'ADR mindset' benefits parties to shareholder disputes

By Staff

Parties to a shareholder dispute can save time and money by adopting an “ADR mindset” to deal with the problem, Toronto litigator and commercial arbitrator Marvin Huberman tells

Huberman, the editor of A Practitioner’s Guide to Commercial Arbitration, says too many shareholders turn to the court as the default option when relationships run into trouble.

“Individuals and the corporations they are involved with spending billions every year on litigation. And it’s even more when you add in all the indirect expenses — which are more difficult to measure — such as the costs of damaged relationships with business allies and employees,” he says. “In my view, the key to successfully resolving a shareholder dispute is mindfulness.

“What I mean is that the disputants and their representatives, including their lawyers, need to have an alternative dispute resolution mindset,” Huberman adds.

He says he has no problem with the theory behind the adversarial process of litigation, which seeks to get at the truth via zealous advocacy on both sides.

“But in practice, it’s often a very expensive, inefficient and ineffective way of resolving disputes,” Huberman says. “Everyone gets stuck in the role they are assigned by the system; they feel obligated to present every piece of evidence and leave no stone unturned.”

By approaching disputes with an ADR mindset, parties are more likely to consider mediation or arbitration, in which a neutral third party delivers a final and binding resolution.

“Although arbitration is the ADR method which most resembles traditional litigation, it can result in a much more efficient and effective process if conducted properly,” Huberman says.

That starts from the shareholder agreement, which he says should contain an ADR clause.

“It has to be mindfully drafted so that it's valid and enforceable and captures any dispute one thinks might arise later,” Huberman says.

Once a dispute occurs, he says the parties can tailor the design of the process to their needs.

“This is where the mindfulness attitude comes in again. If they really want to make the arbitration process work properly, they need to do their part and collaborate with one another to some degree,” Huberman adds.

To get the most out of arbitration, he says parties can’t let the ADR mindset slip.

“Too many clients and lawyers turn it into a carbon-copy of the litigation process, with the same old rules of procedure and discovery. That’s not going to achieve the goal, which is to have a cheaper, faster and more effective resolution,” Huberman says.

“You don’t have to follow the formal rules of law. The parties can agree that the arbitrator may follow rules of equity or fairness, or they may decide to limit the discovery process in certain ways," he says

“Once you eliminate the formality of the litigation process, the savings of time and money start to add up."

Another advantage of arbitration is that the parties can select their own decision-maker based on expertise in the subject matter, rather than relying on the lottery of judicial assignment in the courts, Huberman explains.

Even in jurisdictions such as Toronto, where the Ontario Superior Court of Justice’s commercial list offers the opportunity of a case-managed dispute overseen by a knowledgeable judge, he says arbitration may be a better option.

“Other factors, such as the desire for privacy can be important to the parties in a shareholder dispute,” Huberman says.

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