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Section XVIII: Dispute Resolution

Doing Business in Canada

Blakes Guide to Doing Business in Canada is a high-level overview. For everything you need to know about Canada's civil litigation and dispute resolution system, please see our Blakes Guide to Litigation and Dispute Resolution in Canada. For the latest legal developments in Dispute Resolution, please visit our Blakes Insights or contact a member of our Litigation & Dispute Resolution group.

The Canadian court system is similar to the systems of both the United States and the United Kingdom. There are two parallel court systems in Canada — federal and provincial. Accordingly, Canada’s 10 provinces and three territories have both federal and provincial (or territorial) courts. The province of Quebec is unique from the rest of the country in that it administers the civil law of Quebec for private law matters, while the courts of the remaining provinces and territories administer the common law.

Provincial superior courts have inherent jurisdiction to hear any case unless a statute assigns the matter to another court, such as the Federal Court of Canada or another tribunal. For example, the Federal Court of Canada has jurisdiction over specialized matters, including litigation relating to the Income Tax Act (Canada) and intellectual property rights. Both the provincial superior courts and the Federal courts have two levels — a trial division and an appeal court. The Supreme Court of Canada is the final court of appeal for all decisions of either the federal or provincial courts. Blakes Litigation and Dispute Resolution Guide contains a more detailed discussion of dispute resolution.

1. Independence of the Courts

While judges are appointed by elected officials, Canadian courts are completely independent from other branches of government. Any government action is subject to review by the courts and, in particular, is subject to scrutiny under the Constitution of Canada, including the Canadian Charter of Rights and Freedoms. The Canadian Charter of Rights and Freedoms protects fundamental freedoms and equality rights and contains guiding principles for the judicial process, including those that offer protections for accused persons. Canada’s courts are generally open to the public unless there are compelling reasons for a closed hearing.

2. Litigating Through the Courts

For civil disputes, each province and territory has rules of procedure for the conduct of matters that come before the courts. For example, prior to trial, all parties to civil litigation are required to produce documents that are relevant to the issues in the litigation. Documents are broadly defined and include emails, computer files, tape recordings or videos. In most provinces, the primary onus is on each party to produce all relevant documents. In Quebec, however, parties need only produce the documents they rely on at first instance or are asked to produce pursuant to a specific request. Following documentary disclosure, the parties are generally entitled to examine one representative of an opposing party. Unlike the American system, provincial rules often do not provide for automatic rights of discovery of more than one person or of non-parties.

For example, in Ontario, a party requires leave of the court to examine more than one representative of a corporation or witnesses in an action.
Some provinces have special case management rules to manage the litigation process. These rules provide for greater involvement by the judiciary in the conduct of an action, such as the imposition of mandatory timetables.

3. Costs

The Canadian court system generally uses the loser pays principle for costs following litigation. (Some provinces, however, do not apply this principle to all aspects of class actions.) Many provinces have a system similar to Ontario’s, where the court can award costs at two different scales. The most common scale of costs is called partial indemnity, where the successful party will receive approximately 25% to 35% of its legal costs from the unsuccessful party. If a party’s behaviour has been particularly egregious, or if the plaintiff succeeds in obtaining an award higher than its proposed offer to settle prior to trial, the court may award a higher scale of costs called substantial indemnity, which is equivalent to 1.5 times partial indemnity costs. While most fixed costs like disbursements are generally fully reimbursed, experts’ fees are subject to a similar review as lawyers’ fees and the compensable amount may be reduced. The courts ultimately have discretion on whether to award costs and the amount awarded. While rare, courts can also award costs against the winning party in favour of a losing party depending on the circumstances, the offers to settle that were made and the successful party’s behaviour during the litigation. In some cases, such as where the subject of the litigation has a public interest component, the parties may be ordered to bear their own costs. Contingency fees are permitted in all provinces subject to local rules and, sometimes, court approval. In some provinces, public funding is available for class actions. Contingency fees are permitted in all provinces subject to local rules and, sometimes, court approval. In some provinces, public funding is available for class actions.

4. Class Actions

All Canadian provinces and the Federal Court have legislation or rules that expressly permit class proceedings. In a class proceeding, a person or group of persons takes on the role of representative plaintiff and represents the interests of a wider class. In some provinces, it is also possible, though rare, for a representative defendant to defend an action on behalf of a class of defendants. Early in the litigation, the action must be certified by the court as a class proceeding. Generally, the certification order will identify common issues to be tried together in a common issues trial, and any individual issues will be resolved afterwards through separate proceedings to be established by the common issues trial judge. If the court denies certification, the action will proceed as a regular action. Class actions are case managed by one judge in most provinces. However, the case management judge will not typically be the trial judge if the action proceeds through to trial.

Plaintiffs’ counsel in Canada are increasingly bringing class actions across several subject areas, including Competition Act (antitrust), product liability and Securities Act matters, as well as mass torts, consumer disputes and, more recently, digital privacy cases. To date, very few class proceedings have proceeded through to trial and judgment. The vast majority of cases are either disposed of early through preliminary motions or are settled early in the process of or following certification. Class actions have become a concern for commercial businesses because they are time consuming, expensive to defend and create the risk of substantial settlements or court awards.

5. Alternative Dispute Resolution

Due to the expensive and time-consuming nature of litigation, alternative dispute resolution is firmly established in Canada. Alternative processes to litigation, such as mediation and arbitration, are increasingly being used to resolve commercial and non-commercial disputes. Most often, these alternative mechanisms are voluntary.
However, Ontario has introduced mandatory mediation for actions commenced in the City of Toronto, the City of Ottawa, and the County of Essex, requiring parties engaged in litigation to attend at a mediation session prior to trial. Similarly, British Columbia has a procedure whereby one party in the litigation can require all parties to attend a mediation.
In the right case, alternative dispute resolution can be highly effective and much less expensive than traditional litigation. It may also help the parties achieve a reasonable solution that will enable them to continue their business relationship.
Mediations are presided over by a neutral third party who facilitates a resolution to the dispute. Mediation is not binding and parties enter into it willingly on the understanding that if they do not reach an agreement, they can walk away and continue the litigation. By contrast, arbitration is a more formal process that is usually binding.
Many commercial agreements in Canada now provide for binding arbitration or other forms of alternative dispute resolution as an alternative to the courts for addressing disputes arising from the agreement. In arbitration, an arbitrator who has expertise in the area of disagreement will hear evidence and legal argument, much like in a hearing in court.
Arbitration can sometimes (though not always) be less formal and expensive than court proceedings, and can usually be completed more quickly and privately. Prior to entering into an arbitration or mediation, the parties will generally sign an arbitration or mediation agreement that sets out the parameters of the process.