative designs and, sooner or later, someone will come up

with the next greatest thing.

For Apple, the other negative effect of this case and others like it is that every time a

court finds against Apple on any of its claims, even those that are not very significant in

the grand scheme of things, Apple loses just a little bit of its magic.

Apple clearly knows this. Reports published before the US trial began this summer

indicated that Apple and Samsung had met several times earlier this year to attempt to

mediate a solution to the litigation. The mediation failed, the reports said, because the

stakes were simply too high for both companies.

In my opinion, the stakes were too high for both not to settle. But that’s not the Apple

business culture. Apple has gone down this road before, when Steve Jobs refused to

license the original Macintosh graphical user interface to Microsoft, forcing Bill Gates to

develop Windows. We all know how that turned out.

Apple will almost certainly have to make some sort of deal with Samsung. First, they

have a bigger business relationship to protect, despite Apple’s recent efforts to find

alternate sources for critical chips and screen components. Second, they may want to

make a common front against other competitors.

2020

Can

LIID

ocs

288

202

Finally, the Apple/Samsung litigation is widely seen as a proxy for a much bigger fight

between Apple and Google. In mid-August, Google’s Motorola unit filed a new lawsuit

against Apple with the U.S. International Trade Commission. Motorola is trying to stop

Apple from importing the iPhone, iPad, iPod Touch and other products to the United

States. This is just the latest in series of patent skirmishes between Apple and Motorola,

but it’s the first new move since Google acquired Motorola in February 2012.

Reports at the end of August that Google CEO Larry Page and Apple CEO Tim Cook

have held at least one direct conversation and plan to talk again in a bid to settle these

and other patent disputes are the strongest indication yet that all of the players may be

starting to suffer from some litigation fatigue. Expect to see more attempts at mediation

over the coming months.

No doubt Apple is seeking to capitalize on the win in the Samsung case. $1 billion can

buy a lot of settlement leverage. But, at the end of the day, that may be just about how

much everyone will have spent in legal fees in all of these cases.

Death Knell for the National Banking Ombudsman?

Originally published on August 14th 2012

The federal government has announced proposed regulations that will allow banks to

opt out of a national customer ombudsman service in favour of private ADR services

that they will choose and pay for.

This seems like a bad idea.

If banks can simply shop around for another ADR service provider whenever they are

unhappy with the decisions of the current provider, how can consumers and small

businesses have any confidence in the integrity and impartiality of decisions?

The Ombudsman for Banking Services and Investments (OBSI) currently has more than

600 participating firms including banks, credit unions, trust and loan companies,

2020

Can

LIID

ocs

288

203

investment funds and dealers. It handles consumer and small business complaints

about banking and investment products and services.

The Canadian chartered banks created the OBSI in 1996 and participation has always

been voluntary. The investment industry signed on in 2002 and participation by its

members is mandatory.

The OBSI investigates customer complaints and attempts to facilitate a resolution

between the customer and the financial institution. The process is private and

confidential. If there is no resolution, the OBSI has the can recommend compensation

up to $350,000 in individual cases, but cannot impose a resolution on either party. Nor

can it impose fines or penalties in the case of wrongdoing by a financial institution. It

can only publicize the failure of a financial institution to follow a recommendation.

But all has not been well with the OBSI since the financial crisis of 2008, when the

number of complaints against financial institutions predictably began to soar.

Parties on both sides have complained about how long it takes OBSI to investigate and

resolve complaints. The OBSI says it tries to complete the process in 180 days, but

many cases take longer than that. Financial institutions have also complained about

how much it costs.

Predictably, neither consumers nor financial institutions are satisfied with the results in

many cases.

Participating firms fund the OBSI based on their size or volume of business. Two of the

biggest banks – TD and RBC – have withdrawn from the OBSI and engaged a private

ADR firm to mediate and arbitrate complaints from their customers because they were

not happy with the OBSI.

In the 2010 budget, federal Finance Minister Jim Flaherty announced that banks would

be required to have an “approved” third-party ombudsman, but did not say it would be

the OBSI. The banks interpreted this as an invitation to use private services.

2020

Can

LIID

ocs

288

204

In March 2012, an article in the Globe and Mail warned that the OBSI might be forced

to shut down due to the defections by RBC in 2008 and TD in 2011, and the threat of

further erosion of participants.

In 2011, RBC Capital Markets, TD Securities and Manulife Financial asked the

Investment Industry Regulatory Organization of Canada, the national self-regulator for

investment dealers and equity trading, for an exemption from the rules that require them

to use the OBSI to resolve disputes. The application was denied, but put greater

pressure on the OBSI.

Now, Mr. Flaherty has released proposed “Approved External Complaints Bodies

(Banks and Authorized Foreign Banks) Regulations” that will, for the first time, require

the banks to participate in an external complaints process as part of “an effective and

efficient complaint handling system.” But apparently the trade-off is that the banks will

be allowed to choose their own ADR service provider. The banks will be able to pick

from a list of approved dispute-resolution firms. The government said it will ensure each

ombudsman is impartial and independent and it will monitor them.

The proposed Regulations require an external complaints body to resolve complaints

within 120 days, compared to the current OBSI target of 180 days. Although it is

expected that most complaints will be resolved more quickly, some complaints may still

extend beyond the 120-day time limit. Performance would be monitored by the Financial

Consumer Agency of Canada (FCAC).

ADR service providers will have to be approved by FCAC. But the regulations don’t say

what standards must be met to receive approval, other than a vague statement that it

“must have a reputation for being operated in a manner that is consistent with the

standards of good character and integrity.” (s. 3.1)

Each approved service provider must be willing to make the services available across

Canada, in both English and French, free of charge to anyone who makes a complaint.

It must also be willing to make the services available to any bank that wants to sign up.

2020

Can

LIID

ocs

288

205

Approved service providers must submit to a performance evaluation every five years. It

is not clear what will happen, if there are complaints about the quality of the services in

the meantime.

There is also no indication of how the new private dispute resolutions will be funded.

The provincially-regulated investment industry participants in the OBSI can be expected

to continue to lobby for the same freedom to choose ADR service providers as the

banks will have under the new regulations. If provinces introduce inconsistent

regulations, this will further undermine the OBSI’s ability to provide dispute resolution

services to the industry. The result is likely to be a national patchwork of regulations and

service providers.

I have no doubt that ADR Chambers, the private service currently used by RBC and TD,

is independent and impartial and that its neutrals are very well qualified.

But I am equally sure that once the new regulations are in place and more service

providers are competing for this work, it will be hard for the service providers to resist

pressure to keep fees as low as possible and that means spending less time on each

complaint.

If there have been problems with OBSI’s ability to provide timely, cost-effective services

over the past few years, or issues with the quality of decisions it renders, the answer is

to address them through better funding, increased resources and improved quality

control, rather than by dismantling the system that has successfully served the financial

industry and consumers for more than 15 years.

Mandatory Mediation in Commercial Contracts

Originally published on June 5th 2012

When my daughters sailed on the tall ships for several summers, the crew had a daily

activity called “mandatory fun.” It seems like an oxymoron until you think about it a bit. If

you tell people they’re going to have fun, they do.

2020

Can

LIID

ocs

288

206

If you tell people they have to try to resolve their disputes, or else… — they will.

I have had many “full and frank discussions” (a very useful diplomatic euphemism) with

fellow commercial lawyers about whether to include mandatory mediation clauses in

business agreements.

Those who are vehemently against the idea insist that forced mediation doesn’t work. If

a dispute arises and the parties want to mediate, they can do it, clause or no clause.

I have argued, just as strongly, that it is a good idea. The courts have shown than

mandatory mediation does work. And including mediation in a contract dispute

resolution clause removes two of the major barriers to early dispute resolution: simple

inertia and a fear of looking weak.

Many standard contracts include dispute resolution clauses with escalation provisions

that require negotiations between senior executives. If they can’t agree, it goes to

arbitration or court.

I think there are many benefits to including a mediation step in between.

It gives the senior executives another tool to help them negotiate a reasonable

settlement. If the other side is being unreasonable – and it’s always the other side that’s

unreasonable – a mediator can help set up meaningful discussions, get other options on

the table and possibly break the impasse.

Making it mandatory means that neither side has to make any concessions to get the

other party to the table. This is often half the battle when disputes become entrenched

in an organization.

Moving to mediation early and automatically makes it cheaper and easier to resolve the

dispute. Neither side has invested the time and money involved in taking the matter to

court. It’s true, of course, that many disputes settle only when both parties have been so

beaten up and impoverished by the adversarial system that they just give up, but that

doesn’t seem to be a very principled argument against mediation.

2020

Can

LIID

ocs

288

207

Early mediation can also provide a relatively inexpensive way to learn more about the

strengths and weaknesses of both your case and the other guy’s. It encourages internal

discipline because the staff who are briefing the senior executives for the direct

settlement negotiations will also have to pay attention to the flaws and weaknesses that

will likely come out at mediation. No one wants to embarrass his or her boss in front of a

mediator. That alone may encourage the parties to settle before the matter even gets to

mediation.

There are some pitfalls to look for in contract mediation clauses.

The first is the risk of getting stuck in some kind of mediation limbo. Ensure that there is

wording to allow either party to move directly to court or arbitration, if there is a need for

immediate legal relief. In those cases, the party seeking relief should not have to go

through any of the internal escalation or external mediation steps.

Once the immediate crisis has been dealt with, there is no reason the court or arbitrator

can’t send the parties back to negotiation or mediation to attempt to work out a

permanent settlement.

The second is timing. The time limit to start the mediation should be very short. A week

or two is not enough time for mediation to produce a resolution, but it should be enough

to know that it’s not going to work and to move on.

Once the mediation has begun, it should move along at a brisk pace. In most cases,

there is no need for formal mediation briefs, volumes of supporting documents or the

other trappings of much commercial mediation. The parties should look for a

streamlined process, with an early meeting to clarify the issues and agree on the steps

and time required to conclude the mediation. In a complex commercial dispute, the

resolution of all of the issues may take some time, but once the process has started it

has its own momentum. As long as progress is being made neither side will want to pull

the trigger on arbitration or litigation.

2020

Can

LIID

ocs

288

208

Blended Mediation: A Practical Approach to Commercial Dispute Resolution

Originally published on April 10th 2012

The debate over the merits of facilitative vs. evaluative mediation never seems to end,

but is it an artificial distinction in the mediation of commercial disputes?

A recent article in the Australasian Dispute Resolution Journal suggests that it is.

The author, Troy Peisley, a mediator and arbitrator with more than 20 years experience

in commercial litigation and forensic accounting, argues in favour of “blended

mediation”, which combines the facilitative and evaluative models and employs a

“mediation matrix” to evaluate both the qualitative and quantitative aspects of the

dispute.

It’s an interesting model and seems equally relevant to the realities of commercial

mediation in Canada.

Under the blended mediation model, the opening session of the mediation follows the

traditional facilitative path, with opening statements, analysis of the issues and risks

relating to the dispute, exploration of interests and joint problem solving. The mediator

actively engages in questioning the parties, framing the issues, and brainstorming

options, but offers no opinion or recommendations on the possible outcomes. The

mediator will typically also meet with the parties in private sessions to further probe

relative strengths and weaknesses and invite the parties to propose solutions. This

phase usually includes further negotiations, either directly between the parties or

through a “shuttle” process.

If the parties do not agree on a settlement, then the mediator adopts a more evaluative

role. The mediator may express an opinion as to which party has a greater chance of

success if the dispute goes to arbitration or litigation. The mediator may also make

settlement proposals, to attempt to bridge the current gap between the parties. The

parties may choose to engage in further face-to-face or indirect negotiations based on

2020

Can

LIID

ocs

288

209

one or more of the mediator’s proposals or their own alternatives. In many cases, this

evaluative phase is enough to break an impasse between the parties.

In fact, it seems that this blended model is what happens in most commercial

mediations, regardless of whether mediators hold themselves out as facilitative or

evaluative. At some point in the process, the parties always want to know what the

mediator thinks, especially if the mediator has some particular subject matter expertise.

The mediator often has ideas for settlement that the parties have not raised.

The mediator is in a position to float settlement proposals that the parties themselves

are unable or unwilling to make. There is no attachment to mediator proposals; both

parties are free to accept or reject them or to make alternative proposals.

The challenge for the mediator is to know when to shift from a more facilitative to a

more evaluative approach. Sometimes, it’s obvious. The parties are at an impasse; they

may have resolved some of the issues but are stuck on something – often money.

Sometimes, it’s not so clear. The parties are continuing to talk, but going around in

circles on a number of options. They aren’t making any progress and need a push from

the mediator. The mediator may make an evaluative assessment of the options. This

one is not practical; that one is too expensive; another requires some third party action

or agreement. In this way, the mediator can help direct the parties toward an option that

none of them thinks is ideal, but all can agree is acceptable (or at least better than the

alternatives).

The best mediators are able to shift back and forth between facilitative and evaluative

styles, as the situation requires. The parties may not even realize that the mediator is

doing this. The mediator is simply reacting to the internal dynamics of the dispute,

helping the parties define their needs and wants, evaluate the settlement risks and

opportunities and negotiate toward the desired goals.

Peisley points out that the facilitative/evaluative divide has been almost an article of

faith in mediation circles for the past 15 years (citing Professor Leonard Riskin’s theory

of mediator orientation as facilitative or evaluative and the problem definition as either

2020

Can

LIID

ocs

288

210

“narrow” [position-based] or “broad” [interest-based] – Riskin, “Understanding Mediator

Orientations, Strategies and Techniques: A Grid for the Perplexed” (1996) 1 Harvard

Negotiation law Review

This conceptual framework remains a very useful way to view the mediation process, to

select a suitable mediator and to prepare for the mediation itself. But it can also be a

trap, putting both the mediator and the parties into artificial boxes. Peistley’s view of

mediation as a blended process is more nuanced and better reflects the reality of

commercial mediation. Consciously adopting the blended model is likely to be far more

effective than adopting either a pure facilitative or evaluative approach.

For a more detailed analysis of the blended mediation model and a sample mediation

matrix see:

Peisley, Troy, “Blended mediation: Using facilitative and evaluative approaches to

commercial disputes” (2012) 23 ADJR 26

Why Is Commercial Arbitration So Expensive?

Originally published on January 19th 2012

Commercial arbitrators often hear litigators and business people complain that

arbitration has become just as expensive as litigation.

“Why arbitrate when it costs so much? Plus we have to pay the arbitrator; in court, at

least we don’t pay for the judge.”

It’s a valid question. But I think the more important question is: what can arbitrators and

counsel do to make arbitration more cost effective?

The arbitrator needs to take control of the process. This is harder than it sounds.

Arbitration exists because the parties have agreed to arbitrate rather than litigate. So

the parties control the process and set the rules to a certain extent. If the parties agree

2020

Can

LIID

ocs

288

211

that there will be full discovery, it’s very difficult for the arbitrator to say no. If the parties

say they need two weeks for the hearing, it’s tough for the arbitrator to say do it in one.

But there are several things the arbitrator can do:

Hold an early conference call with counsel to set out the main issues in dispute.

Make the parties define the issues — and narrow them, if possible. Arbitration

claims and defences tend to read like any other pleadings – throw everything in.

What’s the arbitration really all about?

Parkinson’s Law (“Work expands so as to fill the time available for its

completion.”) applies to arbitration, just as much as it does to litigation. Set a tight

deadline for each step of the process – generally, the quicker the arbitration the

less expensive it will be. Set a realistic hearing date and work backward for each

step.

Set limits on document production, especially large volumes of electronic

documents. In commercial disputes, most of the evidence will be documentary,

but it’s easy to lose sight of what’s relevant and what’s not.

Limit examinations for discovery. Is it really necessary at all? If it is necessary,

can the time be reduced?

Have the parties produce a joint book of documents and an agreed statement of

facts. Use witness statements to summarize the evidence on disputed issues.

Use experts where necessary – especially for complex technical issues – but

limit the number of experts. Can the parties agree on a joint expert or to have the

arbitration tribunal appoint the expert?

Consider using written evidence – affidavits and cross-examination – rather than

oral evidence for some or all of the issues or witnesses, to reduce the number of

hearing days needed.

I’ve heard it said that no case is so complex that it can’t be arbitrated within one year

from the notice of arbitration. True or not, it’s a good benchmark to use when setting an

arbitration schedule.

2020

Can

LIID

ocs

288

212

Counsel can also do a lot to make arbitration more cost effective for their clients, without

conceding any advocacy points.

The “we can outspend the other side; we’ll just keep going until they run out of money”

strategy is not that appealing to most clients. Not if they can get a good result more

quickly and cheaply.

Recognize that arbitration is different from litigation. The parties chose arbitration

because they didn’t want to litigate. Use the process to realize the benefits that the

parties wanted when they originally decided to arbitrate.

If the other side is making life difficult and driving up costs unnecessarily, don’t be shy

about going to the arbitrator to enforce the schedule and stick to relevant issues.

But be selective about pre-hearing motions. They can rapidly increase costs, for very

little long term benefit. Procedural motions don’t have to be as formal as in litigation. A

simple statement of the issue, the arguments and some case law in support of the order

requested is all that’s really needed. Avoid frivolous tactical motions. Don’t forget the

motion is being heard by the same arbitrator who will decide the substantive issues!

Use the applicable arbitration rules to your advantage. Most rules give the arbitrator the

power to decide whether discovery is necessary or not, or to limit the scope of

discovery. If the arbitration is about the interpretation of a contract and you have the

evidence you need, there’s no need for extra discovery.

Arbitration isn’t bound by the strict rules of evidence, so the witnesses can simply tell

their story at the hearing. Most of the hearing time can be spent on cross-examination to

test the evidence and let the arbitrator determine credibility.

Evidence and legal arguments can be given to the arbitrator in writing, to cut down on

the hearing time. Is it really necessary to argue every point or are there some things that

the parties and their counsel can agree on? A lot of time and cost can be saved by

providing the arbitrator with a clear roadmap, in the form of agreed statements of fact,

2020

Can

LIID

ocs

288

213

witness statements, joint document books, technical briefs, joint expert reports and the

like. Then the arbitration hearing can focus on the real issues in dispute.

None of this means giving up any tactical advantages. It just means using the arbitration

process itself to best advantage. It’s fundamentally different from litigation; don’t treat it

as a summary trial or private court.

2020

Can

LIID

ocs

288