Multi-jurisdictional mega-deals can lead to wrangling over who will sit in judgment and which arbitral body should address dispute resolution
Arbitration, once viewed by business people as the little clause that lawyers insisted be inserted into documents, has gone upscale. In fact, these days, the how, why, who, and yes, even the where of arbitration – the very processes by which the arbitration will be conducted – can be a matter of dispute itself when commercial agreements are being drawn up.
In effect, at the very time that a Canadian company is enthusiastically inking a large multi-national mega-deal, the issue of how arbitration could – or would – unfold, could prove to be a stumbling block.
“What we’re seeing is the emergence of arbitration as big business itself,” says arbitration lawyer Daniel Chitiz, a partner in the litigation department of Chitiz Pathak LLP in Toronto.
“If there is a dispute, where will the arbitration take place? In what language will the arbitration be conducted? What arbitral body will govern the arbitration? What procedural rules will govern? Who will the arbitrators be? Will there be one or three arbitrators?” asks Chitiz.
Multi-jurisdictional mega-deals can engender wrangling over not only the individuals who will sit in judgment but bring “contracting parties at odds, right at the outset, as to which arbitral body is their institution of choice to address dispute resolution,” says Chitiz.
“Each one of these arbitral bodies presents its own set of procedural rules, which, although generally similar, are different enough to present their own challenges and opportunities. Many of these institutions provide suggestions as to the broad language to be incorporated into commercial agreements,” he says.
Anticipating Disputes
In today’s increasingly fractious world, there’s more acceptance than ever that disputes are simply part of the process of conducting business.
What’s changed is that senior executives – in stark contrast to the 11th hour insertion of dispute resolution clauses into commercial agreements – want to be involved with their legal advisors in crafting multi-step mechanisms that could involve options such as a consultation period, mediation and arbitration.
“Corporate Canada now looks to lawyers with expertise in arbitration to craft their dispute resolution mechanisms in line with the company’s expectations as to how the business relationship might evolve,” says Renée Thériault, counsel at Ogilvy Renault LLP in Ottawa.
“There are certain deals that companies enter into knowing that disputes will occur down the road,” she says. Whether that’s the case, or a deal just goes sideways, selecting an arbitrator can be as key to a company’s success as securing the rights to sell the widgets in the first place.
If the deal sours, how can the company salvage the most from the relationship? That’s where the choice of arbitrator becomes of paramount importance.
“Who has knowledge of and/or expertise in the subject matter to competently examine and understand the facts and legal arguments that will be raised by the parties? Does the dispute have a public dimension to it such that third parties are likely to seek to intervene? What is the profile of the case? Is public or political pressure likely to be brought to bear on the panel?” says Thériault.
“All of these questions and many more are critical to identifying the person or persons who will most effectively achieve an expeditious, fair result of a company’s dispute,” she says.
Even the country in which the arbitration takes place can be a sticking point when setting up an arbitration mechanism in a new business relationship.
Canada has become an increasingly attractive venue for international arbitration, says Thériault. “Canadian courts have been highly supportive of the international arbitration process, thereby making the country an “arbitration-friendly” jurisdiction,” she says.
Risk Management
Negotiating an arbitration clause that best suits a company’s interests can prove to be the most important risk management step in the deal, says Barry Leon, a partner in the International Arbitration Group at Perley-Robertson, Hill & McDougall LLP in Ottawa.
“There is no end to what can go wrong when doing business across borders. Government policies, and even governments themselves, can change; exchange rates can shift, sometimes dramatically; business partners go under, or financing disappears,” says Leon. If there is any lesson from the economic events of the past 18 months it is to expect the unexpected, he says.
“In any international transaction – whether a joint venture or investment in Latin America, Africa or Eastern Europe, or buying from or selling goods or services to China, the US or Brazil – it’s integral to negotiate a dispute resolution method that best serves the company’s business objectives,” says Leon. “That thoughtfully takes account of the most significant risks, and positions the company to get out of a crisis in the best possible shape,” he adds.
“With a well-designed arbitration clause, a Canadian business can invest or sell goods or services to a company or government in a country with the least honest, most corrupt and least competent court system in the world,” says Leon, “and know that its disputes with the other party, or the host country, will be determined by independent international arbitrators under fair and efficient rules and in a reliable
country, all of their choosing.”