Arbitrating Business Disputes: Facts and Myths

Arbitration is becoming an increasingly popular way of resolving disputes.  This trend is probably due, in large measure, to the increasingly common practice of including arbitration clauses in contracts.  Nevertheless, misunderstandings about arbitration continue to be prevalent, even among the most sophisticated business people.  My previous post consisted of a video in which I discussed two of these myths.  Here are some more.  This article will attempt to identify and explain a number of common myths about arbitration.

Myth #3:  Arbitration is not available in commercial disputes in the absence of an arbitration clause

Where a contract provides that disputes under the contract are to be resolved by arbitration, the parties have no choice but to arbitrate such disputes unless they agree to amend the contract, in effect, by deleting that clause.

However, even in the absence of an arbitration clause, or a written contract, for that matter, it is always open to parties to agree to arbitrate their dispute.  All that is required is for both parties to agree on the scope of the arbitration and the identity of an arbitrator.  Most of the other procedural details, even if not determined at the outset, can be worked out during the course of the matter, with or without the participation of the arbitrator. 

Myth #4:  Arbitration clauses do not foreclose litigation

As indicated above, subject to agreement to the contrary, parties who enter into a contract containing a mandatory arbitration clause have no choice but to resolve disputes contemplated by the clause (generally, disputes arising out of the agreement) by arbitration.  In the event that a complaining party ignores the clause and commences a lawsuit, the responding party should be entitled to a Court Order halting the litigation and forcing the complaining party to proceed by way of arbitration.

Myth #5:  Arbitrators try to get parties to settle

This is a fundamental misunderstanding which appears to be prevalent.  It arises from a common confusion about arbitration as opposed to mediation.  Mediators try to help parties resolve disputes through settlement.  Arbitrators are like judges:  they conduct some form of hearing and then render decisions, in the same way as judges do.

Myth #6:  Arbitration is always faster than litigation

It is true that arbitration is often faster than litigation.  However, the fact is that complex commercial disputes take a long time to resolve regardless of the process utilized by the parties.  The review of productions and conduct of examinations for discovery will occupy a significant amount of time in either context, unless the parties voluntarily agree to limit themselves (and each other).

Another important factor in determining how quickly an arbitration proceeding will move ahead involves that willingness of the parties to cooperate with each other.  A party that is not willing to proceed in a good faith, cooperative and expeditious fashion may find it easier to drag matters out in an arbitration proceeding than in litigation, where parties have the benefit of binding and easily enforceable rules designed to move matters forward. 

Additionally, disputes which can be resolved by way of an Application as opposed to an action, or through the use of the procedure available from the Commercial List in Toronto, will almost always reach a conclusion more expeditiously than would an arbitration.

Myth #7:  At the end of the day, arbitration offers no advantages over litigation

Even though arbitration can be costlier than litigation, and may not offer any advantage in terms of speed, it does offer important advantages.

Chief among these is the ability of the parties to choose their arbitrator.  This is particularly important where the dispute involves matters of a technical or industry-specific nature, since it is generally open to parties to select an arbitrator with specific expertise in the relevant area. 

Another important advantage of arbitration is confidentiality.  Matters that are litigated become part of the public record.  This sometimes attracts the attention of the media, which may not be desirable for at least one of the parties to the dispute.  Arbitration proceedings are not automatically exposed to the public eye in the same way.

A third important advantage, at least where the parties are prepared to deal with the dispute in good faith, is that of efficiency.  As a general rule, parties involved in an arbitration are free to negotiate the procedural aspects of the dispute to increase efficiency and cost effectiveness.  Some of the possible steps that might be available in this connection are mentioned above.  As experienced lawyers know, if at all possible, attention should be paid to the opportunity to agree on a streamlined process at the time that the contract is being entered into so that the arbitration clause might cover as many procedural points as possible. 

Myth #8:  Arbitration awards can be appealed just like a judgment

The Rules of Civil Procedure, coupled with the jurisprudence, clearly define appeal routes and the scope and standard of review available to litigants.  In an arbitration process, it is open to parties to confine or even eliminate appeal rights when the arbitration clause in the contract is drafted.  If the arbitration clause does not deal with appeals, the Arbitration Act provides that a party may appeal an award to the Court on a question of law with the Court’s permission which will only be granted under certain circumstances.  It therefore follows that as a general rule, arbitration awards are much more difficult to challenge by way of appeal than judgments.

Myth #9:  Unlike a Court judgment, an arbitration award cannot be enforced easily

The Arbitration Act specifically provides that arbitration awards can be enforced by the Court.  The Court is required to grant judgment enforcing an arbitration award made in Ontario unless one of several conditions apply, such as the existence of a pending appeal.  In fact, if the arbitration award was made elsewhere in Canada, with a few additional exceptions, an Ontario Court will grant judgment enforcing that award as well.

There is every reason to believe that the popularity of arbitration as a mechanism for the resolution of commercial disputes will continue to increase.  Certainly, it is becoming an increasingly significant part of the practice of our firm’s Litigation Group.  Its increasing popularity is likely a reflection of the fact that on balance, and in most cases, it does offer advantages compared to litigation.  Hopefully, you now have some context within which to make your own assessment.

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