ADR - Perceptions and Realities

ADR – Perceptions and RealitiesFebruary 10, 2011Presented by: John Lorn McDougall, Q.C. Derek Lloyd, Q.C. David McCutcheon Michael Schafler 1

What is ADR? • One view: Alternative Dispute Resolution (ADR) is a term used to describe a basket of procedures outside the traditional litigation process, usually entered into voluntarily by parties to a dispute in an attempt to resolve it. 2

A More Expansive View: 3

Mediation Issues• Appointment of mediator – does it matter who acts as mediator?• Traits of a good mediator – what to look for• Different mediation processes: 1. “caucus” 2. “shuttle diplomacy” 3. “how much information do I show the other side ‐ the fear is no settlement and the opposing party now has a roadmap of our case…”• Cost 4

Mediation Issues cont’d • Role of Mediation Counsel• Luck is where preparation meets opportunity – Set the table •Offers to settle •Mediation Briefs •Authority to settle •Damage reports •Experts 5

Mediation Issue cont’d• Outcomes are Flexible – Deal or no deal – Partial deal – Agreed facts and admissions – Set range of outcomes – bookend damages; narrow liability issues – Determination of point of law or fact – Other ADR processes – arbitration, neutral evaluation 6

Mediation Issues cont’d• Resolve other issues or use leverage outside of issues in play – Suppliers – Reputation – Discounts – Payment timing – Tax efficiency• Intimidation and Stonewall tactics 7

Arbitration – Truths or Myths• “It’s faster”• “It’s cheaper”• “It’s way more flexible”• “I get to appoint my favorite arbitrator who will help me with the case” 8

Arbitration “Neutrality”“…it is not improper for a party‐nominated arbitrator to ensure that the arbitral tribunal properly understands the case being advanced by the party”₁“…dissenting opinions were almost invariably (in more than 95% of the cases) written by the arbitrator nominated by the losing party”₂1. “Redfern and Hunter on International Arbitration”, 5th ed. Oxford University Press, 2009, at pp. 573‐742. “Moral Hazard in International Dispute Presentation”, Prof. Jan Paulsson, Inaugural Lecture as Holder of the Michael R. Klein Distinguished Scholar Chair, University of Miami Law School, April 29, 2010, p. 8 9

Arbitration “Neutrality” cont’dProfessor Paulsson argues against party‐appointees and exposes the following myths:• “My nominee will help me win the case”• “Even Homer nods, three heads are better than one, especially when the stakes are high”• “Parties have greater confidence in arbitrators selected for their special knowledge or skill”• “My nominee will ensure that the tribunal as a whole understands my culture”. 10

Arbitration – Truths or Myths (cont’d)• “Arbitration is litigation sitting down” 11

More Myths ‐ “It’s hard to enforce an arbitration clause” Arbitration Act, 1991, S.O. 1991, c. 17 Arbitral tribunal may rule on own jurisdiction 17. (1) An arbitral tribunal may rule on its own jurisdiction to conduct the arbitration and may in that connection rule on objections with respect to the existence or validity of the arbitration agreement. 1991, c. 17, s. 17 (1). UNCITRAL 1985 MODEL LAW Article16.Competence of arbitral tribunal to rule on its jurisdiction (1)The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. 12

More Myths ‐ “It’s hard to enforce an arbitration clause” Ontario Court of Appeal Forum selection and arbitration clauses are generally interpreted generously. Only where it is clear that the dispute in question is outside the terms of the arbitration agreement will the courts usurp the role of the arbitrator as the decision‐ maker of first instance in respect of jurisdiction. Dalimpex Ltd. v. Janicki, 2003 CanLII 34234 (ON C.A.) Dancap Productions Inc. v. Key Brand Entertainment, Inc., 2009 ONCA 135 (CanLII) 13

More Myths ‐ “Enforcement of the Award is difficult” International Commercial Arbitration Act, R.S.O. 1990, c. I.9 Recognition and enforcement of foreign arbitral awards 10. For the purposes of articles 35 and 36 of the Model Law, an arbitral award includes a commercial arbitral award made outside Canada, even if the arbitration to which it relates is not international as defined in article 1 (3) of the Model Law. R.S.O. 1990, c. I.9, s. 10. Enforcement 11. (1) An arbitral award recognized by the court is enforceable in the same manner as a judgment or order of the court. R.S.O. 1990, c. I.9, s. 11 (1). Idem (2) An arbitral award recognized by the court binds the persons as between whom it was made and may be relied on by any of those persons in any legal proceeding. R.S.O. 1990, c. I.9, s. 11 (2). 14

UNCITRAL 1985 Model Law Article 35. Recognition and enforcement• (1)An arbitral award, irrespective of the country in which it was made, shall be recognized as binding and, upon application in writing to the competent court, shall be enforced subject to the provisions of this article and of article 36.• (2)The party relying on an award or applying for its enforcement shall supply the duly authenticated original award or a duly certified copy thereof, and the original arbitration agreement referred to in article 7 or a duly certified copy thereof. If the award or agreement is not made in an official language of this State, the party shall supply a duly certified translation thereof into such language. 15

UNCITRAL 1985 MODEL LAW Article36. Grounds for refusing recognition or enforcement (1)Recognition or enforcement of an arbitral award, irrespective of the country in which it was made, may be refused only: (a) at the request of the party against whom it is invoked, if that party furnishes to the competent court where recognition or enforcement is sought proof that: (i) a party to the arbitration agreement referred to in article 7 was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made, or (ii) the party against whom the award is invoked was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case, or (iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced, or (iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, was not in accordance with the law of the country where the arbitration took place, or (v) the award has not yet become binding on the parties or has been set aside or suspended by a court of the country in which, or under the law of which, that award was made; or (b) if the court finds that: (i) the subject‐matter of the dispute is not capable of settlement by arbitration under the law of this State, or (ii) the recognition or enforcement of the award would be contrary to the public policy of this State. (2)If an application for setting aside or suspension of an award has been made to a court referred to in paragraph (1) (a) (v) of this article, the court where recognition or enforcement is sought may, if it considers it proper, adjourn its decision and may also, on the application of the party claiming recognition or enforcement of the award, order the other party to provide appropriate security. 16

More Myths ‐ “Enforcement of the Award is difficult” Arbitration Act, 1991, S.O. 1991, c. 17 50. (1) A person who is entitled to enforcement of an award made in Ontario or elsewhere in Canada may make an application to the court to that effect. 1991, c. 17, s. 50 (1). Duty of court, award made in Ontario (3) The court shall give a judgment enforcing an award made in Ontario unless, (a) the thirty‐day period for commencing an appeal or an application to set the award aside has not yet elapsed; (b) there is a pending appeal, application to set the award aside or application for a declaration of invalidity; (c) the award has been set aside or the arbitration is the subject of a declaration of invalidity; or (d) the award is a family arbitration award. 1991, c. 17, s. 50 (3); 2006, c. 1, s. 1 (8). 17

Enforcement – Beware Local Limitation Periods• Under international arbitration law, the matter of limitation periods is left to local procedural law of the jurisdiction where recognition and enforcement is sought. As an arbitral award is not a judgment or a court order for the payment of money, an application for recognition and enforcement will often be subject to the general limitation period applicable in the province for most common law claims. ‐ Yugraneft Corp. v. Rexx Management Corp., 2010 SCC 19 18

Problems with Clauses ‐ “Pathological ICC Clause”What’s Wrong Here? A practical discussion. In the event that there is any dispute with respect to this Master Contract , the matters shall be submitted to a panel of three arbitrators. Within fifteen (15) days after written notice from either party of a failure … to resolve the dispute, each party shall select one arbitrator and notify each other of their selection. Within (15) days after their selection, such two arbitrators shall select the third arbitrator. The arbitrators shall meet within thirty (30) days after the selection of the third arbitrator and conduct a hearing in accordance with the commercial arbitration rules of the International Chamber of Commerce to resolve the dispute. 19

ICC Arbitration – Model Clause• All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules. 20

The preceding presentation contains examples of the kinds of issues companies looking at Alternative Dispute Resolution could face. If you are faced with one of these issues, please retain professional assistance as each situation is unique.

John Lorn McDougall, Q.C.john.lorn.mcdougall@fmc‐law.com 416 863 4624 Derek Lloyd, Q.C. derek.lloyd@fmc‐law.com 403 268 7065 David McCutcheondavid.mccutcheon@fmc‐law.com 416 863 4538 Michael Schafler michael.schafler@fmc‐law.com 416 863 4457

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