There is a trend in Canada toward resolving commercial disputes by arbitration rather than through litigation in the courts. In most cases, Canadian courts will enforce both the agreement to submit a dispute to arbitration and the resulting arbitral award.
Table of Contents
1. Nature of Arbitration
Arbitration is a quasi-judicial form of dispute resolution by one or more arbitrators who are usually appointed by the parties. Most arbitrations involve a hearing that results in a binding decision. However, the arbitration process is often less formal than a trial in court. For instance, the rules of evidence applicable to trials in court typically do not apply or are relaxed.
Most arbitrations involve a hearing that results in a binding decision.
All jurisdictions in Canada have legislation governing arbitrations. While these statutes differ, they contain many similar provisions and, in general, restrict the jurisdiction of the courts over disputes that the parties have agreed to submit to arbitration. Further, they require a stay of related court actions and allow the court to intervene only in limited circumstances. The general domestic arbitration acts do not govern certain types of arbitrations, most notably, arbitrations in the labour field and international commercial arbitrations.
The general arbitration statutes in many of the provinces provide that the law with respect to limitation periods applies to arbitrations.
2. Advantages and Disadvantages of Arbitration
In most disputes between commercial parties, arbitration has many advantages that can lead to a more satisfactory dispute resolution process overall. However, there are also certain disadvantages that should be considered before agreeing to arbitration.
Perhaps the most significant advantage of arbitration is that the parties can agree on a mutually acceptable decision-maker. This can be particularly useful if the nature of the dispute calls for specialized or technical knowledge that a judge is unlikely to have. Parties are also often able to have their dispute decided on the merits far more quickly than would be available through a trial in court. Unlike court, the general rule is that the successful party is entitled to their full reasonable legal costs. This is seen as an advantage by most commercial parties.
Perhaps the most significant advantage of arbitration is that the parties can agree on a mutually acceptable decision-maker.
The process is relatively flexible and adaptable, which is well-suited to parties who can reach agreement on procedural and other matters. Further, unlike the open and public nature of court proceedings, the parties can agree that the arbitration proceedings will be kept private and the award will be kept confidential — both of which can be important in cases involving commercially sensitive information. To achieve earlier finality and reduce the cost, the parties can also agree to eliminate appeal rights to a significant extent.
For disputes involving an intransigent party who is unwilling to participate in any process, there are certain aspects of arbitration that can have 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 the arbitrator, intervention of this nature may begin at the earlier stages of the dispute. While available in some cases, it is uncommon for witnesses to be examined for discovery or depositions prior to the hearing. In addition, adoption of certain institutional rules can substantially reduce the opportunities for an unwilling party to employ delay tactics. In the absence of the adoption of clear institutional rules, a recalcitrant party can sometimes find refuge in the absence of established rules of procedure for arbitrations, which can lead to increased costs and length of the proceedings.
Arbitration is not ideal if the parties wish to set a legal precedent binding non-parties by the resolution of the dispute because, as previously noted, arbitrations are often conducted in private and on a confidential basis, so there is no public registry for arbitration decisions. In certain instances, difficulties are encountered regarding the bounds of arbitral tribunal jurisdiction as compared to the wide-sweeping, inherent jurisdiction of the courts. Difficulties can also arise in instances when only some of the parties to a multi-party dispute are bound by an arbitration clause. Issues of jurisdiction and the potential for multi-party disputes are often best dealt with when drafting the arbitration agreement.
Jurisdictional issues can arise as to whether:
- The arbitral tribunal has the power to decide all substantive claims related to the dispute
- It can grant certain types of relief, such as injunctive relief, punitive damages and security for costs
- It is practical to seek remedies such as emergency interim injunctive relief from an arbitral tribunal
Difficulties can also arise in instances when only some of the parties to a multi-party dispute are bound by an arbitration clause.
3. Arbitration Agreement and Procedures
An arbitration agreement can be written or oral (except in Quebec, which requires that the agreement be written), and it can be detailed or general. In some instances, parties will agree to include an arbitration clause in a commercial agreement so any dispute that may later arise regarding that agreement will be resolved through arbitration. In such cases, typically, 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 clause, the parties may agree to submit a dispute to arbitration after it arises, even after court proceedings have been commenced.
At a minimum, arbitration clauses generally 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, by either setting them out or incorporating rules set out in a particular statute or developed by a recognized body. A detailed arbitration clause that is included in a commercial agreement at the outset can result in a more satisfactory dispute resolution process than might otherwise be agreed to after a dispute has arisen.
The enforceability of an arbitration clause may be subject to consumer protection legislation. For example, in both Quebec and Ontario consumers have a right to have certain types of disputes resolved in a court. These rights cannot be taken away ahead of time by an arbitration clause, but after a dispute arises the consumer may agree to refer the dispute to arbitration. Further, in Quebec, parties cannot agree to arbitrate disputes regarding the status and capacity of persons, family matters or other related matters of public order. Matters unrelated to public order are arbitrable. Additionally, other contractual principles or legislation may render an arbitration clause void, inoperative, or incapable of being performed; for example, in the decision of Uber Technologies Inc v. Heller, the Supreme Court ruled that an arbitration clause was invalid because it was unconscionable.
Subject to certain basic requirements, the parties can agree on a process completely tailored to the circumstances of the dispute to achieve a just resolution in the most efficient and economic manner possible.
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, overturned or set aside, it is binding on the parties. The arbitral tribunal has jurisdiction under the arbitration acts to require the payment of interest. Most acts allow interest to be paid either on the basis agreed to by the parties in their agreement or a commercial interest rate that is appropriate in the circumstances.
Usually, in the absence of a contrary agreement between the parties, the arbitral tribunal has complete discretion over the costs of the arbitration proceedings, including the tribunal’s own costs. This discretion is generally exercised with reference to the “loser pays” principle in Canada. In most arbitrations, this means that the successful party will be entitled to their reasonable legal costs, including the costs of the arbitration. The parties can limit or eliminate the arbitrator’s jurisdiction in this respect by including in the arbitration agreement creative formulas or specific provisions regarding liability for costs.
The provincial and territorial arbitration acts provide for the enforcement of arbitral awards through a straightforward application to the court. This has the effect of converting the arbitral award into a judgment of the court, upon which normal enforcement or execution proceedings may be undertaken. Some of the arbitration acts provide for the same process for arbitral awards made anywhere in Canada.
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. 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 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 Quebec, there is no right to appeal an arbitration award, nor can parties contractually preserve rights of appeal. The only possible recourse against an arbitration award is an application for its annulment that is obtained by application to the court or opposition to a motion to homologate (approve) 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 the award for the same reasons identified above.
Appeals and applications to set aside arbitral awards are governed by strict timelines that the court may not be able to extend.
6. Commercial Arbitration Act
The federal Commercial Arbitration Act (CAA) governs commercial arbitrations where at least one of the parties to the arbitration is the federal government, a specified department of the federal government or a Crown corporation. The CAA applies to arbitral awards and arbitration agreements, whether made before or after the CAA came into force.
The CAA adopts the Commercial Arbitration Code based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law, which was drafted in June 1985. Only those changes necessary to “Canadianize” the Model Law with specific reference to “Canada” or its courts are made. Otherwise, the UNCITRAL Model Law applies unamended to all applicable arbitral awards and arbitration agreements.
7. International Arbitration
7.1 International Arbitration in Canada
Since Canada is a party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the “1958 New York Convention,” an international arbitration award granted in Canada may be enforced in any other signatory jurisdiction. Conversely, an award from any other signatory jurisdiction may be enforced in Canada. Giving strong deference to arbitration agreements, particularly international commercial arbitration agreements, Canadian courts will stay court proceedings and enforce international arbitration awards. However, the extent that an international arbitral award can be enforced in Canada is still subject to local circumstances, including provincial limitation periods.
The Canadian government and all provincial and territorial governments have international commercial arbitration legislation based on the 1985 UNCITRAL Model Law, bringing it into force in each jurisdiction, with minor variations. The legislation only applies within the relevant political boundaries. For instance, the Alberta International Commercial Arbitration Act only applies when the arbitration is conducted in Alberta, the parties have agreed that Alberta law will govern the arbitration or the award is to be enforced in Alberta.
All Canadian provinces and territories have statutes that apply to arbitration generally and different statutes that apply to international commercial arbitration specifically. Typically, domestic arbitration legislation will apply unless the relevant international arbitration specifically applies. The International Commercial Arbitration Act does not apply to domestic commercial arbitrations or international “non-commercial” arbitrations. Whether the international commercial arbitration statutes will apply depends on the determination of what is meant by “international” and “commercial.”
7.2 International Arbitration Process
7.2.1 Agreement to Arbitrate
For Canadian international commercial arbitration legislation to apply, the agreement to arbitrate must be in writing. Typically, when parties begin a commercial relationship, they will agree to submit to arbitration any dispute that may arise in connection with their contract. However, parties can agree at any time to submit a dispute to arbitration rather than go to court. An arbitration agreement may be set forth in a single clause of a more comprehensive agreement or it may be set forth separately.
7.2.2 Enforcing the Agreement
The general rule is that a Canadian court must stay a court proceeding if the parties have entered into an arbitration agreement.
An agreement to refer future or current disputes to arbitration is binding on the parties. One party may compel another to submit to arbitration whenever a dispute falls within the scope of the arbitration agreement. The general rule is that a Canadian court must stay a court proceeding if the parties have entered into an arbitration agreement.
7.2.3 Commencing an Arbitration
To commence an arbitration, notice must be given pursuant to the arbitration agreement.
7.2.4 Pre-Hearing
A pre-hearing conference to establish the framework of the arbitration is not uncommon and, indeed, a requirement of the rules of some of the international arbitration institutions. Matters that may be dealt with at the pre-hearing conference include the service of documents, the extent and content of pleadings, stipulations of uncontested facts, confidentiality concerns, the identification and availability of witnesses, the need for interpreters, the selection of hearing rooms and costs. Applications for interim relief or protection measures are also possible pre-hearing issues.
Typically, in a pre-hearing conference, a claim is filed and particulars of that claim may be requested and provided; a defence and counterclaim may be filed; relevant documentary evidence is produced; and the parties may exchange expert reports.
7.2.5 Hearing
Arbitration proceedings must follow the principles of impartiality, practicability and expediency. Both parties must be given a fair opportunity to present their case. An oral hearing is not necessary as the parties may agree to present their case through documents only or through both documents and argument. An arbitration hearing generally resembles proceedings before a court, although often it is less formal. During the arbitration hearing, the parties will be able to produce evidence and present arguments to the arbitrator.
7.2.6 Award
The arbitration award must be given in writing, typically specifying the reasons on which it is based. However, the parties are free to agree that no reasons are to be given. A settlement reached by the parties during the arbitration proceedings may also be recorded in the form of an award.
7.2.7 Review and Enforcement
Unless the parties otherwise expressly agree, there is no right to appeal an arbitrator’s decision, and rights of review are very narrow.