Focus: Arbitration underused to resolve commercial disputes

While courts largely remain the default venue to resolve commercial disputes, arbitration serves as an effective although underused alternative.

What’s important, however, for those looking to use arbitration as a more efficient process is implementing strategies and developing a framework to avoid the costs and time that litigation would consume.

The primary task is considering arbitration in the first place. Sometimes, says Mitchell Rose, a former civil litigator who now works as a negotiator and mediator of civil disputes as a partner with Stancer Gossin Rose LLP in North York, Ont., there’s a knee-jerk reaction for lawyers to simply pursue a lawsuit without considering other options.

“We frequently give a lot of thought, I think, to settlement and mediation, which is good, but as lawyers, we often give less thought to alternative ways of resolving the case if we can’t settle it at or outside of the mediation context. And, often, we as lawyers are falling back on ingrained patterns of litigating though the public court system,” says Rose.

As an example, he points to the complex commercial case that requires days of examinations for discovery, the possibility of interlocutory motions and probably days or weeks of trial. But when the two sides agree to engage in arbitration, there’s a likelihood of substantially decreasing the amount of time it takes to have the case resolved as well as reducing the number of attendances and narrow the issues.

Neighbour disputes, he adds, are prime for arbitration.

Arbitration might be valuable for its privacy alone.

As a process separate from public courts, arbitration proceedings and the results of the proceedings could be kept confidential when the parties agree not to disclose contents of the pleadings and arguments.

That is of particular interest to companies that don’t want to expose detailed financial statements and trademarks.

Other advantages include picking your own decision-maker that has subject matter expertise, choosing the approach, including using more relaxed rules, the type of hearing that will be held and deciding whether or not to have a right of appeal.

 “You have the ability to customize your own dispute resolution mechanism so that you can actually save a great deal of money and time,” says Rose.

Not every commercial dispute warrants arbitration, he warns. Both parties need to agree and it has to be a right fit. And in cases where there’s a serious public interest, it might be necessary to go to a public court where a precedent could be set.

The key is to employ effective strategies to resolve disagreements in a positive framework and avoid the costs and time the litigation would consume.

That begins with case management before, during and at the conclusion of arbitration, says Marvin Huberman, a certified specialist in civil litigation and a chartered arbitrator in Toronto.

A procedural meeting with the arbitrator will set out the procedures, time frames and cutoff dates with a goal of balancing discipline with flexibility. It also explores expedited procedures on pleadings, document production, number of witnesses, comprehensive witness statements, a structure for examining and questioning witnesses, venue and page-length limitations in briefs if possible.

Huberman seeks “a clear and unambiguous procedural order” to achieve the objectives of wider enforceability and flexibility.

When planning for binding arbitration, there are variations to choose from.

Huberman points to a hybrid final arbitration approach in which the parties each submit a proposed monetary award to the arbitrator before its conclusion and then the arbitrator chooses one award without modification.

The parties can also agree, privately without advising the arbitrator, that the award will be in a certain range no matter what the arbitrator’s decision. There is also a process that results in the sealing of the arbitrator’s decision while the parties try to arrive at a settlement. If they’re unsuccessful, the award is unsealed and becomes binding.

“Commercial arbitration is a terrific way of resolving disputes, providing that it’s appropriate,” says Huberman. That means having regard for the parties, the problem and the process, he says.

“In arbitration, the parties generally have wider power to select and tailor the procedures. As well, they can slim down and restrict document production and oral examination and discovery and even forgo it,” he says.

A regime to limit costs can also be adopted in terms of the hearing itself and its structure, as well as the arbitrator’s final decision.

The additional advantage from Huberman’s perspective is that arbitrated decisions are virtually impossible to set aside outside of grounds of fraud.

Parties seeking a neutral forum often go to arbitration, says Bill Horton, a national and international commercial arbitrator based in Toronto who teaches a course with the Toronto Commercial Arbitration Society.

For example, parties from different countries may not want to litigate a dispute in the courts of one country or the other so arbitration becomes desirable.

“Arbitration gives you the opportunity to shape the process to meet whatever your goals are in terms of resolving that particular kind of dispute. So the strategy has to start with why are you doing it in the first place,” says Horton.

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