Arbitration Advantages

Arbitration was supposed to be the answer to Canada’s backed-up legal system. Instead of waiting years and paying exorbitant sums for a final judgment, parties could agree to go to arbitration where — so we were told — disputes could be dealt with in a fraction of the time. That was how it was supposed to work, and indeed, how it actually did work, according to proponents. But what’s become clear in recent years is that some of the shine has come off, partly because arbitration has become a victim of its own success. 

Faced with a court system that seems to be bursting at the seams, parties are highly motivated to explore alternatives such as arbitration — and many parties have agreed to by contract. This has brought many of the same bottlenecks to arbitration.

And it wasn’t just disputants. Legal professionals took the cue as well. Like the disputants, not all took the time to properly understand how arbitration works and how it could be made to benefit clients, says William Horton, a Toronto-based arbitrator and sole practitioner.

“We have a lot of litigators and, frankly, retired judges who move from litigation to arbitration but don’t do anything differently,” says Horton. “They don’t try to find out how arbitration can be conducted. They are not curious about processes that parties might accept as fair, because their idea of fairness is so informed by court rules that they cannot imagine anything other than that being fair.”

The end result, he says, is arbitration is now struggling with many of the same issues around delays and costs as the courts. 

Horton is hardly a voice in the wilderness. Nina Bombier, a Partner at Lenczner Slaght Royce Smith Griffin LLP in Toronto, agrees that arbitration has its share of problems, but she mostly blames human nature. “If parties are antagonistic and can’t agree on anything, going into arbitration probably won’t solve many problems,” she argues. In other words, if disputants are determined to drag each other into the mud, there’s nothing to stop them, whether they’re facing an arbitrator or a judge.

One of the simplest ways to ensure arbitration doesn’t become a quagmire is for parties to agree to work together. Once they’ve decided to launch the process, they must focus on the common goal of moving forward and not on the disagreement. Simply put, they must want to reach a solution, says Bombier. If they are willing to co-operate and work together to come up with a mutually agreed-upon process, then not only can they save time and money, they might also end up with a result that both are happy with, she says. 

Much the same argument could be made for the court system. If both parties go in with the hope of getting a quick result at reasonable cost, that can be an achievable goal. Dominique Hussey, a Partner at Bennett Jones LLP in Toronto, specializes in intellectual property, where most significant cases are litigated in the Federal Court of Canada. Hussey says the Federal Court has made considerable strides in recent years in streamlining the litigation process and that’s had an impact. 

“With active case management and reasonably cooperative lawyers, a case can proceed from start to finish in about two years,” she says. “In addition, if both parties are looking for a quick result in court, there are several procedural tools that can facilitate this, such as dispositive motions, or applications based on paper evidence rather than actions that lead to trials based on live witness evidence.” Thanks to these efforts, arbitration is no longer an obvious choice for “a faster, less expensive result,” she says.

Arbitration is commonly described as an adjudicative process that, like litigation, uses an adversarial approach and is overseen by a neutral party, an arbitrator or panel of arbitrators. Unlike litigation, arbitration is flexible. Parties agree on the structure of the process and on the choice of arbitrator. And unlike litigation, the vast majority of cases are private, off limits to the media and members of the public. There is no central registry where details such as transcripts and outcomes are recorded.

For that reason, it’s difficult to know with any clarity how quickly arbitration has grown or whether most clients are satisfied with the results. “There’s only anecdotal evidence about the number of disputes handled by arbitration,” says Bradley Berg, Practice Group Leader for Litigation and Dispute Resolution at Blake, Cassels & Graydon LLP in Toronto. He estimates that at least a third of large commercial disputes go to arbitration. “It’s a significant proportion,” says Berg, who reckons about half his practice at Blakes is arbitration cases.

Indeed, privacy is one of the main reasons parties, especially businesses, favour arbitration. According to Horton, many clients are so focused on the privacy aspect that they neglect to design a process that takes advantage of the other benefits. Not surprisingly, these kinds of arbitrations often end with neither side happy.

Privacy is a good thing, says Carol Hansell, Senior Partner at Hansell LLP in Toronto. “There are many reasons why parties don’t want their business disputes aired in a public forum. In a commercial context you certainly don’t want to show the world if you’re running into some commercial problems, give away trade secrets or show your financial results. From the parties’ perspective it absolutely is a good thing [to keep this information out of the public spotlight] and that’s why they often choose to arbitrate.”

But because of the privacy, cases have no precedential value. They don’t become part of the common law, allowing it to evolve and develop. Some observers argue this can be construed as a negative consequence, but at the same time they acknowledge it must be weighed against the needs of disputants, who could clearly suffer damage if their intellectual property or other secrets were publicly disclosed.
Many disputes arise because of commercial agreements gone wrong. “The commercial agreements are often not public,” says Hussey. “There is no inherent reason why the resolution of the dispute must be public. The value of certain forms of intellectual property — trade secrets, for example — can be compromised or destroyed by virtue of being publicized. Reputations can be compromised during litigation. Sustaining this kind of loss should not be a requirement for attaining justice.”

Where parties are both seeking a quick, inexpensive result, arbitration offers an array of significant benefits, mostly around flexibility of process. Litigation often takes a long time partly because it is made up of a set of steps that must be completed. But in arbitration, parties design their own process. If they decide that certain steps are unnecessary, those steps can be removed.

“If they don’t want discovery, they can agree they don’t need it,” explains Berg. “If they want an oral hearing, they can have an oral hearing. If they want a hearing in writing, because, say, they want to get it done in 30 days, they can do that too.”

The important thing when it comes to designing the process is that parties choose counsel with a good understanding of arbitration and how best to take advantage. Not only can the process be customized, parties can also choose the arbitrator. 

“Decision makers you select can have better expertise, so you know what you’re getting a bit more than with judges on the Bench,” says Bombier. Since arbitrators are chosen for their special expertise in industries or business practices, disputants don’t face the same risk as they do with judges on the Bench that the decision maker has insufficient knowledge to make a good decision. On top of that, they are probably more interested in getting to a decision quickly because their interests are aligned with the parties, adds Bombier.

Newcomers to arbitration are sometimes put off by the finality of the process. This is another important difference compared to litigation. In the vast majority of cases, arbitration decisions can’t be overturned. The process does not allow for appeals. This can be highly attractive for businesses operating in fast-paced industries that need to move forward quickly, but parties need to trust the process and accept decisions. 

Canadian courts haven’t always been so reluctant to revisit arbitration decisions, but over the last decade the courts, particularly the Supreme Court of Canada, have issued a series of decisions that essentially put a fence around arbitrator decisions. 

“The courts will stand back and not interfere with decisions by an arbitrator unless there is a clear error of law,” says Murray Clemens, a Partner at Nathanson Schacter & Thompson LLP in Vancouver. “Practically speaking, that reduces the prospects for appeal significantly.”

This can be a deterrent for some. A 2016 story in the trade publication Today’s General Counsel quotes an opinion survey finding that 66 per cent of respondents “might not choose arbitration because of the difficulty of appealing.” The article does not explain how large the survey sample was or whether respondents included only lawyers, but it does highlight a common concern about arbitration, which is that it’s an all-or-nothing process. If one of the parties makes a mistake, there are few opportunities to correct it. 

Still, on balance, most experienced parties will agree this is a good thing. The fact there are no appeals “can carve years off the final resolution of a dispute compared to the court system, years,” explains Berg. “A lot of clients would rather lose than be faced with something that goes on for six or ten years. They want a fair process and they want to get it done.”

“That lets parties move on with their business,” says Bombier. And even when arbitration fails to yield an ideal solution, she maintains it’s often still an improvement over going to court.

Indeed, decisions made by arbitrators are also easier to enforce in many countries than court decisions. “You wouldn’t have thought so,” says Berg. “One of the most successful and widely international conventions is the New York Convention of 1958. It does one thing: Provides for the enforcement of international arbitration awards.” So far more than 100 countries have signed on and new ones are added every year.

The bottom line is that arbitration is maturing. More companies are taking advantage of its benefits, the courts are more willing to accept arbitrators’ decisions and the level of expertise available to disputants is rising. We are also seeing the emergence of organizations catering specifically to the needs of disputants, such as ADR Chambers in Toronto and Vancouver Arbitration Chambers, providing many of the same functions as the courts.

“We now have a pool of expertise,” says Berg. “It’s not just a few old guys who are famous and great but maybe 50 or 100 people who know arbitration and know the value you can give to your client.”