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Are in-house counsel ignoring arbitration?

|Written By Julius Melnitzer
Are in-house counsel ignoring arbitration?
Geoff Creighton, senior vice president and general counsel at IGM Financial Inc.

Many Canadian corporate counsel are paying insufficient attention to arbitration as an aspect of dispute resolution risk management, lawyers argue.

“Corporate counsel outside Canada seem to pay more attention to arbitration, have a greater recognition of its importance and of how to use it more effectively to the advantage of their clients,” says Barry Leon, who leads Ottawa-based Perley-Robertson Hill & McDougall LLP’s international arbitration group.

Geoff Creighton, senior vice president and general counsel at IGM Financial Inc., says Leon is probably right. He notes there are a number of reasons for the lack of attention.

“Arbitration has a much higher profile in the U.S. and the U.K. and there are more instances where arbitration is prescribed as the mandatory dispute resolution mechanism,” says Creighton.

“The Canadian market is also less litigious and in-house counsel here probably don’t do as much worrying about the fighting that may come at the back end, partly because the market is smaller, everyone has to live with each other, and what goes around comes around.”

Andrea Laing of Osler Hoskin & Harcourt LLP points to the ubiquity of jury trials in the United States as one factor behind the greater awareness of arbitration. “In-house counsel in the U.S. have a real concern of the quality of decision-making that comes out of jury trials,” says Laing. “That causes a lot of American companies to rush to arbitration.”

At the same time, a paucity of first-rate arbitrators means that getting to a hearing can take as long as getting court time, she adds. “It’s not always the case that arbitrations are quicker and cheaper than litigation when you’re talking about complex, high dollar-value cases.”

Indeed, arbitral institutions around the world are moving to deal with widespread criticism of the process by tweaking their rules with expediency and efficiency in mind. For example, on Jan. 1, 2012, the International Chamber of Commerce, whose International Court of Arbitration is the most popular forum for the arbitration of large and complex disputes, introduced important changes dealing with case management and consolidation, the appointment of emergency arbitrators to deal with interim relief, limits on submissions and argument, and provisions to encourage settlement.

But while arbitration has come under some criticism recently (see “Arbitration becomes more like litigation,” Law Times, Oct. 10, 2011), Leon maintains that in-house counsel in Canada can do more to ensure that the process proceeds expeditiously. “One of arbitration’s most important advantages is in the flexibility of the process,” he says.

“In-house lawyers don’t step in often enough and question whether or to what extent an arbitration needs to be conducted like court litigation, where lawyers worry about leaving any stone unturned.”

In-house lawyers also need to pay more attention to inserting appropriate dispute resolution clauses in international agreements, he adds. “It’s at the very outset when the contract is drawn that in-house counsel have an opportunity to negotiate and design an efficient arbitration process. They also need to have a better understanding of the fact that enforcing an arbitration award internationally is relatively easy compared to enforcing a judgment.”

For his part, Leon has a top 12 list of the ways in which he feels Canadian corporate counsel often miss the arbitration mark:

• They don’t have an adequate understanding of issues and strategies for arbitration clauses.

• They don’t think about dispute resolution provisions early enough in a transaction.

• They don’t recognize that international arbitration often is the only realistic option.

• They don’t recognize the importance of negotiating, drafting, and concluding dispute resolution mechanisms that fit the business situation; are as effective as possible from their client’s perspective; and are concise, workable, efficient, and comprehensive.

• They may not be aware of investment treaty protections.

• They don’t appreciate that just because Canadian courts do things in a certain way, the rest of the world does things differently.

• They don’t get sufficiently involved with outside counsel’s handling of the matter and case strategy.

• They don’t appreciate that international arbitration is a specialty.

• They think they need to engage arbitration counsel who are located at the seat of the arbitration or have been admitted to practice in the same jurisdiction as the law of the contract.

• They think they need to retain arbitration counsel located in a major arbitral centre such as New York, London, England, or Paris. These lawyers may have little knowledge of the industry, the expectations of Canadian businesses, the company, and its importance in Canada. Foreign counsel also tend to be more expensive.

• They often believe that arbitration is costly and time-consuming.

• They assume that arbitrators are more likely than the courts to lean towards an award that reflects a form of compromise and be unwilling to make tough decisions.

  • Benefits of Arbitration

    Gus Richardson
    Very interesting article. Its focus is on international arbitration, but the benefits of arbitration can be even greater domestically. The importance of inhouse counsel getting involved early in the process is important. One of the problems with arbitration is that counsel sometimes import court-like procedural wrangling into an arbitration. This defeats one of the major advantages of arbitration--flexibility--and hence works to increase cost. If inhouse counsel work to control "proceduralism" arbitration can achieve its goal: a quick, confidential and relatively inexpensive resolution of the dispute.