VI. Domestic Arbitration

There is an increasing trend in Canada towards resolving commercial disputes by arbitration, rather than through litigation in the courts. In most cases, Canadian courts will enforce an agreement to submit a dispute to arbitration and the resulting arbitral award.

1. Nature of Arbitration

Arbitration is a quasi-judicial form of dispute resolution by one or more decision-makers called arbitrators, usually appointed by the parties. Most arbitrations involve a hearing similar to a trial in a court action, resulting in a binding decision. However, the arbitration process is often less formal. For instance, the rules of evidence applicable to trials in court typically do not apply or are relaxed.

The general arbitration statutes in many of the provinces provide that the law with respect to limitation periods applies to an arbitration as though the arbitration proceedings were an action before the courts.

2. Advantages and Disadvantages of Arbitration

Arbitration is viewed by some as a panacea. It certainly does have a number of advantages in many circumstances, which can lead overall to a more satisfactory dispute resolution process. However, there are also certain inherent and circumstance-dependent disadvantages that should be considered before agreeing to arbitration.

Perhaps the most significant advantage of arbitration is that the parties can agree upon a mutually acceptable decision-maker. This can be particularly useful if the nature of the dispute calls for specialized or technical knowledge not likely held by a judge of the court.

In addition, this allows the parties to review the background and other characteristics of the arbitrator before the decision-making power is ceded, which is an opportunity not normally afforded in court actions.

There are many other advantages that might be available, especially if the parties can reach agreement on procedural and other matters. The process is relatively unfettered in its flexibility and adaptability. Also, quite different than the open and public nature of court proceedings which is difficult to displace, the parties can agree that the nature of the dispute, the arbitration proceedings, and the award shall be kept private and confidential, which is often valuable in cases involving commercially sensitive information. In addition, to achieve earlier finality and to reduce cost, the parties can agree to eliminate appeal rights to a significant extent, which parties are more inclined to do for arbitration proceedings determined by a mutually agreeable decision-maker.

Depending on one’s perspective and strategy for a particular dispute, there are other aspects of arbitrations that may be advantageous or disadvantageous.

A significant benefit to potential corporate defendants is the possibility of excluding class action proceedings through a properly drafted arbitration submission clause. However, in the province of Quebec, consumer protection legislation renders arbitration clauses unenforceable in consumer contracts, thus negating this benefit of arbitration clauses.

For disputes involving an intransigent party not willing to participate in any process at all, there are certain aspects of arbitrations that can tend toward a more expeditious and less costly resolution. Typically, the arbitral tribunal is cloaked with the jurisdiction to set and control the process with these goals in mind. Depending on the approach of a particular arbitrator, intervention of this nature may begin at the earlier stages of the dispute.

Also, while certainly available in some cases, it is relatively uncommon for there to be examinations of witnesses before the hearing, in the form of examinations for discovery or depositions. In addition, a carefully crafted pre-dispute arbitration clause in a commercial agreement can substantially reduce the opportunities for delay tactics by an unwilling party in the face of a subsequent unwanted dispute. On the other hand, a recalcitrant party can sometimes find refuge in the absence of established rules of procedure for arbitrations, which can lead to cost and time similar to, or greater than, that experienced in court actions.

Arbitration does not work well when it is desired that a precedent be set by the resolution of the dispute because arbitrations are often conducted in private and on a confidential basis and also because there is no public registry for arbitration decisions. In certain instances, difficulties can be encountered in relation to the bounds of the jurisdiction of the arbitral tribunal, compared to the wide sweeping inherent jurisdiction of the courts.

3. Arbitration Agreement and Procedures

An arbitration agreement can be written or oral, and it can be detailed or general. In some instances, parties will agree to include an arbitration clause in a commercial agreement, before any dispute exists, so that any dispute that may later arise in respect of the agreement will be resolved through arbitration. In such cases, in general, neither of the parties has recourse to the courts for resolution of the dispute. In other instances, in the absence of a pre-dispute arbitration submission clause, the parties may agree to submit a dispute to arbitration after it arises, even after court proceedings have been commenced.

Usually, at a minimum, arbitration clauses stipulate the nature and extent of the disputes to be arbitrated and whether there will be one or more arbitrators. Arbitration clauses also commonly specify the rules of procedure that are to govern the proceedings, either by setting these out, or by incorporating rules set out in a particular statute or developed by a recognized body. A more detailed arbitration submission clause, included in a commercial agreement at the outset of the relationship before any dispute, can result in a much more satisfactory dispute resolution process than might be agreed upon by both parties after a dispute has arisen.

The enforceability of an arbitration clause may be subject to consumer protection legislation. In Quebec, a clause that obliges a consumer to refer a dispute to arbitration is prohibited, although after a dispute arises, the consumer may agree to refer the dispute to arbitration.

4. Arbitration Award Interest, Costs and Enforcement

Generally, an arbitration award is to be made in writing and shall state the reasons on which it is based. Unless the arbitration award is varied or overturned on any appeal or set aside, it is binding on the parties.

Usually, in the absence of a contrary agreement between the parties, the arbitral tribunal has the same powers as a court with respect to awarding interest and costs. In relation to costs, normally, the default is a complete discretion over the costs of the arbitration proceedings, including the arbitrator’s own costs. This discretion will likely be exercised with reference to the general “loser pays” principle in Canada, on a reduced tariff basis. However, the parties can limit or eliminate the arbitrator’s jurisdiction in this respect by agreeing on creative formulae or other provisions regarding liability for costs.

5. Ability to Appeal or Set Aside the Award

Parties to an arbitration are generally able to exclude rights of appeal in most, but not all, instances. The parties also may agree to preserve rights of appeal. Under most arbitration statutes in Canada, in addition to any rights of appeal, an arbitral award may be set aside on various grounds including an invalid arbitration agreement, an award outside of the jurisdiction of the arbitrator, an improperly composed arbitral tribunal, manifestly unfair or unequal treatment of a party, a reasonable apprehension of bias on the part of the arbitrator, or an award obtained by fraud.

In the province of Quebec, the situation in respect of a right of appeal of an arbitration award is different. There is no right of appeal of the arbitration award and the parties cannot contractually preserve rights of appeal as such. The only possible recourse against an arbitration award is an application for its annulment, which is obtained by Motion to the Court or by opposition to a Motion to Homologate the arbitration award. The grounds raised to annul an arbitration award are similar to the grounds mentioned above. A right of appeal does lie with the Court of Appeal of Quebec against a judgment rendered by the Superior Court of Quebec that declares an arbitration award null or fails to homologate such an arbitration award on the basis of the same grounds or reasons identified above.

6. Commercial Arbitration Act (CAA)

The federal CAA governs arbitrations where at least one of the parties to the arbitration is the federal Government of Canada, one of certain specified departments of the federal government, or a Crown corporation wholly owned by the federal government. The CAA applies to arbitral awards and arbitration agreements whether made before or after the CAA came into force.

Back to Top