Getting beyond First Principles
Apart from taking part in arbitrations, attending seminars presented by arbitrators and arbitration practitioners, and reading articles, opportunities to learn about arbitration are few and far between. Expose yourself to enough of these sources, and you will find the topics recurring with greater frequency than in other areas of legal practice. Much of it hovers over first principles, although I do not mean to belittle the subject. The basic structure and formulation of arbitrations can involve thinking at a high level. Subjects such as conflicts of interest and bias, avoidance of advocate-arbitrators on panels, and other process topics are tough to grasp because there is no fixed body of practice.
Thus, any dialogue about teaching arbitration must acknowledge the following truths:
- Unlike public court or arbitration decisions, private arbitral awards are not usually published unless there is an appeal or judicial review application to a public court, or unless the arbitral process is prescribed under a regulatory regime (eg. Ontario Workplace Safety & Insurance Appeals Tribunal). Arbitral awards are not “living trees” but “crop plants”: you plant them only to cut them down when they are ready.
- Because private arbitral awards are not public, you cannot attend them for educational purposes.
- When all is said and done, there is no correct way to handle an arbitration. The belief that it is a replacement for court litigation has spawned institutions and complex rules similar to the rules of court, when in fact parties want a less rule-driven process.
- Three arbitrators cost more than one. The only reason why private arbitrations often employ panels (each party choosing one, and the two chosen choose a chair), is the belief that each will choose a biased arbitrator. Overcome this mental block, and your arbitration cost and delays will plummet.
One mental block for lawyers to overcome is the preconception that arbitration and judicial proceedings are radically different. They are not. Both start with the premise of affording each side a fair hearing and making a decision. In judicial proceedings, it is usually open for parties to file pleadings and head straight for trial, without discovery, motions and other procedures. The same principle applies to arbitrations.
Arbitration is, in fact, a broad spectrum of procedures, in any of which parties present their evidence before a neutral decision-maker for resolution. Another mental obstacle is the premise that we must consider arbitral rules by reference to judicial rules. Judicial rules are like comfort food for lawyers, but a rule intended to apply to tens of thousands of public actions per year will be cumbersome compared to a set of rules established for your very own private arbitration. Ask first what your side needs to ensure procedural and substantive fairness, ask what the other side needs. If the case is even moderately complex, it is better overall to make up ground rules than to adopt a door-stopper full of procedures.
Arbitration actually predates the courts, in that parties have submitted their disputes to trusted neutrals since the dawn of civilization, and in primitive societies. When seen in this light, it is also easier to see the public court rules as a branch of arbitration in which the defendant has been compelled to participate. The rules of pleading stem from an accused wrongdoer’s right to know the allegations against her. Discovery is an intrusion on privacy which must be balanced against the interests of full disclosure and early settlement. Trials are not much different from most arbitral hearings, except for the principle of unfettered public access.
Why have the clients agreed to a private commercial arbitration? Most often, you will hear a desire to save money and to reach a decision sooner. You will disappoint your client on both of these scores, if the arbitration simply means hiring a private judge in high demand.
Others might cite a desire to shield their dispute from the public eye. Parties to a contract may get over the emotions of a controversy as “just business,” but likely not if their feud is reported in the newspapers. If this is the only reason, perhaps a private judge with a full court hearing is the answer. Most likely, however, it is not the answer. As described above and below, the policy reasons for most court rules stem from the nature of a civil action as a public and involuntary process. If parties and their counsel think hard about this question, no one should take this route unless they are square pegs determined to fit into round holes.
Most ADR neutrals act as arbitrators and mediators. This means that most of the “good ones” can be booked up for months and months. (What makes a neutral “good” is usually seen as a matter of style or subjective preference. We tend to prefer neutrals whom we trust, and not so much ones who are right for a particular case.) If counsel or their clients truly want full civil rules applied, with motions, pre-hearing management and lengthy main hearing, as well as arbitral awards as judicial reasons under a different label, you may count on each step of the arbitration taking at least 6 months to schedule and 8 months to complete, with the final hearing (a block of weeks out of an arbitrator’s calendar) some years in the future. That is not a good substitute for the public justice system.
Good advocacy in arbitration not only means the use of the arbitral process from the outset. It also means having a full and frank discussion with your clients as well as an open negotiation between the parties, about their expectations of the style and logistics of the proceeding. Front-end strategies to help your client develop realistic expectations and a desirable result involve three areas of concentration: drafting arbitration agreements, avoidance of collateral attacks on process, and pre-hearing advocacy. We will now turn to these subjects.
Drafting Arbitration Agreements
The nomenclature of ADR as alternative dispute resolution (alternative to what?) is a bit like the pre-Copernican view of the universe in that it sees arbitration from a civil litigation perspective. Court proceedings are a form of arbitration that entails procedural safeguards stemming from the involuntary participation of the defendant and the public’s right to watch the law being enforced by its state-funded tribunal. As voluntary contestants, the parties to a private commercial arbitration are at liberty to determine how fair or particular the pleadings have to be, how intrusive the discovery process must be, and the extent they need to test each other’s credibility at the hearing of the case.
The topic here refers to domestic arbitrations in the Province of Ontario, and does not refer to arbitrations involving international arbitral rules. In order for a domestic commercial arbitration to have any legal effect in Ontario, it must comply with the provisions of the Arbitration Act, 1991, S.O. 1991, c. 17 (“the Act”), unless another statute excludes it. Those statutes are commonly found in subject-specific statutes, which provide for their own codes of dispute resolution. For most purposes, the Act applies to commercial arbitrations between private entities. The importance of the Act cannot be emphasized enough. Despite the private and confidential nature of most commercial arbitrations, it exists in the context of the full array of state-sanctioned legal remedies available in the courts.
The starting point is s. 2 of the Act, which provides:
2. (1) This Act applies to an arbitration conducted under an arbitration agreement unless,
(a) the application of this Act is excluded by law; or
(b) the International Commercial Arbitration Act applies to the arbitration. 1991, c. 17, s. 2 (1).
Unless the parties choose to set no rules separate from the Act, there will inevitably be some level of contracting out. Although one cannot contract out of the Act outright, s. 3 allows considerable flexibility:
3. The parties to an arbitration agreement may agree, expressly or by implication, to vary or exclude any provision of this Act except the following:
1. In the case of an arbitration agreement other than a family arbitration agreement,
i. subsection 5 (4) (“Scott v. Avery” clauses),
ii. section 19 (equality and fairness),
iii. section 39 (extension of time limits),
iv. section 46 (setting aside award),
v. section 48 (declaration of invalidity of arbitration),
vi. section 50 (enforcement of award).
Unless parties contract out of the procedural aspects of the Act, starting at s. 19, the statute provides for a fairly generic set of rules somewhere between a streamlined arbitration and a full civil court procedure.
S. 5 of the Act provides that an arbitral agreement can be a stand-alone agreement or be part of another agreement. If part of another, usually there is a contract (eg., for the supply of goods or services), which provides a brief clause describing how all or certain disputes are to be submitted to arbitration. By default, the rules under the Act apply. If there is no prior agreement containing an arbitration clause, the parties may simply agree to arbitrate, and refer to the Act. If the Act provides the precisely what the clients want, or if the economics of the case do not allow the legal fees for negotiating custom rules, then they need not instruct counsel to negotiate a separate agreement.
Parties submitting to arbitration in large commercial disputes can and do come up with their own rules. As counsel to parties, it is the lawyer’s responsibility to let the client know that this level of flexibility and creativity is available to the parties. If you ignore this feature of arbitration law, and the clients end up in a process which is too streamlined or not streamlined enough, for the purposes of the dispute, you may not be meeting the standard of care and competence of arbitration counsel.
Are there precedents for arbitration rules? Surf the Internet, and you will find precedents of arbitration agreements abound. Most contain boilerplate wording providing skeletal procedural elements and quite a bit of discretion to arbitrators to conduct hearings in his or her style. This is not always a bad idea. A great element of choosing private arbitration over public litigation is the ability to choose the trier of fact and law. At this level, parties and their counsel are purchasing a product and a level of comfort that the product will work as expected.
As a hirer of good counsel, however, your client deserves better than predictability. You would not, at a client meeting, present your client with an off-the-shelf wills kit from a website or supermarket. Why use a similar package for a commercial arbitration where millions of dollars are at stake? If you are acting for a sophisticated party, they deserve sophisticated arbitration strategies. As in any form of dispute resolution, advocacy starts the moment the client walks through the door. By analogy, protocols for table shapes, luncheon seating arrangements, and orders of introduction are important for diplomatic meetings. A similar logic dictates that the contents of an arbitration agreement are the starting point for good lawyering, before the arbitration starts.
There is no need to feel lost, even if the available “precedents” are not much help. It’s not what others have done, but rather what matters to you and your client, that really matters. You need to go through the major elements of a legal dispute, and negotiate how you want the step to play out. Do you need pleadings? If you already have pleadings from an existing law suit, you can accept them as the arbitral statements and go from there. Maybe the arbitrator can advise each side to pare down the pleadings to the core dispute. Why spend time and money on collateral issues? Here are the major issues that you must consider:
- Do the parties really need a panel of three? What inevitably happens is that the two appointed directly by the parties carry a psychological expectation as middle-persons, short of actual bias, to hold the non-appointing party to a tactical burden, with the chair acting as referee. You essentially end up with a form of proxy arbitration-advocacy.
- Do you need discovery? In many contract disputes where the facts are known to both sides because they have been all out in the open, discovery may be unnecessary and an unwanted expense.
- Should there be costs consequences for procedural hearings? We work in a loser-pays costs system, but in most instances procedural disputes submitted to an arbitrator help the parties avoid unnecessary steps and expenses. Should the parties allow costs sanctions to deter them from raising these issues? Go to motions court and you will find lawyers arguing over costs even after the substantive issues have been resolved.
- On the other hand, should you allow motions seeking to short cut the arbitration process? (More on this below.)
- If experts are required, can the parties agree on a common expert? You have already agreed on the judge. Why not the expert?
- What is the extent of viva voce evidence? Most commercial disputes involve paper or the electronic equivalent. If the dispute is over the interpretation of an agreement, some live testimony may be necessary to establish facts triggering contractual provisions. However, the parol evidence rule also eliminates much of the extrinsic evidence concerning the subjective intent of the parties in reaching the agreement. Why shouldn’t counsel agree on the application of the parol evidence at the outset or during the course of preparation, instead of lengthy motions at the main hearing?
- Financial arrangements with the arbitrator, declarations of interest, and other procedural matters relating to the neutral. The arbitrator must either agree to the arbitration agreement, or agree separately to be bound by it. In many fields, a respected arbitrator is usually a lawyer who has once worked on many matters in the subject area. This will inevitably lead to arbitrators who have worked for one or both of the parties. Arbitrations, unlike court proceedings, do tolerate a certain amount of perceived interest, provided it is declared. The guiding principle, according to s. 19 of the Act, is the requirement that the parties be treated equally and fairly.
Preventing all hell from breaking loose: the Anti-Motion Clause
If your client values economy in the arbitration process, the expectation must be that the dispute can proceed from beginning to end in as straight a trajectory as possible. Collateral attacks to the arbitral process stem either from impatience or from a tactic to over-litigate. Witness the classic attempt to short-circuit this process through application of the motions culture in some court jurisdictions. Toronto is certainly one of them. If getting from A to B seems shorter in arbitration than in court litigation, counsel and clients are tempted to see the issues simplified to the point that they see opportunities to make it even shorter. By introducing motions X and Y, they think, the road to B becomes shorter. In an arbitral process, there is a good chance that the road just got longer by detours X and Y.
It is hard to prevent parties to arbitrations from trying to bring big substantive motions, if they are really determined. Parties are reluctant to draft a blanket anti-motion clause in case the other party brings a patently groundless allegation that may tie up the main hearing for days or weeks of proceedings. In those instances, parties want the ability to carve off irrelevant or unmeritorious issues. Unless a motion achieves these results, however, neither party benefits from an attempt to obtain an early resolution. This is particularly so where the issue being brought forward, out of order, is entangled with other substantive issues in the dispute. Instead of bringing motions, why not agree to negotiate the procedural disputes?
Advocacy from Day One
Anyone who believes the procedural stages of arbitration can be treated as a separate precursor to the real hearing is ignoring the psychology of persuasion. Part of an arbitrator’s role is similar to that of many U.S. state courts, in which the trial judge is assigned to a file at the pleadings stage. Such a judge’s role is principally to case manage the action before and during the trial, for the benefit of the jury. The difference here, of course, is that the arbitrator is usually also the trier of fact. (It does not have to be so. The parties are free to appoint a case management arbitrator and a separate trial arbitrator. That it does not seem to happen is perhaps a function of no one having thought of it before you read it here.)
Take, for example, motions to amend pleadings. These will usually be unnecessary if the agreement provides for amendments by right unless the other party objects. If an amendment is contested, however, there will inevitably be a discussion with the arbitrator about how the amendment fits in with the party’s legal case, and about how newly discovered evidence necessitates the amendment. Without seeking to tempt the arbitrator into any prejudgment on the merits of the amendment, this has to be an opportunity to help the arbitrator understand an aspect of your client’s case prior to the main hearing. If opposing the amendment, this can also be an opportunity to have a preliminary discussion of the logical flaws in the other party’s case, as related to the amendment.
On the other hand, the structure of arbitration has the effect of tempering aggressive pre-trial conduct. The fact the arbitrator will be the trier of fact and law means that counsel must take pains not to do anything which may affect the arbitrator’s ability to comply with the equality and fairness provision in s. 19 of the Act. For example, aggressive counsel may seek to introduce evidence in a procedural hearing which has tenuous relevance to the procedural issue, but which may be inadmissible prejudicial evidence. This happens in the civil courts and is tolerated to a certain extent because the judge on the pre-trial hearing will likely not be the trial judge. Unless the parties have agreed to hire a second arbitrator or arbitral panel for the main hearing, doing anything in the preliminary stages of an arbitration which may upset the ability to treat the parties equally and fairly may jeopardize the arbitrator’s retainer.
The full array of professional creativity employed to create an effective arbitration process that meets client expectations is not a simple exercise. Nor is it suited for all cases going to arbitration. The role of King Solomon, sitting as magistrate, entailed a simple arbitral process. If the amount or matter in dispute is simple, the process need not be complicated.
If millions are in issue, a bespoke arbitration addressing the specific interests and strategies of the party you represent is really the only way to proceed. Unless an off-the-hanger process perfectly suits the case, you will inevitably need to make changes and come up with your own rules. Counsel who simply say they can work with any rules and act like a gunslinger, dismissing the agreement negotiation as “solicitor’s work,” are not really giving their clients the full advantage of the arbitral process. Where clients use such counsel, they or their counsel may consider employing a separate lawyer to negotiate and draft the arbitration agreement and attend to procedural steps. You would not take a knife to a gunfight. Nor should you carve a turkey with a hail of bullets.