In-house counsel have key role to play in arbitration process

By Staff

Following the Supreme Court of Canada’s decision in R. v. Jordan, litigants are increasingly turning to arbitration as an alternative to the courts — but in-house counsel have an important role to play in ensuring that arbitration functions in an optimal way, Toronto lawyer and arbitrator Earl Cherniak and lawyer Alexander Gay write in Canadian Lawyer.

Canada, explains Cherniak, partner with Lerners LLP, and Gay, litigation counsel with the Department of Justice, has had one of the lowest usage rates of arbitration as a form of dispute resolution in the commonwealth.

“The legal culture in this country, influenced by our neighbours to the south, is such that the perception by many litigants and their counsel is still that justice is best pursued before the courts. Anything else is seen as an inferior form of dispute resolution and gets lumped under the heading ‘ADR' [alternative dispute resolution]," they write.

Further, they say, Canada’s legal education system “reinforces the current legal culture by offering little to no information on arbitration as a form of dispute resolution.”

As such, say Cherniak and Gay, in the face of the crisis before the courts — as the SCC’s release of R. v. Jordan has diverted judicial resources to criminal cases to meet strict time requirements — much of the legal market is not well equipped to practise arbitration.

“When provided with an opportunity to arbitrate, the first thing many litigators do is adopt the Rules of Civil Procedure, squandering an opportunity to tailor a process that can best respond to the needs of a case,” they write.

However, say Cherniak and Gay, arbitration is not ADR.

“Arbitration is a consensual form of dispute resolution that dates back to Roman times and that stands in parallel to the courts. In some respects, such as the enforcement of an award across trans-boundaries, it is superior to the courts in that it benefits from the New York Convention that makes an award enforceable in more than 150 countries.”

In litigation, they write, the highest cost factor before the courts is in document discovery, which can be abridged in arbitration.

“The one-size-fits-all concept under the Rules of Civil Procedure imposes document production obligations that can be disproportionate to the needs of a case and which is costly. The length of time to obtain a resolution in arbitration is about 16 months, compared to the five years or more before the courts.”

While a contingent liability over the head of a corporation clutters the balance sheet and is not good for business, Cherniak and Gay say that case management, which is standard practice and conducted by the arbitral tribunal that will eventually hear the merits of the case, “leads to much efficiency and less gamesmanship by lawyers.”

Additionally, in arbitration, parties maintain control over the appointment of the decision-maker, which can include retired judges or experienced commercial counsel with a depth of knowledge in commercial matters.

Arbitration in Canada is on the rise, they say, as approximately 80 per cent of decided cases in the courts that deal with arbitration have been decided in the last five years.

In spite of its benefits and recent increased use, Cherniak and Gay say a multifaceted approach from a number of stakeholders, including governments, educational institutions, the judiciary and the legal profession is needed, in order to elevate the practice of arbitration and make it an integral part of the legal landscape.

“Requiring lawyers to acquire a greater understanding of arbitration and imposing procedural requirements in the Rules of Civil Procedure to permit the court to offer arbitration as an escape route from years of litigation would be a good start,” they write.

Ultimately, Gay and Cherniak note that in-house counsel have an important role to play, as gone are the days where a single clause could be included in a commercial contract with little to no thought about what could be tailored to meet the needs of the potential dispute.

“In-house counsel charged with directing commercial paper for the corporation must acquire a greater understanding of what can be inserted into a clause should a dispute arise in the future. In-house counsel must acquire a greater understanding of the arbitration process so that they can direct the litigator and make decisions relating to process that are beneficial to the corporation,” say Cherniak and Gay.

Although they say that arbitration is not a complete answer to the delays in the court system, its expanded use can help.

“In-house counsel have an obligation to make the arbitration option known to their clients and become full participants in the arbitration process, both as it relates to the drafting of arbitration clauses and in directing the arbitrators as it proceeds. There are many experienced arbitration counsel in large firms and small that can give useful guidance,” write Cherniak and Gay.

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