How Canada’s International Commercial Arbitration Act applies to cross‑border disputes

Canada's international commercial arbitration legislation in the provinces and territories is adopted from the Model Law. But how does international commercial arbitration work, and what rules apply?

In this article, we'll discuss the basics of the International Commercial Arbitration Act. For more information about this law, consider consulting a Lexpert-ranked commercial arbitration lawyer.

What is international commercial arbitration?

Alternative dispute resolution (ADR) is a voluntary and consensual process of resolving disputes outside the judicial system. In these processes, the parties voluntarily submit their dispute to chosen adjudicators, often described as voluntary submission.

When an ADR mode is widely used in a specific sector, it can develop into a distinct field within ADR. One of these special fields is international commercial arbitration.

As one ADR mode, international commercial arbitration typically involves enforcing an arbitration clause in the parties' contract, if one exists. The parties are usually from different countries, which makes the commercial arbitration "international." Its purpose is to avoid court litigation, and to produce an enforceable award.

One of the important international commercial arbitration laws is the Model Law of the United Nations Commission on International Trade Law (UNCITRAL). Learn more in this video:

To learn more about ADR and your provincial International Commercial Arbitration Act, reach out to the best commercial arbitration lawyers in Canada as ranked by Lexpert.

What laws govern international commercial arbitration in Canada?

International commercial arbitration in Canada is governed by domestic commercial arbitration laws on commercial arbitration at the federal and provincial levels. These federal and provincial Canadian laws on arbitration are generally patterned from the:

• UNCITRAL Model Law on International Commercial Arbitration (Model Law)
• Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention)

Depending on the parties to the dispute, the governing law will be one of the following:

• the federal Commercial Arbitration Act (CAA): applies when one of the parties is the federal government or a Crown corporation
• provincial international commercial arbitration laws: apply when the parties are not the federal government or a Crown corporation

Below, we outline these laws in more detail. If you need tailored advice, a Canadian law firm with commercial arbitration experience can help you navigate them.

The Model Law and the International Commercial Arbitration Act

The Model Law applies in jurisdictions where lawmakers have adopted it into domestic legislation. In Canada, every province and territory has adopted the Model Law through its own International Commercial Arbitration Act. Below are some examples of these statutes:

• Alberta: International Commercial Arbitration Act
• British Columbia: International Commercial Arbitration Act
• Ontario: International Commercial Arbitration Act

The provincial or territorial International Commercial Arbitration Act governs the following:

• how the Model Law is applied in that province or territory
• what default rules apply when the parties have not agreed on a specific procedure
• the limited jurisdiction of the courts regarding the dispute
• what appeals are permitted, if any, and how they must be brought

The New York Convention

The New York Convention is the treaty on the recognition and enforcement of international commercial arbitration awards. Just like in Canada, it applies in countries that have domestically adopted and ratified the Convention.

The following have adopted the New York Convention through a separate local statute:

• British Columbia: Foreign Arbitral Awards Act
• Saskatchewan: Enforcement of Foreign Arbitral Awards Act
• Yukon: Foreign Arbitral Awards Act

In practice, the New York Convention:

• requires courts in the countries that adopted the Convention to recognize agreements by parties to arbitrate, instead of going directly to litigation
• requires courts to recognize and enforce an arbitration award made in another country that has adopted the Convention

What are the common modes of ADR?

Mediation and arbitration are two common modes of ADR:

• mediation: parties are guided by a mediator to come up with an amicable settlement, which will resolve the parties' dispute
• arbitration: an arbitrator, or a panel of arbitrators, will adjudicate the dispute and render an arbitral award

Either mediation or arbitration can be done in two ways:

Ad hoc

In an ad hoc mediation or arbitration, the parties initially agree on the process either in:

• their contract
• a separate document from their contract

Parties may also adopt an existing procedure in full from domestic legislation, such as an International Commercial Arbitration Act, or from international instruments.

Institutional

By contrast, institutional mediation or arbitration involves the parties agreeing to submit disputes to an institution that provides mediation and arbitration services.

This institution or organization would usually have a list of arbitrators or mediators, from among whom the parties may choose. Also, the parties would have to follow that institution or organization's rules and processes.

Learn more about mediation with this video from the ADR Institute of Canada, which is one of the organizations which offers ADR services in the country:

Head over to our Lexpert 500 Cross Border page for a directory of lawyers who can advise on your province's International Commercial Arbitration Act.

What is the venue for international commercial arbitration?

For mediation or arbitration, the venue may be domestic or international. It is important to distinguish between the two to determine which law will apply to the commercial dispute.

Domestic venue for ADR

An arbitration or mediation is domestic when:

• both parties to the dispute are located or operates in the same country or state
• the cause of action (or the dispute) occurred in the same country or state

Here, the laws that will govern are:

• that country's laws on arbitration or mediation; and
• the treaties on arbitration or mediation that the country is a signatory of

International venue for ADR

Arbitration or mediation is international when there is an international component, either in the dispute or in the parties. As opposed to domestic venue, the law that will govern here will be:

• the domestic laws
• the arbitration or mediation agreement between the parties

What are the key elements of international commercial arbitration?

The key elements in international commercial arbitration are that the arbitration:

• should be consensual
• has an international element
• involves a commercial dispute

We'll discuss these elements below.

Arbitration must be consensual

Just like in mediation, international commercial arbitration requires that the process be consensual. This consent of the parties may be derived from:

• the commercial contract signed by both parties, which contains the arbitration clause, or
• the submission contract agreed by both parties after their dispute arises, in case there is no arbitration clause in their commercial contract

International element of the arbitration

An arbitration has an international element in any of these cases:

• either party operates or is located in a different country, and the dispute occurs internationally or in one of those countries
• both parties are in the same country, the dispute occurs in that country, and the parties agree to submit their dispute to international institutional arbitration
• both parties are in the same country, the dispute occurs internationally, and the parties agree to submit it to international arbitration

Commercial dispute in international arbitration

According to the Model Law, the following may be considered as a commercial transaction, from which a commercial dispute may arise:

• any trade transaction for the supply or exchange of goods or services
• distribution agreement
• commercial representation or agency
• factoring
• leasing
• construction of works
• consulting
• engineering
• licensing
• investment
• financing
• banking
• insurance
• exploitation agreement or concession
• joint venture and other forms of industrial or business cooperation
• carriage of goods or passengers by air, sea, rail or road

Are arbitration agreements enforceable in Canada?

Under international commercial arbitration laws, arbitration agreements are enforceable in Canada if:

• the arbitration agreement has been freely and consensually agreed by the parties
• the arbitration process has been done according to law
• there is no undue influence, fraud, or comparable misconduct that would render the arbitration agreement or award invalid

Can the court intervene in international commercial arbitration?

Because ADR is an alternative to court proceedings and generally takes place outside the court system, the court has limited powers over arbitrations and mediations:

• the ADR proceedings: from their start until an award is made or a settlement is reached, the process is not conducted in a court-like manner
• pronouncement of the award: instead of a judge, an award is made by an arbitrator (or a panel of arbitrators), as in the case of international commercial arbitration
• creation of amicable settlement: a settlement may be reached by the parties without the intervention of the court

Depending on the laws of the country, the court may only assist the parties when:

• problems arise before, during, and after the proceedings of the ADR (e.g., when a party refuses to participate in the ADR process)
• enforcing the award or amicable settlement, although the court has limited powers to change the settlement or award

International Commercial Arbitration Act: Resolving disputes without the court

While arbitration has become a common way to resolve commercial disputes, several laws must be considered before using it. These include the provincial or territorial International Commercial Arbitration Act. Commercial arbitration lawyers can explain these laws in detail and how they apply to a particular case. As such, you should seek legal advice before entering an arbitration agreement or starting the arbitration process.

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