CONTRACT DISPUTES: ALTERNATIVE DISPUTE RESOLUTION
Kenneth J. Glasner, Q.C.
The function of law may be described as twofold: firstly, to regulate the affairs of persons (persons includes corporations, societies, individuals and government); secondly, to establish within the community a level of moral conduct. The success may to a greater degree be based on the acceptance by the community of these regulations and level of conduct in order to resolve disputes.
some degree, there has been a shift in the community expectations with
respect to the method by which conflicts are resolved. There appears to
be a desire by parties to have disputes resolved as opposed to having their
day in court. This method of resolution is not new. One form of dispute
resolution, namely arbitration has been around for centuries. In fact,
recourse to the arbitration process has been common practice in England
since the middle ages and was codified in 1698, 9 Will. 3, c. 15. Arbitration
has been defined in Halsbury as:
In fact, the ADR process forms part of the Jewish Religious Court called, "The Beth Din."... the reference of dispute or difference between not less than two parties for determination, after hearing both sides in a judicial manner, by a person or persons other than a court of competetent jurisdiction.
2 Halsbury's Laws of England, 225 (4th ed.)
The present language of the commercial community uses the phrase ADR, standing for "Alternative Dispute Resolution," as meaning an alternative to the public court system. I prefer my colleague John Sanderson Q.C.'s interpretation namely "Appropriate Dispute Resolution", thereby leaving within the arsenal of dispute resolutions systems the use of courts for those cases which may require a principle to be established, public vindication, or the infringement of a legal right.
years ago a Canadian publication (The Lawyers Weekly) set
out the pros and cons of various dispute resolutions methods. I reproduce
this reference with certain modifications.
Chief Justice Warren E. Burger said:"Disputes, unlike wine, do not improve by aging."Willard Z. Estey, Q.C.
(as he now is).
Appropriate Dispute Resolution may take many forms. Basically the intervention of a third party making the decision is at the extreme end of appropriate dispute resolution. It is commonly called arbitration."A common thread pervades all courtroom contests: Lawyers are natural competitors, and once litigation begins they strive mightily to win using every tactic available. Business executives are also competitors, and when they are in litigation, they often transfer their normal productive and constructive drives into the adversary contest. Commercial litigation takes business executives and their staffs away from the creative paths of development and production and often inflicts more wear and tear on them than the most difficult business problems...The plaintive cry of many frustrated litigants echoes what Learned Hand implied: "There must be a better way".
There are other forms of dispute resolution including:
ADR may be generally classified into 3 major areas:
The major difference between arbitration and the other forms of ADR is that arbitration imposes a binding decision upon the parties - the other forms require the parties themselves to come to a resolution of the dispute with the assistance of the third party.
A simple comparison between Adjudication (Arbitration) and Interest Based Mediation illustrates the flexibility of one process vs. the rigidity of the other.
Arbitration is also subject to criticism. It is not cheap. It is however, cheaper than the court system. The major advantages to arbitration are:
During the process of dispute resolution, the client and their counsel deal with the evaluation of risk taking. By risk taking I mean assessing a risk - namely, the cost if things go wrong and the probability of the occurrence. If the cost is high, the probability must be minimized. If the cost is low, the probability may be allowed to increase accordingly to the party's personal assessment of "acceptable risk".
Risks are controlled by:
THE PROACTIVE ARBITRATOR - APPLYING MANAGEMENT PRINCIPLES TO ARBITRATION
By proactive I mean active conduct by the arbitrator rather than a passive conduct.
The management skills required of an arbitrator are numerous. He or she is in fact not a judge, while still having judgelike powers, with the ability to bind the parties in a manner I suggest in many cases no different than a judge. They are in fact decision makers. At the end of the day when they act as decision maker in the arbitration process one party will be happy and one party will be unhappy. It is important for the arbitrator to ensure that he or she writes a decision that clearly explains to the unsuccessful party the reasons for the decision. If not, the arbitrator will be performing economic suicide.
There has been criticism by lawyers and their clients that the arbitrator fails to take a leading role in controlling the proceedings from the commencement to the completion of the arbitration. Such control, without arrogance is I suggest required in many arbitrations. Generally counsel prefer an arbitrator who manages the whole hearing process so that decisions are made on promptly, clearly and concisely. People like to win but when they don't win they need to know that the process was fair.
Arbitrators need confidence in their expertise and experience coupled with the working knowledge of business and management. One must remember that the arbitrator relies on the parties to perform his or her directions and orders so that the process works smoothly.
This process requires initial planning on the part of the arbitrator with substantial input from the parties or their counsel, including deciding whether or not they are going to conform to a specific set of rules or adapt their own rules. Other forms of appropriate dispute resolution may be used. For example, it is not uncommon in certain situations to use Med/Arb.
The structure and process should evolve and everyone should know what has to be done and who will be doing it and within what time frame. Throughout this process the arbitrator must have a clear idea of the necessary personal duties and responsibilities while retaining command of the proceedings. This form of discipline and control must be evident together with hopefully, a trace of gentle humor.
The process may very well commence with correspondence sent out by the arbitrator setting out a prehearing agenda, inviting counsel for input to the agenda. This letter is generally followed by a prehearing meeting (preferably at the arbitrator's office) to decide a number of issues. The alternative is to have a conference call. By taking this approach no one is caught off guard or is subjected to "trial by ambush".
It is important for an arbitrator to anticipate, to think ahead of possible developments, and make the parties aware of events to come in a timely fashion. The proceedings should be controlled with flexibility and humanity. The arbitrator must be prepared to make clear decisions and offer directions at critical stages.
What is more, the parties must be aware of the arbitrator's objective at all times, which is to ensure that natural justice based on the law and common sense based on good commercial practice are very much evident.
I suspect that no arbitrator comes close to being a Solomon, however, certain leadership qualities are essential.
Derek Sharp in his article, Applying Management Principles to Arbitration, published in Arbitration, February 1996, listed those leadership qualities:
THE STANDARD CLAUSE
In order to invoke either mediation or arbitration, it is my opinion that it is in the best interest of all parties that a mediation or arbitration clause, or a clause dealing with both processes be inserted in commercial contracts where the parties wish to invoke alternative dispute resolution procedures - instead of taking their dispute to court. This involves the parties considering how they wish to resolve their disputes when a particular dispute occurs. Do they wish all disputes to go to arbitration or mediation, or do they wish some disputes to go to arbitration and mediation leaving the remainder of disputes to the court process?
include here a copy of a standard clause which I generally use for many
contracts which I draft.
If a dispute arises between the parties relating to this Agreement, or arising out of this Agreement the parties agree to use the following procedure as a condition precedent to any party pursuing other available remedies;
(a) A meeting shall be held promptly between the parties, attended by individuals with decision-making authority regarding the dispute, to attempt in good faith to negotiate a resolution of the dispute. (b) If, within 7 days after such meeting, or such further period as is agreeable to the parties, the parties have not succeeded in negotiating a resolution of the dispute, they agree to submit the dispute to mediation and to bear equally the costs of mediation. (c) The parties will jointly appoint a mutually acceptable mediator, seeking assistance in such regard from the British Columbia International Commercial Arbitration Centre if they have been unable to agree upon such appointment within 20 days from the conclusion of the negotiation period. (d) The parties agree to participate in good faith in the mediation and negotiations related thereto for a period of 30 days. If the parties are not successful in resolving the dispute through the mediation, then the parties agree that the dispute shall be settled by arbitration in accordance with the Commercial Arbitration Act, S.B.C. 1986 as amended. The decision of the arbitrator shall be final and binding and shall not be subject to appeal on a question of fact, law or mixed fact and law.
The costs of mediation or arbitration shall be shared equally between the parties. Costs shall not include costs incurred by a party for representation by counsel.
Unless the parties otherwise agree, the rules of the British Columbia International Commercial Arbitration Centre shall apply.
My concise definition of mediation is the process of adjusting each party's level of expectation without suffering a loss of face. In many cases, the process deals strictly with money. On many other occasions, the process deals with the interests of the parties - not their position. There are many books available to the practitioner and to their client on mediation. They include:
In assessing factors to consider when selecting a mediator the following questions should be considered:
In any case, it is important to prepare a Mediation Brief for delivery to the mediator in sufficient time for the mediator to be able to absorb the nature of the dispute prior to entering the mediation session. I don't propose to set out all of the material necessary for the preparation of a mediation. There is sufficient material out there for your attention.
of the important functions of the party and their lawyer is to listen.
Remember, when one is talking and one is listening, only the one who is
listening is learning.
HELP - NON PROFIT SERVICE PROVIDERS
We are fortunate in British Columbia to have a number of service providers to assist the parties or their counsel who are unfamiliar with the process (including those who are familiar with the process) in setting up a mediation or arbitration. I shall speak of only three such organizations, each of which are not in the profit making business.
Each of these organizations has a considerable amount of literature, together with websites, which will assist the parties and their counsel in deciding the appropriate process. I suggest that you become acquainted the three organizations - read their literature, visit their website, contact them and ask questions.
1. BCICAC. BCICAC stands for the British Columbia International Commercial Arbitration Centre located at:
2. British Columbia Mediator Roster Society located at:P.O. Box 27, Suite 1140 - 1090 West Georgia Street,
Vancouver, B.C., V6E 3V7
Peter Grove, Executive Director
3. British Columbia Arbitration and Mediation InstituteBritish Columbia Mediator Roster Society
c/o Dispute Resolution Office
Ministry of Attorney General
P.O. Box 9280 Stn. Prov. Govt.
Victoria, B.C., V8W 9J7
E-Mail the Society at: email@example.com
Visit the Mediator Roster Website at: www.mediator-roster.bc.ca
Jerry McHale or Susanna Jani
1628 West 7th Avenue
Vancouver, B.C., V6J 1S5
Someone once said:
Let me add that mediation deals with the former namely the ability to communicate including the commitment to active listening. Arbitration and its "public cousin" litigation, deals with the latter - namely, taking turns talking."Most of the time we don't communicate, we just take turns talking"
invite your questions.
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Kenneth J. Glasner, Q.C.
Tel: (604) 683-4181 / Fax: (604) 683-0226
Suite 1414, Nelson Square, Box 12158, 808 Nelson Street
Vancouver, British Columbia, V6Z 2H2 Canada