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Legal Report: Litigation

Arbitration becoming the ‘new’ litigation
|Written By Jennifer McPhee

One of the main benefits of commercial arbitration is that it’s much easier to enforce arbitral awards than court decisions in foreign jurisdictions.

Arbitration is fast-becoming the new civil litigation when it comes to resolving transnational business battles. Canadian businesses now increasingly pick arbitration over the courts, especially when the justice system in the far-flung country is sketchy, say experts.

The rise of Canadians’ increased role in international commercial arbitration has been fuelled by Canada’s fairly recent emergence as a player in the global economy and the perception that Canadians are fair and neutral, say lawyers. “It’s only in the last dozen years that the business community has awakened to the opportunities around the world,” says David Haigh, a partner at Burnet Duckworth & Palmer LLP in Calgary, who acts as counsel and arbitrator in international commercial arbitrations. “We had some international activity before that, but now it’s becoming much more widespread.”

One example of this is Canadians’ foray into exploring for and exploiting natural resources in developing countries in Latin America and Africa. But civil litigation in these places can drag on for decades — cases have spanned 30 years in Africa, says one lawyer. And the judges may be corrupt or not independent. When speaking to business groups, Haigh uses a simple analogy to drive home the point that companies should steer way clear of these courts. “Wherever you go in the world where you can’t drink the water, don’t trust the judges,” he says.

And some businesses also see reasons to stay out of other countries’ justice systems, even in developed countries. “Even in a country like the United States, a lot of people from other places in the world wouldn’t want to be in the United States courts because of things like the jury system or the punitive damages,” says Barry Leon, a partner at Torys LLP in Toronto with extensive expertise in international arbitration.

Besides avoiding other countries’ court systems, a major advantage of arbitration over the courts is that it’s easier to enforce an arbitral award in another jurisdiction. More than 100 contracting states to the 1958 New York Convention — widely credited for paving the way for international arbitration — have agreed that their courts will recognize and enforce arbitral awards made in other contracting states with very limited exceptions. By comparison, enforcing a court judgment somewhere else can be much more difficult, says Leon. “Sometimes it means having to re-litigate the whole issue because the court there just won’t recognize the foreign judgment,” he says. “I think there’s been a growing realization that, for international disputes, the court systems in most cases just aren’t adequate.”

Another widely touted advantage of arbitration is that, unlike in civil litigation where dueling parties are stuck with the judge they’re given, parties agreeing to arbitrate can pick the arbitrator or arbitrators who will determine their fate. “People are beginning to see the real benefits of arbitration over the court system,” says Allan Stitt, president of the Stitt Feld Handy Group and ADR Chambers Inc., based in Toronto, and author of Alternative Dispute Resolution for Organizations. “People see how you can get an expert arbitrator deciding your case rather than some random judge who may or may not know anything about the issues in dispute.”

Parties can negotiate a number of factors before the dispute arises in the arbitration clauses of their commercial contract or after the dispute arises, including the substantive law that will be applied to arbitration, the language that will be spoken, and the seat of arbitration. The seat of arbitration governs the procedural law and can be a neutral place so that no one gets a home-court advantage.

Some businesses still assume that arbitration is automatically confidential, says Babak Barin, co-head of the dispute resolution team at BCF LLP in Montreal and an author of The Osler Guide to Commercial Arbitration in Canada. “But it’s not, it’s private,” he says. “There’s no such thing, in Canada at least, as an implied obligation of confidentiality.” However, businesses can make arbitration proceedings confidential by putting a confidentiality rider in the arbitration clause of their commercial agreement, he says. Except under some specific and rare circumstances, the confidentiality rider will prevent business secrets and dirty laundry aired during the arbitration from becoming public knowledge.

Another commonly held fallacy is that arbitration is always faster and cheaper than the courts, says Barin. Arbitration is faster to schedule in places where the courts are slow because parties don’t have to wait around for an available judge. But parties pay arbitrators an hourly rate, and businesses with a tactical reason to delay arbitration still attempt to derail the process the same way they do in the courts. “In general, arbitration can work extremely well, and extremely efficiently,” says Haigh. “But are there instances where stupid or crazy people thwart the system? Of course they do. If the world wasn’t like that, I wouldn’t be earning a living.”

But since the arbitrator or arbitrators are normally the ones that hear all the motions leading up to the oral hearing before they decide the merits, that tends to dissuade parties from acting unreasonably, says Andrew Little, chairman of the commercial arbitration and ADR specialty group at Osler Hoskin & Harcourt LLP in Calgary, and an author of The Osler Guide to Commercial Arbitration in Canada. Arbitrators also tend to be stricter and more diligent about preventing people from bringing frivolous motions, says Stitt.

There are ways for parties to guarantee a faster, cheaper process by putting severe limits on the length of the hearing and the procedures, says Stitt. As long as the procedures still fall within the governing rules of the applicable legislation, they can agree, for instance, that there will be no oral discovery, or to limit the number of documents, or even agree that the dispute will be resolved in writing without an oral hearing.

In Stitt’s opinion, in the majority of cases, people get the same result in abbreviated hearings as they would after a much longer hearing. And even if this isn’t the case sometimes, the speed and cost benefits are often worth this risk, which applies equally to both parties when they sign their agreement.

Currently, on the international arbitration front, how long the process takes and how it will work is usually left for the arbitrators to decide, but it doesn’t have to be, says Stitt. “What I see as the big next step in arbitration and the big thing that causes arbitration to explode exponentially on the dispute resolution scene is that lawyers will realize that they can take complete control of the process early on,” says Stitt, adding that this will have to come in the form of detailed arbitration clauses in agreements rather than detailed agreements to arbitrate that are drafted after a dispute arises.

Lawyers often react negatively to fast-tracked processes because they worry that due process is being jeopardized, but clients see the benefits, says Stitt. However, the problem with putting time limits on hearings is that it can bind the hands of the arbitrators, argues Barin. If one party decides not to co-operate, the arbitrator may lose power once the time limit expires if both parties don’t agree to extend it, he says. Leon adds that fast-tracked processes are only realistic in certain situations, when, for instance, the parties are agreeing to this after the dispute arises or when they have a good understanding of the types of disputes likely to arise, and therefore know whether a shorter process will be suitable. Otherwise, the parties may live to regret their decision, he says.

“I think that it’s better to express a desire for speed and efficiency in general terms and trust the arbitral tribunal to establish the most suitable parameters,” says Leon. “They could also add to their arbitration clause an agreement to use the IBA Rules of Evidence, which still give the arbitral tribunal a lot of discretion on procedures, but at least express an intention for efficient procedures.” Sometimes, abbreviating the process is worth the risk, but clients need to know what they are gaining and what they are giving up, says Leon. “Once a dispute arises, often the former interest in speed and abbreviated procedures gives way to doing what is in that party’s interests to try and win the case,” he says.