Arbitration- Canada

Introduction

Imagine you are the chief executive officer of a small Canadian software company which is engaged in a dispute with a competitor over C$100,000. Your lawyer has advised you that you can litigate, arbitrate, mediate, negotiate, conciliate or use an 'expert process'. Having been through lengthy and costly litigation before, you choose to avoid the mess and challenge your opposite number to an arm-wrestling match - win or lose, as long as you don't have to pay lawyers. Although possible - and it has actually happened - the arm-wrestle is unlikely to be the best choice.

There are four well-recognized methods of dispute resolution: litigation, arbitration, mediation and negotiation. The appropriate method in each case will depend on:

• the nature of the dispute;
• the amount of money involved;
• the remedies sought;
• the willingness of the parties to resolve the dispute; and
• the nature of the relationship between the parties.

Negotiation is purely voluntary. If a party does not wish to negotiate, it would be futile to force it to do so, even if this were possible. Litigation is at the other end of the spectrum - it is involuntary for the defendant. Failure to participate on the defendant's part will result in judgment being awarded against it, whereas failure to pursue a claim by the plaintiff will result in no recovery. Arbitration is voluntary at the contract negotiation phase, in that a party can refuse to agree to the inclusion of an arbitration clause in a contract. However, once the parties have agreed to an arbitration clause (assuming it is a mandatory clause), a demand to arbitrate by one party forces the other party to arbitrate. Arbitration can be agreed to at any time, irrespective of whether a contract contains an arbitration clause or whether the parties even have a contract. Mediation, like arbitration, may be agreed to before a dispute or once a dispute has arisen. Unlike arbitration, mediation is non-binding - a party may participate in the mediation process and still refuse to settle the dispute. However, any settlement reached is binding. Recognizing the cost and time commitment involved in litigation and often in arbitration, parties frequently turn to mediation to resolve disputes.

Mediation v Arbitration

Although mediation and arbitration are commonly grouped together as alternative dispute resolution processes, there are a number of significant and frequently misunderstood differences between them.

Mediation is appropriate if the parties:

• are prepared to compromise;
• are motivated to reach a timely and mutually satisfactory agreement with the help of a neutral person; and
• plan to continue their relationship after their dispute has been resolved.

Arbitration is more commonly used when the parties have no likelihood of being able to negotiate a settlement or retain a business relationship, but need to reach a final decision.

The parties to a mediation allow an outside mediator to assist them in negotiating a resolution. The mediator is a facilitator, not a decision maker. A good mediator is persuasive and has at least a basic knowledge of the subject matter of the dispute. By contrast, parties to an arbitration ask an outsider to listen to their facts and arguments and decide how their dispute should be resolved. An arbitrator should also have a good working knowledge of the industry in question.

Time commitment

Mediation sessions are usually concluded within a few days. For more complex cases, mediation briefs are exchanged and given to the mediator before the session. By contrast, an arbitration will often require considerable time for an exchange of documents and limited examinations for discovery. An arbitration hearing usually lasts much longer than a mediation.

Cost

Mediation is much more cost effective than either litigation or arbitration - if it results in resolution. The main cost components of mediation are:

• internal business costs for preparation and attendance;
• the cost of lawyers or other advisers; and
• the shared cost of the mediator and the session room.

The arbitration process is often similar to litigation. It frequently involves the presentation of evidence, legal submissions and expert reports, and may also include examinations. This inevitably leads to significantly higher costs.

Control

The parties to a mediation retain control over how the dispute is resolved. A mediator has no authority to impose a settlement; the parties must agree on the final outcome. The final outcome of an arbitration is based on the arbitrator's decision, which binds the parties even if they do not agree with it. The biggest advantage of mediation over arbitration is that it avoids the adversarial process and thus preserves the business relationship between the parties. Mediation allows discussions to take place in a neutral environment with an objective mediator and often accomplishes more in a single session than months of meetings and correspondence. Mediation focuses more on the business interests of the parties than on their legal positions. By not dwelling on the different views of how the dispute arose, the parties are able to concentrate on finding a solution. The mediator will assist each party in identifying the strengths and weaknesses of its case and discovering the underlying interests at the heart of the dispute.

Mediation Process

The parties must have a genuine desire to reach a settlement. The mediation should be attended by a representative of each party with authority to conclude a settlement. The mediator should have the trust of all parties. One of the ground rules for mediation is that, if no settlement is reached, everything said by the parties and the mediator is privileged (ie, it cannot be used as evidence in legal proceedings). This allows the parties to be more open with each other, which in turn increases the likelihood of settlement.

One of the mediator's functions is to provide a reality check for the parties. For example, one of the parties may have received advice from its lawyer that a particular argument is likely to succeed at trial. Given this advice, the party may be reluctant to compromise its position. Even if the lawyer believes the advice, objectivity can be lost after a long period of involvement in a case. In addition, the mediator may be made aware of facts of which the lawyer is unaware.

The first phase of mediation is usually an exchange of opening statements by the parties. Unlike a judge or arbitrator, a mediator is then allowed to meet one party in the absence of the other to discuss the strengths and weaknesses of each position in an attempt to bring the parties closer together. A party can request that certain information discussed in such meetings be kept confidential. The mediator will receive confidential information from each party - often including a bottom-line settlement amount - and must ensure that such information is not disclosed without consent. If a settlement is reached, the mediator or one of the parties will record its terms in a settlement agreement, which is then signed by the parties.

Achieving a Successful Mediation

Not every mediation is successful. However, the following approaches increase the probability of success:

• Ensure that each party is represented by someone with settlement authority so that a final settlement can be reached during the session.
• Plan to spend a concentrated period of time in the mediation.
• Do not plan on conducting other business during or between the mediation sessions.
• Come to the table with an open mind.
• Have an understanding of the issues which is reasonably similar to that of the other party.
• Ensure that sufficient information is available by exchanging mediation submissions, documents and relevant information in advance.
• Be prepared to address technical issues in the mediation and have an expert available to discuss reports with the mediator and the other party.
• Discuss internally the concept of settlement and possible settlement options before coming to the mediation and think in advance about benefits that might be negotiated in addition to payment.
• Resist setting a bottom-line or maximum settlement figure until the mediator has had a chance to discuss the case.
• Maintain a flexible attitude to your settlement options, bearing in mind that reaching an agreement often means altering initial settlement proposals.
• Determine objective and rational bases for your settlement proposals.
• Take into account the avoidance of future litigation or arbitration costs.

Allow extra time in case the mediation sessions are constructive, but more time is needed to reach a settlement.

Comment

Provided that there is a common motivation to settle the dispute on a reasonable and timely basis, there is very little to lose and everything to gain by trying to mediate.

International Law Office