Considerations when Contemplating Arbitration



Stuart Svonkin for The Lawyers Weekly

February 12, 2010

Arbitration has become an increasingly popular form of dispute resolution in Canada. Parties contemplating arbitration often base their decision to arbitrate on conventional wisdom, which suggests that the process provides benefits over court litigation in terms of cost, efficiency, party control and confidentiality. But that wisdom needs to be challenged. Parties and their counsel should consider the following practical considerations when determining whether to agree to arbitration.

Cost of Arbitration

Arbitration can be more expensive than litigation in some cases. While individual practices vary, arbitrators generally charge for the time they spend preparing, meeting and corresponding with counsel, deciding motions, hearing evidence and argument, deliberating and writing their award. Those fees can amount to a significant portion of the parties' total costs.

Arbitration can reduce the cost of a case if the process employed is more streamlined than court litigation. Arbitration proceedings are sometimes conducted in a more compressed time frame than court litigation, which can eliminate the need for counsel to "ramp up" multiple times over the course of a dispute and can accordingly lead to cost savings.

Efficiency of Arbitration

As with cost savings, whether arbitration is more efficient than court litigation depends on what process is adopted. Arbitration generally comes in two varieties - institutional arbitration (in which the parties adopt the rules and/or administrative services of an organization such as ADR Chambers, the International Chamber of Commerce or the American Arbitration Association) and ad hoc arbitration.

One advantage of arbitration, and ad hoc arbitration in particular, is that it allows the parties to design a process tailored to their needs. Parties can craft an efficient process by limiting the scope of document disclosure, restricting or eliminating oral discovery, filing examinations-in-chief in paper form and limiting the hearing to cross- and re-examination, suspending the hearsay rule and other formal rules of evidence and calling witnesses in panels. If attaining a speedy resolution is important, the parties can build deadlines for each step in the proceeding into their arbitration agreement and create a more aggressive schedule than would be viable in a court case.

But choosing arbitration does not in itself guarantee a more efficient process than court litigation. Because parties and their counsel are sometimes more familiar and comfortable with court-style procedures, some arbitration proceedings are conducted as if they were private court cases.

Achieving efficiency requires the parties to agree to adopt - or the arbitrator to impose - a different and more lithe procedure than that offered through the court system.

Party control

In addition to providing parties the opportunity to fashion their own procedure, arbitration allows them to choose the person or people who will decide their case. In disputes involving specialized factual or legal issues - such as technology or intellectual property, accounting, real estate or construction cases - parties can agree to appoint an arbitrator or arbitrators with relevant expertise.

Confidentiality

A significant benefit of arbitration, in contrast to the court system, is that parties can resolve their dispute in private. This may be important in cases involving reputational issues or commercially sensitive information. Parties should be aware, however, that in the event of an appeal or judicial review of an arbitral award, aspects of their dispute may be made public.

Parties may wish to consider trying to prevent such an outcome by agreeing to use a privately appointed tribunal, rather than a court, for any appeal.

Appeals

Parties considering arbitration should be aware that they may have limited ability to appeal or obtain judicial review of an arbitral award. Canadian courts show great deference to arbitrators' findings on matters of fact and law, and will interfere with arbitral decisions only in limited circumstances, such as where the arbitral tribunal exceeded its jurisdiction, breached the dictates of fundamental justice or rendered an award that is against public policy.

In some settings (such as in domestic arbitrations in Ontario), parties have some latitude to specify the scope of appellate rights in their arbitration agreement.

International disputes

Arbitration can be particularly useful in commercial disputes between parties from different countries or in disputes that are otherwise international in nature. Arbitration allows parties to mitigate concerns about a "home court advantage" by choosing the location or "seat," governing law and language for their case.

Parties can also avail themselves of the rules and administrative services provided by institutions such as the International Chamber of Commerce, the London Court of International Arbitration or the International Centre for Dispute Resolution. International arbitration awards are also generally easier to enforce than foreign court judgments.

Parties sometimes find themselves in arbitration because they included an arbitration provision in their commercial agreement without a great deal of reflection. Parties are less likely to be disappointed, frustrated or surprised by the arbitral process - and more likely to achieve the benefits that it can offer - if they carefully consider the issues discussed above before committing to arbitration as an alternative to the court system.

Stuart Svonkin is a partner in the Litigation and Dispute Resolution group at Torys LLP in Toronto. He represents clients in court litigation and in international and domestic arbitration proceedings, and regularly advises on arbitration agreements and procedure.
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