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Extra-judicial Dispute ResolutionProf. Frederic Bachand

I. INTRODUCTION 4

A. EXTRAJUDICIAL DISPUTE RESOLUTION DEFINED 4Ch. Jarrosson, “Les Modes Alternatifs de resolution des differends: presentation generale” 4K.K. Kovach, “ Mediation: Principles and Practice”, pp 1-16 5

(i) Extrajudicial dispute resolution processes 7(ii) The consensual nature of the dispute resolution methods we will be concerned with and the fundamental principle of party autonomy 8(iii) Extrajudicial means of dispute resolution: typology 8

a. Non-adjudicative extrajudicial dispute resolution 8b. Adjudicative (arbitration) 9c. Hybrid processes (e.g. med-arb) 9

(iv) Examples of characterization problems: 9Sport Maska Inc. v Zittrer 10

B. RESORTING TO EXTRAJUDICIAL DISPUTE RESOLUTION IN PRACTICE: WHY AND WHEN? 11K.K. Kovach, Mediation: Principles and Practice, pp 17-22 12UNCITRAL Model Law on International Commercial Conciliation, art. 12 14T.S. Manufacturing Company v. Les Entreprises Ribeyron Ltd. 14Evans v. State of Florida 16

C. EXTRAJUDICIAL DISPUTE RESOLUTION AND THE STATE: SUSPICION, ACCEPTANCE, PROMOTION 16

Zodiak International Productions Inc. v. The Polish People’s Republic 17Desputeaux v Editions Chouette (1987) Inc. 19O.M. Fiss, “Against Settlement” 21B. Oppetit, “Theorie de l’arbitrage” pp 19-39 24P.D. Carrington and P.Y. Castle, “The Revocability of Contract Provisions Controlling Resolution of Future Disputes Between the Parties” 24

D. EXTRAJUDICIAL DISPUTE RESOLUTION IN CONTEMPORARY PRACTICE 27N. Antaki, Le réglement amiable des litiges pp. 232 – 238 27Bruno Oppetit – Théorie de l’arbitrage p. 95-107, CH. 5 (CB 457– 463) 28Phillipe Fouchard – Où va l’arbitrage international? 28

II. NON-ADJUDICATIVE EXTRAJUDICIAL DISPUTE RESOLUTION: MEDIATION 29

A. THE MEDIATION AGREEMENT 29(i) Legal perspective 29

Cable & Wireless plc. v. IBM United Kingdom Ltd. 30Jarrosson, Ch. “Note following Cass. Civ. 1ere, February 14, 2003, Poire v Tripie and Paris, May 23, 2001, SCM Port-Royal v. Pembay and Samper 32Canada (A-G) v. Maritime Harbours Society et al. N.S.S.C. (p.39 CB) 36C.B. Richard Ellis Inc. v. Environmental Waste Management 36Article 13, UNCITRAL Model Law on International Commercial Conciliation 37

(ii) Practical perspective: the drafting of undertakings to refer future disputes to mediation: 38

B. THE MEDIATOR 40(i) Judicial mediation 40

Landerkin & Pirie - “Judges as Mediators: What’s the Problem w/ Judicial Dispute Resolution in Canada?” (p. 397 CB) 40

(ii) Some aspects of the relationship between the parties and the mediator (i.e. quality of the mediation process) 43a. Mediation Ethics 44

Pirie A.J. Alternative Dispute Resolution – Skills, Science and the Law (CB 560 ff.) 46Model Standards of Conduct for Mediators (AAA) 48Stulberg, J.B., “Should a mediator be Neutral?” 48UNCITRAL Model Law of International Commercial Conciliation 50

b. The mediator’s liability and immunity 51Thibault, J. “Les procedures de reglement amiable des litiges au Canada” 52Quebec Code of Civil Procedure 52

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Extra-judicial Dispute ResolutionProf. Frederic BachandC. THE MEDIATION PROCESS 52

(i) i. Overview of the mediation process 52Pirie, A.J., Alternative Dispute Resolution – Skills, Science and the Law (CB 391-396) 52Quebec Code of Civil Procedure 54UNCITRAL Model Law on International Commercial Conciliation 54

(ii) Focus on confidentiality and privilege 54Rudd et al. v. Trossacs Investments Inc et al. [2004] Ont Sup Crt (p. 185 CB) **overturned 2006! 56Folb v. Motion Picture Industry Pension & Health Plans CA District Court (p. 106 CB) 57Thibault, J., Les procedures de reglement amiable des litiges au Canada (pp 141-163) 58Quebec Code of Civil Procedure 58Commercial Mediation Procedure (AAA) 58Mediation Procedure (CPR) 58Model Standards of Conduct for Mediators (AAA) 59UNCITRAL Model Law on International Commercial Conciliation 59

D. THE MEDIATED SETTLEMENT 59(i) NO VALID CONSENT 59

a. deceit (misrepresentation) 60b. non-disclosure of material facts 60c. Unilateral mistake 60d. Coercion 61e. Error 61

CCQ 2637 61(ii) Unfairness 61

Miglin v. Miglin 62Russell Korobkin “The Role of Law In Settlement” CB 335-364 62

(iii) Public policy/public order 66Lagarde, Xavier – Transaction et Ordre Public 67UNCITRAL Model Law on International Commercial Conciliation 68

III. ARBITRATION 69

A. THE ARBITRATION AGREEMENT 69(i) Validity and applicability of the Arbitration Agreement 69

a. Generally-applicable rules of contract 69b. Separability 70

Buckeye Check Cashing Inc. v. Cardegna United States Supreme Court, February 21, 2006 70c. The requirement that the arbitration agreement be set in writing 72d. Arbitrability 73

Dell Computer Corp c. Union des consommateurs et Dumoulin [2005] QCCA 570 (CB p. 77) 74Drahozal & Friel - Consumer Arbitration in the EU and the US (CB p. 282 ff) 77

(ii) The effect of the arbitration agreement 79a. Negative effect 79b. Positive effect 79c. Selected issues 80

BWV Investments Ltd. V. Saskferco Products Inc. CB p. 22 80GreCon Dimter Inc. v. J.R. Normand Inc. 81Dalimpex Ltd. v. Janicki 83Concordia Project Management Limited v. Decarel Inc.[1996] R.D.J. 484 (Que. C.A.) 85

B. THE ARBITRAL TRIBUNAL 86(i) Constitution of the arbitral tribunal 86

a. Party autonomy 86b. Subsidiary application of rules relating to the constitution of arbitral tribunals in force at the place of arbitration88c. The appointment of arbitrators: some practical considerations 88

Lavergne v. Pure Tech International Inc.[1998] Q.J. (Quicklaw) No. 2308 (Quebec Superior Court) 88(ii) Status of the arbitrators 89

a. Contractual: arbitrators as service providers 89b. The arbitrators’ contractual rights and obligations 90c. Jurisdictional: The arbitrator as judges 91d. Impartiality and independence 91

Laker Airways Inc v. FLS Aerospace Ltd and Burnton (CB – p. 126) 92

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e. Arbitral immunity 94Maconnerie Demers Inc. v. Lanthier [2002] R.J.Q. 1998 (Quebec Superior Court) 94

C. THE ARBITRAL PROCEDURE 96(i) Party autonomy and limits thereto 96(ii) Privacy and confidentiality of the arbitral proceedings 97

Ali Shipping Corp. v. Shipyard Trogir 97Confidentiality: Is International Arb Losing One of Its Major Benefits? - Steven Kouris 100

(iii) Court intervention during arbitral proceedings 101a. Judicial assistance 101

Carolina Power & Light Co v. Uranex CB p.44 102Compagnie Nationale Air France v. MBaye 103

(iv) Applicable rules and amiable composition 103J.E.C. Brierly, “Equity and Good Conscience” and Amiable Composition in Canadian Arbitration Law 104

D. THE ARBITRAL AWARD AND JUDICIAL INTERVENTION RELATING THERETO 106(i) The notion of “arbitral award” and distinction with other decisions made by arbitral tribunals (procedural orders, jurisdictional decisions, etc.) 108(ii) Procedural aspects of judicial intervention relating to the arbitral award 108(iii) Substantive aspects of judicial intervention relating to the arbitral award: grounds upon which awards can be annulled/set aside or refused recognition and enforcement 109

Parsons & Whittemore Overseas Co. v. Societe Generale de l’Industrie du Papier (RATKA) 109

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I. INTRODUCTION

This is a course on dispute resolution PROCEDURE as opposed to SUBSTANTIVE LAW. The course will be concerned with PRIVATE not PUBLIC disputes (including penal/criminal matters, despite increasing use of criminal and penal mediation), and not disputes between STATES (so these rules are different than NAFTA DS rules).

The course will be concerned with the LEGAL (as opposed to practical/clinical aspects) of EDR. This means the course will address “what are the rules according to which mediation must be done” NOT “how do you mediate, in practice; what skills are needed.”

The course will have a trans-systemic perspective: an outlook of the main arbitration/mediation rules that are commonly emerging in most modern legal systems. There seems to be a harmonized body of these rules taking shape.

The course is NOT specifically concerned with INTERNATIONAL mediation/arbitration (i.e. no conflict of law issues, no enforcement/recognition issues).

A. EXTRAJUDICIAL DISPUTE RESOLUTION DEFINED

Readings:

Ch. Jarrosson, “Les Modes Alternatifs de resolution des differends: presentation generale”

BIRTH OR RENEWAL OF ALTERNATIVE METHODS OF CONFLICT RESOLUTION Started in Common law jurisdictions, from dissatisfaction of law and juridical solutions. Wish to separate from procedural and substantive law NB: Alternative methods are not non-legal methods. Still not entirely accepted. General weariness of alternative modes of resolution Jurists need to learn the new techniques of negotiation borrowed from psychologists and sociologists in order

to be more flexible, fast, economic, efficient, and to allow the practice to progress.

NAMES AND TYPES Alternative Dispute Resolution ADR (règlement alternative des différends, resolution amiable des

différends RAD); MARC (modes alternatifs de règlements des conflits; SoRRèl (solutions de rechange au règlement des litiges

Note that the word alternatif in French is just a literal translation. Arbitration is a non-pacific type whereby terms and solution are imposed on parties. It is a loi de substitution

and has become an classical alternative method. Other forms include amiable composition and ombudsman (mediation). ADRs form an open category that is not defined or delimited by rules. Generally pacific (except arbitration).

Solution is only obligatory if parties agree that it is.

TYPOLOGY Core of all ADR = Mediation Conciliation vs. Mediation :o Both are pacifico Mediation is active because it proposes solutionso Conciliation does not require a third partyo Conciliation is an ends while mediation is a means All forms of ADR can be (a) contractual (amiable, conventional) or under the control of a judge Expertise serves as the basis of negotiation of the two parties; ends in transaction. Other forms (all based on mediation) include the mini-trial = Three people presided by a neutral council are

named by the parties and attempt to find a solution that works for both parties. The med-arb requires that

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the third party acts as mediator, then if this fails he becomes arbitrator. The co-med-arb is the same concept, but two different people act as mediator and arbitrator. Baseball arbitration (LOA last offer arbitration) requires each party to propose a solution and the third party must choose the best solution. The Medaloa follows LOA then uses the conclusion as basis for mediation.

REGULATIONS Starting MARC can be from the law (judicial authority) or from conventional methods (contracts) Functioning of MARC: Judicial ones follow rules of law or judges; Contractual ones follow wishes of parties

from contract. o Obligation of parties: (1) Obligation of results: Parties must discuss with one another. (2) Obligation of

means: Parties must act in good faith and ensure confidentiality.o Obligation of third party: (1) Confidentiality; (2) No re-intervention if first attempt fails; (3) Independence,

impartiality, neutrality, objectivity, equity, justice Effects of MARC: Will not always be the same, but greater goal is to avoid that a party is penalized for having

chosen alternative method. o In case of success: No formalism is required. Success is found if parties agree on a solution and end

dispute. Usually there is a signed document, transaction, but this is not always the case. In case of failure: Parties must resort to proceedings. To counter this, there have been attempts for multiple level ADR (e.g., Med-arb) but there have been many problems with these methods.

K.K. Kovach, “ Mediation: Principles and Practice”, pp 1-16

ADR focuses on new and creative methods of resolving conflicts, which also includes an examination of the underlying causes of conflict. Mediation is one such way, whose popularity is largely based on disappointment with the court system.

To achieve a complete or final resolution of a dispute, the underlying conflict must be identified and resolved. One goal of mediation is to uncover hidden motivations of parties. The mediator should also be aware of intrapersonal conflict and how that might impact the interpersonal dispute or vice versa. Intrapersonal conflict is conflict existing within oneself, difficulty making personal choices. Conflict and how it develops depends on a number of variables: intensity, subject, how parties communicate. A mediator must be aware of the disputing process and its attendant characteristics.

Conflict can be positive: it is at the root of personal and social change. While mediation has at its philosophical basis the creative and constructive means of dispute resolution, this has not been a traditional approach to conflict.

Traditional Means of resolving disputes:

Traditional means of resolving disputes (conflict=struggle, response=fight, flight, force, coercion) have merit as well as drawbacks. Fight response can end up in serious injury or death, and is therefore undesirable. Avoidance can be an appropriate response, however, unresolved and internalized conflicts usually linger. Accomodation of the other party as a strategy of dispute resolution merely means that you are ceding to the other person’s demands and thus needs are not met. Leaving resolution of the conflict in the hands of outsiders decreases stress because it is more impartial but decisions made by the parties on their own would be likely better than those made by outsiders because parties have more information on the dispute than third parties would. Lastly, emphasizing the outcome sought by disputing party is also a means of dispute resolution. Parties may want 1) to reconcile underlying interests or 2) to determine who is right or 3) to conclude who is more powerful. Each alternative is appropriate in different circumstances. Interest-based dispute resolution is the most integrative method of dispute resolution, and most efficient at solving conflict.

The Variety of ADR Devices:

A number of alternatives to traditional means of dispute resolution have developed, which employ neutral third parties to resolve disputes.

ADJUDICATIVE: necessary when parties clearly want or need an outside decision-maker; binding, non-binding and adjudicative decisions are possible.

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Extra-judicial Dispute ResolutionProf. Frederic Bachand1) Arbitration: Adversarial presentation, more formal, a decision is rendered, some rules MAY control process, live

witnesses, actual evidence, experts possible, post hearing briefs possible, thirty days to deliberate, binding decision where the parties have previously contracted for arbitration.

Appeal from binding arbitration differs significantly from normal appeal process: very limited Other variables to be considered before employing arbitration: determination of rules of procedure applicable,

appropriate time when arbitration would arise after commencement of dispute, whether to have a motivated award, whether arbitrator will just make findings of fact or also render conclusions of law, whether to contract to expand scope of appealability, background of arbitrators, how many arbitrators to have.

Two of the more common variants are high-low arbitration and final offer arbitration Most effective in cases where parties cannot agree on the facts or where dispute is purely monetary, or where

matter is highly complex and technical2) Private Judging Parties hire a retired or former judge to hear the case and render a decision on either all or just some issues in

the case Procedure and rules are the same as in a regular trial and referee has same powers as a regular judge Decision is then entered as a regular judgment by the court which referred the parties to private judging Rights of appeal are the same as in regular trial Criticized as private justice, only for the wealthy, but it may be more economical than traditional litigation in

reality Most useful in cases where dispute of both law and fact is the impediment to settlement, and so decision

maker needs to possess legal expertise3) Fact Finding: Neutral third party makes a determination of the facts after gathering info from all parties; this neutral can be

an expert Can be binding or merely advisory: if binding, the fact finder has a duty to provide sufficient info to a final

decision maker, but it is uncertain whether courts are subsequently bound by the fact finder’s decisions

EVALUATIVE: advocates present their version of the case to third party neutrals, who evaluate the strengths and weaknesses of each, and render a non-binding, confidential, evaluation of case to be used by in further settlement negotiations.1) Peer Evaluation Moderated Settlement Conference: neutral attorneys listen to presentation of both sides’ factual and legal

arguments, ask questions and then render an advisory, confidential evaluation of strengths and weaknesses of the case; Michigan Mediation is very similar process, but both processes are flexible and can be modified to suit parties’ needs

Neutral case evaluation (ENE: Early Neutral Evaluation): sole evaluator, informal, but now court programs which provide a more structured process; goals include forcing parties to confront their case as well as that of the opponent, identify the actual matters in dispute, develop am efficient discovery process, and to obtain an assessment of the case; process differs in focus depending on the style of the neutral evaluator.

2) Lay Evaluation: the Summary Jury Trial Trial in a summary fashion saves time and money for parties and court Abbreviated version of their evidence to an advisory jury, opening statement, evidence that would be showed

if case went to trial, limited testimony, closing arguments, then returns a non-binding advisory verdict; BUT process can be modified to suit the parties.

Used when parties or court feel that a preview of what a jury might do would be helpful to better assess the case for purposes of settlement, but possible for parties to stipulate that jury’s verdict will be binding

3) Judicial Evaluation: Knowledge, experience and temperament a retired judge can bring to a case can be quite helpful in assisting

the parties reach a settlement. Judge merely point to the lawyers and litigants the strengths and weaknesses of the case Can be done in both a more formal and informal setting.4) Specialist or Expert Evaluation For cases that turn on a technical issue beyond the understanding of the court, lawyers and jury Neutral expert, whose findings are generally definitive

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Extra-judicial Dispute ResolutionProf. Frederic Bachand Expert evaluation can apply to entire case or a single case, or can be included as part of another process, such

as mediation

FACILITATIVE: neutral provides assistance to the parties so that they may reach an acceptable settlement Most common facilitative processes are mediation, conciliation and consensus building In mediation facilitator assists in resolving a dispute between two or more parties; goal is to facilitate the

parties’ arrival at a mutually acceptable resolution of the dispute; process is flexible; it is appropriate to all types of cases, even appellate level ones; is of value where parties want to maintain the relationship.

Mediation and conciliation have been used interchangeably but mediation has more structure than conciliation, and conciliation usually denotes that the disputing parties have reconciled, and the relationship has been mended (this is not the case with mediation, where resolution of disputes can happen without an actual reconciliation)

Consensus building is like an extended mediation: happens over a longer period of time and not everyone of the many people involved is present.

COMBINED PROCESSES AND HYBRIDS Hybrids: completely new ADR procedures created by blending original processes Combined processes: mixture of the primary processes Med-Arb (mediation and arbitration), Mini-Trial (negotiation, mediation and case evaluation), jury-

determined settlement (summary jury trial and arbitration) are the most well-known combined processes

(i) Extrajudicial dispute resolution processes

Originally, civil disputes were resolved in two ways:1) Most often, by SETTLEMENT pursuant to direct negotiations2) When negotiations failed, PUBLIC ADJUDICATION (courts, inferior tribunals).

Now, the way civil disputes are resolved has changed everywhere:1) SETTLEMENT is still the primary way in which disputes are resolved.2) When this fails, MOST OFTEN, parties resort to EDR (a.k.a. alternative dispute resolution)3) Only ALTERNATIVELY to EDR, public adjudication is used when settlement fails.

European lawyers and US lawyers define what is ADR differently: US lawyers will include arbitration, while continental lawyers will not. This way, changing the name to Extra-judicial Dispute Resolution will encompass all these discrepancies in definitions. However, this does not encompass instances where the state is involved, such as judges engaging in mediation and other types of EDR processes, even if the judge is fulfilling a different role than that of judge.

EDR processes have developed because of a need for other options when negotiations fail. The judicial adjudicative system presents efficiency, cost, quality of the process (i.e. not being able to pick your judge, the judge being a generalist) and privacy issues.

As a result, a pro-EDR bias has developed: the law promotes resorting to EDR to avoid the issues associated with judicial adjudication. States are increasingly agreeing that promoting EDR is important and helpful, and law has an important role to play in promoting the use of EDR.

States’ pro-EDR policy is implemented through a growing body of principles and rules mostly geared towards making these processes attractive to potential users (i.e. making EDR efficient and accessible to use).

However, public policy sometimes prevails and limits the availability, autonomy or efficiency of EDR processes. E.g. bindingness of arbitration clauses inserted into consumer contracts; debate re: faith-based arbitration to resolve family disputes. The issue here is where to draw the limit of WHEN you can use EDR to solve disputes, what limits should there be to freedom of parties to resort to these processes.

Summary:

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Extra-judicial Dispute ResolutionProf. Frederic BachandLegal systems are increasingly encouraging parties who can’t resolve civil disputes amicably on their own to turn to EDR. There has been an increasing need to have resort to other dispute resolution processes and states are reacting favorably to this need. This reinforces the reality that a failure to resolve a dispute amicably pursuant to direct negotiations does NOT invariably lead to court action: there are alternatives to which parties are increasingly turning.

The emerging body of principles and rules (EDR law) is essentially organized around two key questions:a) What should law do to promote use of EDR? Make them more efficient than traditional DR alternatives.b) What legitimate limits should there be to this pro-EDR policy? Public policy/public policy interests.

The tension between promotion of EDR and its limitation is a central theme of the course.

(ii) The consensual nature of the dispute resolution methods we will be concerned with and the fundamental principle of party autonomy

This course will only be focused on CONSENSUAL EDR. Therefore, will not look at DR processes that are mandated by the state: for arbitration, mediation, the state says that it is available NOT that parties must do it.

The course will exclude, because they are NOT consensual EDR:-mandatory mediation-mandatory arbitration (and adjudication before inferior tribunals, such as the Regie du logement)

(iii) Extrajudicial means of dispute resolution: typology

EDR means are grouped in accordance to one (legally) very important distinction: non-adjudicative EDR and adjudicative EDR (arbitration). The turning point of this distinction is whether the third party’s decision is BINDING/ENFORCEABLE (i.e. whether the parties retain control over the outcome or not).

Adjudicative Non-adjudicativeNo control over outcome Complete control over outcomeGenerally binding – consent important at outset to process

Generally non-binding – consent important at end to outcome

More adversarial – 3rd party more passive Less adversarial – 3rd party more activeMore due process – More checks and balances on 3rd party

Less due process – More freedom to 3rd party

Therefore, the distinction between non-adjudicative and adjudicative EDR has to do with the role of the third party: are they asked to assist the main parties solve their dispute peacefully (parties retain control over outcome: non-adjudicative) OR are they asked to determine the parties’ dispute (parties surrender control over outcome: adjudicative). The distinction is important because of the different levels of power given to the third party in each case: because the third party in adjudicative context has more power than in a non-adjudicative context (because their decision has res judicata effect), the distinction is important in that there must be proportionally more strict procedure and standards that must be met in adjudicative EDR.

a. Non-adjudicative extrajudicial dispute resolution

Because there are many non-adjudicative EDR processes, there is a further sub-distinction between evaluative and facilitative non-adjudicative EDR processes. This distinction does not mean much legally, but does matter in practice.

This sub-distinction revolves around whether the third-party is there to render an opinion (non-binding) on who is right, as opposed to acting as a catalyst for the parties to find their own solution, and renders no opinion of their own.

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1. Evaluative (e.g. early neutral evaluation)

Neutral party’s role is not to necessarily engage in discussions but only give his opinion on the matter.

2. Facilitative (mediation/conciliation)

Neutral party’s role is NOT to render an opinion, but actively engage in discussions with the parties to help them reach their own amicable solution.

Possible distinction between mediation and conciliation that has been proposed is again a question of third-party’s level of involvement: a mediator will propose concrete solutions while a conciliator will be there as a bridge between the parties and try to foster dialogue and discussion (structuring the negotiation, discussion, proposing schedules). However, this distinction does NOT really matter legally, so not really concerned in the context of the course. See the fact that UNCITRAL Model Law on Non-Adjudicative EDR uses term conciliation, while clearly intending the law to apply to ALL non-adjudicative EDR processes.

b. Adjudicative (arbitration)

However, resorting to a non-adjudicative EDR process does NOT guarantee an amicable settlement, because parties retain control over the outcome. This is not true of arbitration (adjudicative EDR), which ALWAYS guarantees a settlement of the dispute (with limited means of contestation). This is important when choosing between adjudicative and non-adjudicative EDR.

c. Hybrid processes (e.g. med-arb)

It is perfectly possible to COMBINE non-adjudicative and adjudicative EDR processes, and a good idea when structuring DR clauses, to establish a two-step process of DR. This ensures that parties do not have to relinquish control over the dispute UNLESS they absolutely have to (party-party AND non-adjudicative EDR processes have failed to result in a solution).

(iv) Examples of characterization problems:

The example here is non-binding arbitration/arbitrage prejudiciel ou prealable: parties can only commence a court action after first having obtained a decision from an arbitral tribunal. What category as per the typology above does this fit in? How do you decide this? And, given the confusion, would you recommend it?

Characterization problems can and do arise in practice, when parties have as part of their contract a process that cannot be clearly characterized as either adjudicative or non-adjudicative. If this happens, you do not know which legal framework will apply, and this causes problems.

Two examples:

1) Any dispute arising out of or relating to this agreement shall initially be submitted to arbitration.

Given the law that judges must enforce arbitration clauses, this clause will be enforced, it is clear.

However, if you have a second part to the clause:

If the parties do not agree with the arbitration award, the parties may resolve this dispute by other means, including litigation in court.

The second part of the clause makes the clause confusing because it seems to counteract the basic feature of arbitration: its finality/bindingness. As a result, it is actually more like an evaluative non-adjudicative EDR clause, rather than an arbitration clause: the parties ask for an opinion and retain the right to follow it or to not do so, and seek DR elsewhere. The parties are trying to get the procedural and legal guarantees of arbitration law while retaining control over the outcome of the process!!

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Just because it would be found that this clause is not arbitration, does not mean that it is void and can go directly to court: it will mean simply that arbitration law will not apply but rather the law on evaluative non-adjudicative EDR.

2) Sport Maska and the concept of a dispute resolution process:

Sport Maska Inc. v Zittrer

Facts: Receiver of bankrupt company sold large part of that company to another company, which on the same day resold those assets to the appellant. Clause 2.01 in the second sale document provided that bankrupt’s auditors (the respondents) were to give an opinion, which would take into account the appellant’s representations, as to the fact that the value of the assets as per the sale was fair. The opinion would make the value of the transaction “definitively determined”, and “final and binding”.

This was done by the respondents, and the clause 2.01 was satisfied, and the appellant paid the amount established. A year later, the appellant sued the respondents in Superior Court for damages in the amount of the difference between the price it had paid (the original valuation by the respondents) and the price it would have paid if respondents had not been negligent in making their valuation. Respondents argued that they were covered by arbitrators’ immunity, as clause 2.01 was in fact an agreement to appoint them as arbitrators.

Issue: The appeal must establish whether the parties had agreed in any way to submit a dispute to arbitration by third party. Was there ever such an agreement? Were the respondents arbitrators?

Held: No. The respondents were NOT acting as arbitrators therefore are not protected by immunity, because there was no agreement to submit to arbitration and therefore no undertaking to arbitrate.

Reasoning: For a third party to be classified as an arbitrator, the agreement of the parties must contain a submission (of a dispute to arbitration). Parties’ agreement must show intent to submit a dispute to arbitration, not merely to avoid a possible dispute, in order to amount to a submission. Whether there was a submission to arbitration depends on a precise identification of the FUNCTION that parties intended to entrust a third party with, under the agreement (i.e. solve a dispute v. give an opinion).

In case at bar, no arbitration agreement could be found since there was no present or potential dispute, either when agreement was concluded between the parties, or when respondents revised the valuation made by the bankrupt. Parties simply agreed to rely on respondents’ opinion, as part of the K.

The language used in the agreement, the process contemplated by the parties, and the deliberate deletion of a paragraph contemplating possible arbitration clearly indicates that there was no intent to submit the matter to arbitration, but merely obtain an expert opinion from the respondents.

Since there was no agreement to arbitrate, clause 2.01 is NOT an undertaking to arbitrate by the respondents. Moreover, since mediation and arbitration both necessitate an agreement to submit a matter to a mediator or arbitrator, and there was no agreement to arbitrate, the respondents cannot be said to be mediators.

POINT: A present or potential dispute and intent to submit such dispute to arbitration must be present to have a submission to arbitration. Without a submission to arbitration, a third party cannot be classified as an arbitrator (i.e. cannot be said to have undertaken to arbitrate in a matter).

Comment: This case makes a distinction between arbitration and so-called expert evaluation.

Why did characterization matter? Auditors saying that they were arbitrators (therefore immune) and plaintiff saying they were simply contracted to provide a service (mandataries, who ARE liable for negligence). The issue of immunity is the reason why an issue of characterization of Clause 2.01 arose, and why it mattered.

Why was characterization tricky here?

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Extra-judicial Dispute ResolutionProf. Frederic BachandBecause there was no dispute per se: there was never an attempt by the parties to try to set the price, that job was delegated to the auditors. Also, facts suggested that parties did not have arbitration in mind. Moreover, accountant’ mission was not to determine pre-existing rights/obligations (accountants’ mission was rather to create rights and obligation, which is NOT the purpose of an arbitrator).

This last point (creation of rights) has a parallel in regular DR: a judge cannot create rights for the parties in front of him, he cannot fill in the blanks in a contract between the parties before him; he can only determine (“adjudicate”) what that contract was all about, parts of the contract. The same with an arbitrator: if he is asked to fill in the blanks, he is not an arbitrator.

Still, the fact that adjudicator does not create rights is not necessarily always the case in modern adjudication: e.g. non-competition clauses, force majeure (judge basically has to rewrite the contract because of the force majeure events, or because non-competition clause is too broad).

The court’s decision: what to look for when considering whether process is arbitral in nature:Objective element: actual dispute between parties must have caused neutral’s interventionSubjective element: parties must have intended to resort to process that is adjudicative in nature (procedural rules, res judicata effect of decision, etc.)

Important implications of the court’s decision: Fact that neutrals’ intervention had the effect of creating new rights (no dispute) as opposed to determining/clarifying pre-existing ones (bc there is a dispute) is not really relevant to characterization. This fits with emerging trend in comparative law to define arbitration broadly.

The importance of the subjective criterion entails that Court would have refused to characterize the process as arbitration even if the accountants had intervened after the dispute that had actually materialized. But what sort of dispute resolution would that have been? This clause does not fall squarely into adjudicative or non-adjudicative categories nor is it hybrid. It could loosely be called what the French call arbitrage contractuel as opposed to arbitrage jurisdictionel.

B. RESORTING TO EXTRAJUDICIAL DISPUTE RESOLUTION IN PRACTICE: WHY AND WHEN?

Non-adjudicative EDR: mediation

Advantages: Amicable settlement, party control over the outcome, flexibility, speed, cost, privacy, high success rates.

Disadvantages: it might not work, and you will be back at square one, after spending lots of money on mediation; there are cases when it is clearly pointless to mediate: one party has an advantage from delaying in bad faith, parties are at war (“see you in court” attitude), one party REALLY wants a result specific to the judicial process (eg. Precedent)

The authors seem to believe that cases where mediation is a bad tool are rare: mediation is a good tool unless it is CLEAR that it is impossible for mediation to be effective.

POINT: Mediation is a good tool for defusing animosity and avoiding court, but it is not a perfect one, it does not work in every case.

Adjudicative EDR: Arbitration

Advantages: the dispute at issue will get solved in a final and binding manner regardless of whether the broader conflict still remains unsolved; privacy: no publicly open process is obligatory; speed: no appeals, can fast-track; cost: this is somewhat of a misnomer because you will have to pay for a lot of things that when you litigate you will have covered by the state (judges, etc.), but you can avoid expensive parts of court process to try

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Extra-judicial Dispute ResolutionProf. Frederic Bachandto overcome this – e.g. extensive discovery; party control over who does the adjudication; flexibility: less than mediation because of expectation of due process but not as rigid as judicial process because a) you pick your judge and b) you pick your procedure, within the limits of the laws governing the conduct of arbitration; no appeals, but do have limited judicial review: this takes less time.

POINT: Arbitration is only as good as the arbitrator/set-up/adjudicative format you select. Even more than mediation, the attractiveness of arbitration depends on the conditions under which it will occur. There is a difference between being generally favorable to arbitration and being favorable to arbitration when the parties are unequal, the set-up is too expensive or inefficient (i.e. three arbitrators when one is enough), etc. The key is to pay attention to the arbitration set-up being proposed by the opposing party, the costs that would be involved, etc.

Relationship between direct (party-to-party) negotiation, mediation, arbitration and public adjudication.

Some recommendations on thinking about this relationship:

First step: engage in direct negotiations (do not get caught up in the EDR movement, but think of it as an alternative solution)--more often than not, parties prefer settlement--more often than not, direct negotiations work

Second step: if direct negotiations fail, consider whether investing in mediation/other non-adjudicative EDR process would be worthwhile--this MIGHT or MIGHT NOT be worthwhile given the specific circumstances of each case--some issues to bear in mind when assessing the viability of mediation in the specific circumstances: low costs, high success rates--presume that mediation would be desirable unless specific circumstances (incl. earlier direct negotiations) reveal that one party is clearly not interested in settling

Third step: if parties can’t settle and adjudication becomes necessary, would arbitration be preferable to public adjudication?--are there any incentives to stay out of the courts? Privacy/confidentiality issues? Costs? Wishing to obtain decision/closure faster?--always pay attention to the details, to the conditions under which arbitration would occur, before answering: the quality of the arbitrators, the set-up, the quality of the clause proposed.

There are therefore two main questions when deciding why and when to resort to EDR:

1) Are all disputes suitable for EDR?

K.K. Kovach, Mediation: Principles and Practice, pp 17-22

But how do you choose an ADR process to use?

Cases as well as clients differ and the exact nature of both is relevant in selecting which method is most advantageous in a given case. There does not seem to be such a thing as a bad choice. In most situations, after consideration of the client’s objectives and an analysis of the available dispute resolution techniques, it is likely that an appropriate procedure can either be found or designed.

From a client’s perspective:

The initial determination regarding the choice of ADR procedure to be used is made by attorney in consultation with his client. Attorney must consider the client’s goals and what procedure would best achieve them, and all obstacles to settlement, and what procedure would best overcome them. Then the attorney will discuss with the other party’s attorney the decision reached with the client, and will seek to agree on a procedure. Finally, if they do not agree, they go to Court; however, as is more and more common, the court will have an ADR program, in which case, court personnel will decide whether the dispute is suitable for some aspect of that program.

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From a public perspective:

Agencies making recommendations regarding appropriate procedures for agencies making a recommendation regarding appropriate procedures for resolving a dispute must consider the goall of all parties in the dispute as well as the public interest in that dispute.

The extent to which ADR procedure applied will satisfy client goals will differ depending on how they are structured, by court order or party design. Sometime, settlement will not be in client’s best interest: client may want a binding precedent or want to impress other potential litigants with its firmness and consequent costs of asserting claims against it, etc. However, typically, a satisfactory settlement is in a client’s interests. A lawyer must consider not only what the client wants but also why the parties have been unable to settle their dispute and then must find a dispute resolution procedure. Sometimes, an examination of the impediments to settlement reveals that at least one party wants something that settlement cannot provide (i.e. public vindication or judicial precedent).

Presumptive Mediation:

Mediation has greatest likelihood of overcoming all impediments to settlement except different views of facts and law and the jackpot syndrome. Rule of “Presumptive mediation”=mediation if it is a procedure that satisfies the parties’ goals should, absent compelling indications to the contrary, be the first procedure used.

Under this approach, mediator would first try to resolve dispute using customary mediation techniques. Then, if unsuccessful, mediator can make informed recommendation for a different procedure. This is good, because a recommendation made by a mediator might be more readily accepted by both parties than would the suggestion of either of their attorneys. The presumption in favor of mediation would be overcome when the goals of one or both of the parties could not be satisfied in mediation, or mediation was clearly incapable of overcoming a major impediment to settlement.

The savings in dollars, time, and emotional energy are the most often cited reasons for ADR use, despite reservations sometimes expressed about its use. Confidentiality and party participation are also notable reasons. By having a part in the decision-making process, the litigants are able to generate settlements with which they are pleased and with which they will comply.

As ADR processes become part of lawyer’s toolbox, other issues emerge: have ADR processes been too influenced by the traditional legal system, have they become part of the legal system? Most recently, the view of ADR as “litigation lite” demonstrates a continued influence and impact of the adversarial system on ADR.

See also the ADR Suitability Questionnaire: gives guidance as to how to choose the best DR method for your case, between mediation and adjudicative DR (either arbitration or litigation). Also discusses other factors than the quantitative test in the Questionnaire that could influence a decision in this regard: compelling priorities, non-screen factors, reassessment at different times in the process.

2) Should it be possible for parties to combine non-adjudicative and adjudicative EDR (i.e. mediation and arbitration)?

In TS Manufacturing, parties bind themselves to first try mediation, and if this does not work, the mediator “changes his hat” and becomes an arbitrator. On the surface, this is ideal: you are guaranteed to stay out of the court and you increase your chances of settling, before even going to adjudication, especially since it is the same person doing both. As explained in the judgment, however, this is not necessarily a good thing. Two questions arise:

1) legality: is med-arb even legal? Assuming it is clear that the parties fully agree to do it, is there any public interest/public policy reason why the law should not give full effect to their otherwise valid agreement?

Generally, med-arb refers to situation when only ONE neutral steps into the dispute and does both.

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TS Manufacturing concluded that med-arb is against public order for two reasons: (1) Impartiality – The mediator is more active than a judge. The mediator has acquired too much

information, has met ex parte with each party, and has proposed solution and betrayed his/her opinions. These acts create a reasonable apprehension of bias.

(2) Privilege – The information that parties have divulged in the mediation process is generally privileged. The judge has been presented with a lot of evidence that is not admissible to the point of compromising the fairness of the process.

Even if the parties have agreed to waive these rights, they are public order provisions. However, the remedy of nullification is odd. Why not just disqualification of the mediator?

However, the general consensus on the legality of med-arb is that it is NOT against public policy. This is show in the UNCITRAL Model Law on International Conciliation:

UNCITRAL Model Law on International Commercial Conciliation, art. 12

Unless otherwise agreed by the parties, the conciliator shall not act as an arbitrator in respect of a dispute that was or is the subject of the conciliation proceedings or in respect of another dispute that has arisen from the same contract or legal relationship or any related contract or legal relationship.

Therefore, Quebec is out-of-step with the general view on the legality of med-arb.

2) desirability: is this an attractive option, if so when/under which circumstances?

While it might be legal, does not mean that it is desirable:

One point on the desirability of having med-arb, the fear that mediator will become your arbitrator might cause parties to hold back and thus hinder the mediation process. As a result, Bachand thinks that this “chilling effect” on the mediation process makes med-arb not very desirable.

As well, features of mediators and arbitrators are too different to make such a process efficient, therefore desirable. This is reflected in Evans v. Florida, where judge offered option that he mediate FIRST, and then if that fails, go to trial. The problematic condition in this case was that the parties do not seek to recuse him based on the fact that he had mediated. The fact that he expressed bias was what got him disqualified, NOT the fact that he mediated. The case is also important because of this point that, even if parties comfortable with med-adjudication arrangement, parties still needed someone who is good at both, and the two roles require two different skills!

T.S. Manufacturing Company v. Les Entreprises Ribeyron Ltd.

Facts: T.S. Manufacturing was contracted to build and install a Moulin a scie (wood mill? Paper mill?) for the defendant company, Les Entreprises Ribeyron/Entreprises Pro Folia. The Contract R-2 included a clause 12, which stipulated an arbitration agreement. When the mill’s construction and installation was done, T.S. Manufacturing claimed about $36,000.00 for services rendered from Pro Folia and Ribeyron. At this, Pro Folia submitted a request to appoint an arbitrator, pursuant to Clause 12.

The present case is about T.S. Manufacturing opposing this commencement of arbitration proceedings. T.S. is claiming that the Clause 12 mechanism was not intended to cover any other disputes arising out of the contract other than those that could have arisen during the construction, installation and starting-up of the mill. Ribeyron/Pro Folia claims that the Clause was meant to cover ALL disputes arising out of the contract. Since the dispute at issue is over money claimed by T.S. Manufacturing, T.S. claims it is not covered by Clause 12 while Ribeyron/Pro Folia claim it is.

The plaintiff is asking for 1) Declaring Clause 12 to be an invalid/non-binding arbitration agreement; 2) declaring arbitration proceedings initiated by Pro Folia’s request for the appointment of an arbitrator ILLEGAL and to permanently stay them.

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Issue: What is the ambit of Clause 12? Is it a valid arbitration agreement?

Held: No. Clause 12 does not meet the legally dictated conditions for a valid arbitration agreement.

Reasoning: CCQ 2638-2643 lay out the rules making a valid arbitration agreement. The arbitration agreement in Clause 12 not only refers to both mediation and arbitration, but also most importantly does not set out a PROCEDURE for the two-step mediation-arbitration DR process set out in the clause.

CCQ 2368 sets out that arbitration agreements are real contracts, and as such are based in the free will of parties capable of engaging and binding themselves to obligations towards each other. As such, the juridical value of an arbitration agreement can be nullified if there is any vitiation of consent, or if it is somehow contrary to public order. Therefore, the validity of an arbitration agreement depends on following the written legal rules (CCQ) AND on whether it respects fundamental justice (i.e. preserves for the parties the same procedural guarantees and access to justice as they would have in a court proceeding).

There are four conditions that an arbitration agreement must meet to be valid:1) it is between parties capable of making a contract, “porte sur un objet et a une cause”2) arbiter provided for is independent and impartial3) respects and preserves natural justice principles4) there is no possibility of contravening public order rules or provisions

Independence and impartiality of arbiter:

Further to this clause, the same person would act as mediator AND arbitrator.

**Comments on the nature of mediation:Mediator helps parties to find their OWN solutions to the problem by encouraging compromise and discouraging conflict. His role is shaped by the will of the parties, who can exit the process at any time (while arbitration BINDS them) and he has access to potentially sensitive information and the ability to comment on the justness of each party’s complaint.

Mediators need to be able to see where bridges between the parties are missing and create them, in order to prevent/extinguish conflict by foreseeing impasses and preventing them. Mediators seek to induce parties to find their own solution, by assisting them in coming up with possible solutions that fit their individual interests and then helping them compromise, rather than dictating a solution.

The mediation process can turn into a quasi-judicial process, where the mediator takes charge and dictates a solution if the mediation fails before the established deadline.

There is no guarantee that playing the two roles would lead to partiality and lack of independence, but the possibility is sufficiently worrisome. This situation is sufficient to vitiate the juridical quality of the arbitration agreement, and thus its validity.

Lack of sufficiently specific formulation:

The Court of Appeal has said that if a clause is imprecisely formulated, its interpretation that favors the resolution of the dispute in the courts will prevail. It also stated that arbitration agreements must be formulated clearly to make it clear that the parties agreed to exclude recourse to the courts in favor of arbitration.

Peremptory circumstances that show intention to exclude recourse to arbitration

If Clause 12 procedure is interpreted as an arbitration agreement, the set-up of the situation would result in the plaintiff company NOT being able to revendicate all its rights just through the arbitration, and having to go to court for a part of them, which would defeat the entire of purpose of having an arbitration agreement. This would make the interpretation of Clause 12 as an arbitration agreement not be possible.

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Extra-judicial Dispute ResolutionProf. Frederic BachandAs a result of the above, the arbitration agreement is not valid and does not tie the parties with regards to the case at issue (dispute over moneys owed).

POINT: There are four conditions that an arbitration agreement must meet to be valid:1) it is between parties capable of making a contract, “porte sur un objet et a une cause”2) arbiter provided for is independent and impartial3) respects and preserves natural justice principles4) there is no possibility of contravening public order rules or provisions

Comment: two different issues: the LEGALITY of the dispute resolution process provided for in the K, and the DESIRABILITY of resorting to such a process in practice.

Evans v. State of Florida

Facts: Evans, lawyer for Antonucci, agreed to engage his client in a mediation attempt by the trial judge in a suit against Ted Williams, and agreed to not seek recusation of said judge for acting as a mediator. When the mediation failed to produce a settlement, Evans DID seek to disqualify the judge from conducting the trial, based on some comments made during the mediation which showed the judge was biased against his client and would thus potentially be partial in the trial. Judge cited Evans for direct criminal contempt and found him guilty. Evans is appealing.

Issue: Whether his agreement not to seek to recuse judge also covered comments made during the mediation, thus making him guilty of direct criminal contempt.

Held: The agreement must be interpreted to ONLY cover the judge acting as a mediator, and not any comments he may have made in the mediation.

Reasoning: Evans was NOT in breach of his agreement not to recuse, because the recusation motion was based on a subjective fear of his client’s that the trial judge was biased against him as a result of comments made during mediation, NOT on the actual fact that the judge engaged in mediation. Since the testimony of both Antonucci and Evans as to that subjective fear cannot be impeached or challenged in any way, it must serve to indicate that the reason for the motion is indeed that subjective fear and NOT the judge’s acting as a mediator, because testimonial evidence on a pivotal issue that is not impeached or challenged cannot be disregarded.

POINT: While you can agree to have a person act as both judge and mediator, this argument is a fallacy: the functions of a mediator and judge are completely different. A mediator encourages settlement, can conduct ex parte proceedings, approaches different parties differently, and does not decide the case so parties will feel free to discuss ramifications of settling particular dispute as opposed to litigating it. A judge’s role is to decide the dispute consistently with established rules of law. As a result, a different person (even another judge) than the judge assigned to litigate the case should mediate.

Comment: This case also shows the potential undesirability of hybrid processes.

C. EXTRAJUDICIAL DISPUTE RESOLUTION AND THE STATE: SUSPICION, ACCEPTANCE, PROMOTION

It is generally understood and accepted that States now accept and even promote EDR, despite some commentators’ doubts to this end. What are the ADVANTAGES and DISADVANTAGES of promoting EDR?

States’ position vis-à-vis EDR used to be one of suspicion/hostility.

Non-adjudicative processes: undertakings to mediate were not given effect

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while settlements were considered binding, it wasn’t particularly easy to have them enforced by courts (where opponent refused to abide by settlement agreement)

Arbitration:CML jurisdictions:

undertakings to arbitrate future disputes were REVOCABLE (see Zodiak, see Castle and Carrington article); only if parties re-agreed to arbitrate once a dispute arose were they bound by their agreement

courts reviewed awards on issues of law: process was binding on factual determinations by arbitrators but NOT on arbitrators’ application of the law, because courts wanted the last word on the application of the law

CVL jurisdictions: suspicion towards arbitration was even more powerful undertakings to arbitrate future disputes were CONTRARY TO GOOD MORALS AND PUBLIC

ORDER: right to have access to court was so important that it was not possible to give up that right in an agreement to arbitrate future disputes

furthermore, valid arbitration agreements were to be construed NARROWLY (in contrast, the Desputeaux case’s interpretation of the valid arbitration agreement shows that, NOWADAYS, completely abandoned such suspicion towards arbitration and promotes it fully)

Today, the view is one of acceptance of legitimacy of EDR

Most legal systems now accept that EDR processes are generally speaking, legitimate means of dispute resolution. Most legislatures have essentially abandoned traditional suspicion/hostility.

An example of the shift from suspicion to acceptance: Zodiak case.

Zodiak International Productions Inc. v. The Polish People’s Republic

Facts: Zodiak was selected by Film Polski (state enterprise from Poland) to distribute Polish films in Canada. (YES!) They made a k containing an arbitration clause: “...if arbitration is commenced by Zodiak, it shall take place in Poland and under the Rules of the Arbitration Court of the Polish Chamber of Foreign Trade in Warsaw...and if arbitration is commenced by Film Polski, it shall take place in US under AAA rules”. A problem arose and Zodiak applied to the Court of Arbitration at the Polish Chamber of Foreign Trade. The Court did not award any money to Zodiak and instead allowed damages for the counterclaim of the respondent. As if nothing had happen, Zodiak initiated an action at the Superior Court based on the same cause of action.The issue now in front of the court is a declinatory exception invoked by Film Polski re Superior Court has no jurisdiction (ratione materiae). The Superior Court held that the arbitration clause “was not a complete undertaking to arbitrate”, but merely a “so-called condition precedent arbitration clause” and did not affect the jurisdiction of the Superior Court. The Court of appeal reversed that decision and said that “this type of clause is now valid in Qc law” and that “its effects are to remove from the ordinary courts of law any issue arising out of obligations resulting from the k”. Zodiak then submitted that a complete undertaking to arbitrate is invalid in Qc.

Decision: Appeal is dismissed, the arbitration clause is upheld (complete undertaking to arbitrate is valid).

Reasoning:

1. The Validity of a Complete Undertaking to Arbitrate in Qc LawA complete undertaking to arbitrate is different from a “condition precedent” arbitration clause; the latter requires trying arbitration before going to courts. Before the reform of the Code of Civil procedure (1966), such a clause would be deemed invalid. A new article allowing such clauses was added in 1966. This rendered complete undertaking arbitration clause valid. The Court then cites some jurisprudence (QC CA) that corroborates that view. But a certain controversy remains in part because of previous SCC decisions. But those decisions were based on the old Code of procedures. Any argument based on public policy considerations is negated by the clear intention of the legislator.

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Extra-judicial Dispute ResolutionProf. Frederic Bachand2. The Nature of the Undertaking to Arbitrate Stipulated in the K at BarThe clause in the present k is valid. The CPC contains no provision as to the form it should take. Language used is clear: “shall”.

3. The Lateness of the Declinatory ExceptionIf you challenge the ratione personae jurisdiction, it must be raised within 5 days of the expiry time to appear – here, the declinatory exception raised by Poland was done 7 years after! If the challenged jurisdiction was the ratione materiae one, there is no such time limit. The question is: the present contestation of jurisdiction of the Superior Court is a contestation of ratione materiae or ratione personae?The answer is ratione materiae, so the issue can be raised at any stage of the dispute. We do not look at the merits of the case. In the case of an undertaking to arbitrate which remove a court’s jurisdiction, the court cannot enquire into the merits of the contestation of an arbitration award. Otherwise, as in the present case, a party not satisfied with an arbitration award could ignore the under the arbitration award and proceed the usual way, and if its opponents did not file a declinatory exception in 5 days, it would be as there was not undertaking to arbitrate.

Issue in class: seen as part of evolution of states’ position vis-à-vis EDR – this case marks the end of the suspicion period towards arbitration clauses and confirms the movement initiated by the CPC reform in the 60s.Comments:

Main point in Zodiak: this case is the turning point in Canada/QC where the full shift from hostility to acceptance of arbitration takes place.

A contract between private institution and an organ of a state (Poland), contains a clause to the effect that parties will, in the case of a dispute, remove themselves from court to a private adjudication.

“Any controversy or claim arising out of or relating to this Agreement, or any breach thereof, shall be settled by arbitration and judgment upon the award resulting from such arbitration may be entered in any Court having jurisdiction thereof (…)”

When dispute DOES arise, Canadian institution completely overlooks arbitration clause and sues in Canadian court. This is a problem, because, by doing so, the Canadian party is purportedly breaching the arbitration clause they bound themselves to.

ASIDE: As well, rightly or wrongly, justice will not be seen to be done if one party is forced to adjudicate in a foreign court. This is the reason why most international contracts have arbitration clauses.

Other reasons for what the added incentives are in an international transaction to have arbitration instead of litigation:--less flexibility in formal court systems --jurisdictional certainty--better enforceability (New York Convention)

When the Polish entity receives the action by the Canadian party, they challenge the judge’s discretion on the basis of the arbitration clause.

Even as late as the mid 1960s, the SCC had ruled that arbitration clauses were unenforceable as contrary to public policy. In Quebec, subsequent to that decision in the 1960s, National Assembly moves to modify CPP to make such clauses enforceable, to modernize the law a bit. But, even as late as the 1980s, enforcing such clauses was still controversial in Quebec courts (said that NA changes were not clear enough).

POINT: Zodiak put an end to this era of hostility and uncertainty by ruling that arbitration clauses were NOT against public policy, and parties should be allowed to bind themselves to private arbitration. SCC also ruled that NA changes were clear, and this meant that QC court should enforce such clauses without hesitation.

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Extra-judicial Dispute ResolutionProf. Frederic BachandIn Canada today, not only have judiciary and legislature gone past hostility to acceptance, but it can be argued that they have started to actively PROMOTE EDR.

Therefore, a third step: today, the trend is actually toward active promotion of EDR by State

Examples of this include:

1) The free judicial mediation services programs and mandatory extra-judicial mediation programs: State is saying that yes, there is access to public adjudication system, but you need to try to settle first. This arguably serves the purpose of potentially deterring some litigants (trigger happy) or solving disputes before going to court, and thus reducing the court’s workload.

2) Desputeaux case is an example of court promoting the use of arbitration . Arbitration, while accepted, will be limited if it is found to be against public policy. In this case, the scope of public policy was NARROWED, showing a bias towards encouraging the use of arbitration (i.e. smaller PP, more arbitrations are possible). The scope of PP was narrowed by the SCC saying that, no, adjudicating copyright OWNERSHIP disputes in arbitration is NOT against public policy.

The case adopts a very arbitration-friendly philosophy: they interpret the s. 37 Copyright Act jurisdictional provision by saying that analysis is “arbitration is always authorized and possible UNLESS SPECIFICALLY PROHIBITED BY LEGISLATURE” not “arbitration is only authorized if it is specifically provided for by legislature”. Therefore, SCC takes a very pro-arbitration view in making this interpretation: “we have to interpret statutes with arbitration in mind, putting the burden on the legislature on the legislature to exclude it if necessary”. The decision therefore provides further evidence of the state’s promotion of EDR.

Desputeaux v Editions Chouette (1987) Inc.

Facts: D (who drew the illustrations) and C (who published the illustration) entered into contracts relating to the publication of illustrations of Caillou, including a contract licensing the use of the character and a rider. Faced with difficulties in respect of the interpretation of the application of the license contract, C brought a motion to secure recognition of its reproduction rights.

To counter, D brought a motion for declinatory exception seeking to have the parties referred to an arbitrator to deal with the issue brought forth by C in his motion. Such a declinatory exception is provided for in s. 37 of the Act respecting the professional status of artists in the visual arts, arts and crafts and literature and their contracts with promoters.

The Superior Court found that the contract was not an issue and that there were no allegations in respect of its validity, referred the case to arbitration (D wins). Then, the arbitrator finds that C does hold the reproduction rights (D loses). As a result, D files another motion to annul the arbitration award, but Superior Court quashes his motion (D loses, arbitration award stands). The Court of Appeal reverses that judgment (D wins, arbitration award quashed).

Issue: Was there anything that could have warranted the annulment of the award? Did he make any errors that would permit the annulment of the arbitration award?

Held: No. Arbitrator acted in accordance with terms of reference and made no errors that would permit annulment of the arbitration award.

Reasoning: 1) Arbitrator acted in accordance with terms of reference:

The parties to an arbitration agreement have virtually unfettered autonomy in identifying disputes that may be subject of arbitration proceeding. In this case, the only limitation on the arbitration is the Superior Court’s first judgment, which limits the arbitrator’s jurisdiction by removing any consideration of the problems relating to the validity of the agreements before him.

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Extra-judicial Dispute ResolutionProf. Frederic BachandIn addition to what is expressly set out in the arbitration agreement, the arbitrator’s mandate includes everything that is closely connected with that agreement. Here, the question of co-authorship was intrinsically related to the other questions raised by the arbitration agreement.

**VERY IMPORTANT**:S. 37 of the Copyright Act does not prevent an arbitrator from ruling on the question of copyright. Its objectives are to 1) affirm the jurisdiction of the provincial courts in respect to PRIVATE LAW MATTERS concerning copyright and 2) avoid fragmentation of trials concerning copyright that might result from the division of jurisdiction rationae materiae between the federal and provincial courts in this field. It is not intended to exclude arbitration, because it is sufficiently general to include arbitration procedures created by a provincial statute.

2) Arbitrator made no errors that would permit annulment of the award: D has not established a violation of the rules of natural justice during the arbitration proceeding.

The arbitration award is not contrary to public order. Except in certain fundamental matters referred to in article 2636CCQ an arbitrator may dispose of questions relating to the rules of public order, since they may be the subject matter of the arbitration agreement. Public order arises primarily when the validity of an arbitration award must be determined. An error in interpreting a mandatory statutory provision would not provide a basis for annulling the award as a violation of public order, unless the outcome of the arbitration was in conflict with the relevant fundamental principles of public order. Court of Appeal erred in holding that cases involving ownership of copyright may not be submitted to arbitration because they must be treated in the same manner as questions of public order, relating to the status of persons and rights of personality. Copyright as represented in the Copyright Act is removed from questions relating to public order issues of status and capacity of persons, because CA is primarily concerned with the economic management of copyright. Furthermore, s. 37 of the Act respecting the professional status of artists, etc. recognizes the validity of using arbitration to resolve disputes involving transactions involving copyright.

The arbitral decision is authority between the parties, not binding on third parties, and thus a bar to the arbitration proceeding. The Court of Appeal’s finding to the opposite effect is erroneous.

Public order will only be relevant to the validity of an award in terms of the determination of the overall outcome of the arbitration proceeding. Adopting a standard of review based on a simple review of any error of law made in considering a matter of public order means applying an approach that is fundamentally counter to principle of the autonomy of arbitration and that extends judicial intervention at the point of homologation or an application for annulment of the award well beyond the cases provided for in the CCP.

POINT: In order for a court to annul a valid arbitration agreement, either the arbitrator must act outside of his set terms of reference (i.e. jurisdiction) OR violate the rules of natural justice/public order. In this case, neither had been the case, therefore the award remained valid.

3) evolving ethical duties of lawyers : “Whenever the case can be settled reasonably, the lawyer should advise and encourage the client to do so rather than commence or continue legal proceedings. The lawyer should consider the use of alternative dispute resolution (ADR) for every dispute and if appropriate the lawyer should inform the client of the ADR options and if so instructed take steps to pursue those options.” (CBA Code of Professional Conduct)

Does this mean that public adjudication is being increasingly seen as a subsidiary dispute resolution process, the process to which parties should turn when all else has failed? Is this a good thing? Does it make sense for the state to be involved in a policy of promotion of EDR that is changing the very nature of state adjudication?

Advantages of State promotion of EDR:

These are private disputes we are talking about: we are not obliged to vindicate any breach of a right. State promotion of EDR makes sense in the context of party autonomy.

It also helps resolve the backlog problem in courts.

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Disadvantages of State promotion of EDR:

1) Trend of state promotion of EDR to the detriment of courts misconceives public adjudication, in that it treats it as being primarily/solely geared towards resolving disputes. However, courts also have as their function to MAKE LAW, INTERPRET statutes, build the evolution of the law: clarify, develop and adapt the law. Still, in practice, there are so many cases that still come before judges that they don’t have enough time to properly perform clarification, development, adaptation functions: therefore, less work for judges will allow them to perform these functions better.

There is however the worry that if major/important cases get adjudicated privately, the deterring effect of court judgments is lost (i.e. product safety cases). Public adjudication is a chance for the state to impose a deterrent.

2) Trend of promotion of EDR might lead to peace (=dispute is resolved) without justice. Settlement is desirable but only in cases where parties are on relatively equal footing re resources/access to info. When this is not the case settlement can actually be even less fair/just than public adjudication. Weaker parties are usually thus coerced into unfair settlements.

In this sense, States have it all wrong: instead of promoting settlement (as an alternative to “inaccessible” public adjudication), they should strive to reduce influence of disparities re resources/access to information in public adjudication, since weaker parties will be at a disadvantage in context of settlement, mediation, adjudication (public AND private)!!

Moreover, the choice of the “inaccessible” court (as long as it is SOMEWHAT accessible) is still better than settlement for weak parties, since at least they will have the procedural protections and the protection of the judge!!! As a result, it would bring more justice to increase accessibility to the court system than to just throw everyone in settlement proceedings!

It is also interesting to contrast states’ current view of EDR (very different than before, much more welcoming) with some critics’ points as to why the contemporary movement towards embracing EDR is not necessarily good (see Fiss).

However, Bachand thinks that Fiss is not necessarily looking at the situation properly: his attacks are on mediation in general, not on mediation where the parties are unequal, which is the actual problem. Again, therefore, the issue is NOT that mediation itself is bad, but that it is prone to result in unfairness if one party is weaker than another. By being so pro-EDR, instead of working to reduce the influence of disparities in order to make the system more accessible to more people, states are promoting potential injustice through mediation, in cases where one party is weaker. As a result, if they were to focus more on making public adjudication, with its higher protections for weaker parties, more available, this could potentially mitigate this tendency of mediation to disadvantage weaker parties.

O.M. Fiss, “Against Settlement”

ADR is all about negotiation and mediation to avoid going to trial, but also about new ways to facilitate and pressure parties into settling cases that have already gone to trial. In general, adjudication by courts is seen as what happens when social relations break down between two parties, and thus settlement of the dispute is seen preferable, as it signifies the maintenance of those social relations, it rests on the consent of the parties and it avoids the costs of a lengthy trial.

Thesis: The author disagrees with the perception of settlement of disputes as preferable to adjudication before the courts, and that, as a result, settlement should be institutionalized on a wholesale and indiscriminate basis.

Author considers settlement the equivalent in civil adjudication to plea bargaining in criminal adjudication: it does not offer the same procedural and justice guarantees as a trial and should simply be treated as a highly problematic technique for streamlining docks.

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Extra-judicial Dispute ResolutionProf. Frederic BachandWhy is settlement problematic as a replacement of adjudication?

a) Lack of mechanisms to counteract the fact that parties are NOT equal in power:--proper consent to a settlement is also a function of the resources available to each party to go to litigation: the less resources, the less REAL is any consent given to settle; as such, settlement will be at odds with a conception of justice that seeks to make the wealth of the parties irrelevant--disparities in resources can influence settlement in three ways:1) poor party=less able to amass and analyse info needed to predict outcome of litigation and thus will be disadvantaged in the bargaining process2) poor party may need damages he seeks immediately and thus be induced to settle as a way of accelerating payment3) poor party may be forced to settle because he does not have the resources to finance the litigation, cover his expenses or expenses opponent may seek to impose through procedural mechanisms such as discovery.--institutional arrangements such as contingent fees or provision of legal services will likely not equalize resources: for a plaintiff, it will just make him vulnerable to willingness of the system to invest in his case; for a defendant, there is no recourse to such a thing as a contingency fee.--imbalances of power can distort judgment as well: resources influence the quality of the presentation, which influences who wins and the terms; in settlement, there is no guiding presence of the judge, who has means at his disposal to reduce the impact of the distributional inequalities.

POINT: Settlement is based on bargaining and accepts inequalities of wealth as an integral and legitimate component of the process; judgment knowingly struggles against those inequalities.

b) Lack of mechanisms to ensure that consent, the core of the appeal of settlement, is real and authoritative:--despite the assumption that contestants in the settlement process are individuals who each speak for themselves, the reality is that individuals are often ensnared in contractual relationships that impair their autonomy--there are procedures for identifying the person with authoritative consent, but they are imperfect: they are designed to facilitate transactions between the organization and outsiders, rather than to insure that the members of the organization in fact agree with a particular decision, and do not eliminate conflicts of interest--procedures for identifying the holder of authoritative consent in government agencies are even less perfect--furthermore, contestants in a settlement may be groups who may have an identity or existence that transcends the lawsuit but they do not have any formal organization structure and therefore lack any procedures for generating authoritative consent; while the Federal Rules of Civil Procedure require groups to have a representative, this person receives his power by self-appointment or, if dealing with a defendant class, by appointment by an adversary=> there is a high chance that the representative so designated will NOT hold authoritative consent!--while judgment does not eliminate the risk of unauthorized action, it does not ask as much of the representative: judge tests anything representative says or does against independent procedural and substantive standards, so what representative does/says does not dictate outcome.--procedures that have been devised for policing the settlement process when groups or organizations are involved have not eliminated the difficulties of generating authoritative consent (see p 301, Tunney Act, Rule 23)

POINT: Cannot have settlement as described (=result of free consent of two parties) if there are no mechanisms in place to ensure that the consent is proper.

c) Lack of a foundation for continuing judicial involvement--judgment is not the end of a lawsuit, and the involvement of a court may continue indefinitely, as parties may sometimes be locked in combat with one another and view the lawsuit as only one phase in a long continuing struggle (see divorces followed by custody and support battles); in these cases, settlement cannot provide an adequate basis for that necessary continuing involvement and thus is no substitute for judgment--structural reform cases where courts must oversee and manage remedial process for a long time are another example of when there is continuous judicial involvement and thus settlement is inadequate (ex. Desegregation, antitrust)--when there is a settlement in the types of cases where there is continuous judicial involvement (eg. Continuous struggle, reform of bureaucratic organization), inevitably one party returns to court and asks for modifications of the settlement but the judge has no basis for this reassessment: he cannot rely on a previous assessment (a

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Extra-judicial Dispute ResolutionProf. Frederic Bachandjudgment) and must reconstruct the situation as it existed at the time of the settlement, in order to see if conditions have sufficiently changed to warrant a modification. This is an absurd exercise, according to the author.--settlement also impedes enforcement because the contempt power doesn’t apply: courts do not see a mere bargain between the parties as sufficient foundation for the exercise of their coercive powers--sometimes the agreement of the parties extends beyond terms of the settlement and includes stipulated “findings of fact” and “conclusions of law”: even assuming that the consent is freely given and authoritative, the bargain is at best contractual and does not contain the enforcement commitment already embodied in a decree that is the product of a trial and the judgment of a court.

POINT: Settlement does not account for the fact that sometimes, to fully resolve a dispute, continuous involvement rather than just a one-time resolution is necessary.

d) Settlement aims to bring only peace in the dispute, rather than also justice in that peace--the function of courts is not to maximize ends of private parties, nor simply to secure the peace, but to explain and give force to the values embodied in authoritative texts such as the Constitution and statutes, to interpret those values and bring reality into accord with them--author argues that when parties settle, society only gets less than what appears, and for a price that it does not know it is paying: parties’ settlement might leave justice undone, might settle for something less than what is just/ideal.--avoidance of having to ensure justice has advantages: masks society’s basic contradictions, devotion to public ends (certiorari writs)--avoidance of having to ensure justice has clear disadvantages: injustices crying out for correction are not rectified; author argues that accepting this disadvantage is unacceptable because we have to protect the system’s deepest ideals and be prepared to turn the world upside down to bring those ideals to fruition

POINT: Justice as an end of dispute resolution is important and must be protected and promoted; settlement is not capable of doing this and, as such, is an inadequate alternative to judgments.

The Real Divide between settlement and judgment adjudication:--author responds to critics’ arguments that his contention that settlement is not an appropriate alternative only applies to very few cases1) at least one of the four criteria presented above will be an issue in a majority of cases, therefore the argument that settlement is not a preferable solution will apply widely2) because cases are not of equal importance (desegregation v a car accident claim) and do not consume the court’s resources at the same rate, proponents of settlement must demonstrate the propriety of settling those important bigger cases that provoke far greater challenges to judicial power--nor does it make sense to try to sort cases into those where settlement is preferable and where it is not1) it is impossible to formulate adequate criteria for prospectively sorting cases: the problems of settlement are not tied to the subject matter of the suit but rather to factors that are harder to identify (wealth of parties, likely post-judgment history of the suit, need for an authoritative interpretation of the law)2) it is unlikely and undesirable to withdraw jurisdiction: many fo the factors that bring social relationships that are otherwise wholly private (i.e. marriage) within the jurisdiction of a court (imbalances of power, interests of other parties) are also going to make settlement problematic--ADR proponents do not make an effort to distinguish between different types of cases or to suggest that “ gentler arts of reconciliation and accommodation” might be appropriate for one case but not another: the divide between proponents and opponents of settlement as a preferable alternative stems from a different understanding of civil lawsuits and their place in society1) proponents see adjudication in essentially private terms: the purpose of lawsuits and courts is to resolve disputes2) opponents see adjudication in more public terms: civil litigation is an institutional arrangement for using state power to bring recalcitrant reality closer to our chosen ideals

MAIN POINT: Proponents of settlement as preferable ignore the importance of public, interpretative function of courts, which settlement cannot fulfill.

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Extra-judicial Dispute ResolutionProf. Frederic BachandB. Oppetit, “Theorie de l’arbitrage” pp 19-39

pp.19-39 LegitimitéIs there room in the justice system for private justice? What form could / should arbitration take? - It is clear from that there is a fundamental right to have access to court and that this right is constitutionally

protected. But can this right be exercised only in front of a public judge or can it be fulfilled through recourse to private judge?

- Where justice is based on an authoritarian model there is very little room for EDR. Judges function is highly specialized and determined by the state. Justice is a public service.

- Where justice is based on the liberal model – there is no sense that the state has a monopoly on justice and it is recognised that individuals should have be free to decide how they will deal with their own disputes.

- There are also mixed systems which recognise the freedom of parties to choose from different forms of dispute resolution while at the same time regulating and limiting these alternative forms.

- Contemporary understandings of justice focus on justice as a public good rather than a public service. It makes sense then the market economy would make alternative and private forms of justice available.

Two thesis re – the relation btwn arbitration and the courts1) Antagonism – This stresses the “otherness” of arbitration, suggests that arbitration “steals” cases from the

courts. 2) Distinct but complementary – same ideal of justice, just a different form. - Justice was at one time seen as derived and representative of the state, above the people rather than from the

people. This view undermined the contractual nature of justice. Eras of positivism and “étatisme” - Modern understanding of justice – rapprochement of arbitrational justice and state justice. - Arbitration is no longer seen as just a contractual, even though this is how it originates, it’s jurisdictional

nature is also recognised.- As well the state judge is no longer canonized in the role of blind servant of the law as Napoleon,

Montesquieu illustrated him.

- EDR and resorting to the crts both function around certain common principles ex – equality btwn the parties, principe de la contradiction etc (basically the principles of natural justice)

- Then there are the technical principles which vary btwn the two forms of dispute resolution. Where do the differences btwn the two forms arise?1) Place de la juridiction: - traditional processes are based on a hierarchy of jurisdiction- EDR = autonomy of jurisdiction. This means that the arbitral judge has authority in terms of the thing judged

but has no power over execution of the decision. Arbitration does not lead to public disclosure. Because arbitration is not part of public service, there is no legal aid or financing avail.

2) L’origine de la fonction juridictionelle: Arbitration originates from the will of the parties. - Since the public judge has general investiture, only their competence will be questioned, while the investiture

of the arbitrator can itself be contested. - Also brings up questions re- ensuring the independence of arbitrators. - The contractual nature of the arbitration agreement makes the role of arbitrator unique – they are almost like a

mandatory – very specific role / duty.

Article then goes through ADR and how theses processes differ from arbitration. Details as well the popularity of mediation and conciliation. - Mediation can lead to laxity. It does not contribute to the value of the rule of law in business matters. - Mini-trial: Step 1 – Examination of the issues in dispute in the presence of representatives of both sides. There

may also be a neutral adviser. Just gives advice on procedural aspects. 2) Then the parties discuss / debate and try to reach an agreement.

P.D. Carrington and P.Y. Castle, “The Revocability of Contract Provisions Controlling Resolution of Future Disputes Between the Parties”

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Extra-judicial Dispute ResolutionProf. Frederic BachandRevocability Rule: Contract provisions controlling the resolution of future disputes between the parties, which are formed in contracts of adhesion, should be revocable, at least until a dispute to which they purport to apply has been submitted in writing to the specified forum or procedure.

FAA 1925 abrogated the revocability rule, explaining its existence as stemming from federal CML governing K disputes brought as diversity cases, and the USSC has expanded the applicability of arbitration to many K contexts where revocability rule would make much better sense.

THESIS: This article will explain the real policies served by the common law revocability rule and suggest the rule’s revival for application in many of the Ks that the USSC has expanded application of the FAA to.

Revocability in the English Common Law Tradition:

Medieval English courts generally did not enforce arbitration agreements: they were deemed to be private arrangements for which there was no enforcement authority other than the personal authority of the parties to the agreement.

Vynior’s Case 1609 was the first major expression of the doctrine of revocability. Vynior’s complaint alleged that the bond given to him by Wilde had been so given to insure his compliance with an arbitration agreement covering disputes between the two, but that Wilde had revoked Vynior’s authority to submit the dispute to arbitration in violation of their agreement to stand and abide the award. Lord Coke decided that the submission to arbitration (i.e. the arbitration agreement itself) was revocable but such revocation came at the price of the forfeiture of the bond.

However, Lord Coke did not explain the policies behind his revocability doctrine: some proposed ideas have been the idea of agency (but, as Prof Sayre concluded, the arbitrator/agent, to whom authority is granted, is not under an obligation to further the interests of the principal once parties submit to arbitration), the concept of delegated powers (which does not explain why arbitrator could not be an exception to this rule, and therefore irrevocable). Author argues that the purpose underlying Lord Coke’s revocability doctrine was that the rule served to insure the disinterest of arbitrators: because of the nature of the office of the arbitrator, the only substantive constraint on an arbitrator’s license resided in each party’s ability to revoke his authority. Historically, given the nature of the guild context in which arbitration first developed, revocability also made sense as necessary to avoid one or a minority of members being marginalized and denied access to proper justice in the process of arbitration by the other members of his guild.

In the 18th century, however, Scott v Avery (1856) and other cases attributed the doctrine of revocability to courts’ jurisdiction envy. While this interpretation remained unchallenged for a long time, courts showed no unwillingness to enforce awards or arbitration agreements, as would have been likely if it really was a case of jurisdiction envy. The decision in Vynior’s case itself showed that English courts were willing to enforce an arbitration agreement, under properly confined circumstances, therefore revocability doctrine was not motivated by jurisdiction envy.

Revocability in the 19 th century US

Belief that US support of revocability doctrine during 19th century was due purely to jurisdictional jealousy is unfounded, as was the case in England: US courts have ALWAYS embraced arbitration agreements when freely chosen by the parties.

Home Insurance Co. v. Morse (1874) ruled that someone may omit to exercise his right to remove his suit to a Federal court, but he cannot bind himself in advance by an agreement which may be specifically enforced, and thus forfeit his right to go to court at all times and on all occasions, whatever the case.

Tobey v County of Bristol stated that an agreement for an arbitration is, in its very nature, revocable, and cannot be made irrevocable by any agreement of the parties.

Both Morse and Tobey illustrate US firm acceptance of the doctrine of revocability. This acceptance was most likely based on a perception by US courts that there is no such thing as genuine mutual consent to a predispute

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Extra-judicial Dispute ResolutionProf. Frederic Bachandarbitration agreement and that there is a clear and present danger that the strong could always trap the weak in a predispute arbitration agreement that is to their disfavor, to secure enforcement of unfair contracts: revocability doctrine would prevent all this.

Statutory developments in England

1698-1889: legislative enactments through which parliament sought to strengthen the enforceability of arbitration agreements (see p 276) By 1889, the common law doctrine of revocability had been put aside in England, but with increasingly stringent protections for the parties’ rights in the arbitration proceedings. As the enforcement of revocability retreated, the statutory requirements of procedure progressed to take revocability’s place in safeguarding against improper conduct in arbitration proceedings.

This development (arbitration focus, pull away from revocability) developed in a political context very different than in US: royal UK courts were in business to resolve disputes, not regarded as enforcers of public law and policy as US courts were, even in the 19th century.

Legislation in the US

Legislation in the US followed a course similar to that in England, but it did not provide for judicial review of legal decisions made by arbitrators. As the communitarian sanctions that originally controlled commercial disputes, arbitration clauses needed to be made irrevocable in cases where the arbitration agreement was freely entered into by equal parties. By 1920, widespread effort was made to modify arbitration laws in all states to secure better enforcement of agreements to arbitrate future commercial disputes. This process was driven primarily by those engaged in interstate trade.

However, a fierce long-standing debate ensured as to whether it was wrong to bind people to arbitration agreements for disputes yet to occur. As a result, the Uniform Arbitration Act 1925 did not provide for the enforcement of agreements to arbitrate future disputes. Even when “modern” arbitration UAA’s replaced it, a merchant seeking to evade an arbitration agreement could find refuge through the federal admiralty or diversity jurisdictions.

An important difference between English and US law is that US arbitrators have no duty to resolve a dispute in compliance with the law applicable to the dispute and the parties’ rights according thereto. Much of US commercial arbitration is ex aequo et bono: a resolution is sought that is equitable, minimizes harm to either party and enables potential adversaries to maintain a valuable commercial relationship.

Finally, the Supreme Court’s push of the FAA has resulted in an epidemic of arbitration clauses in contracts of adhesion which have not only stripped the weaker parties in those contracts of their substantive rights, but also of their opportunity to enforce public law (in court) as contemplated by federal and state statutes.

Revival of the Revocability Principle:

The authors propose that the revocability principle should be revived with regards to adhesion contracts. The first reason for this is that such contracts are not even agreements in the moral sense on which the law of contract rests. The second reason for this is that the integrity of the arbitration process is at issue when a weak party is brought before an arbitration created pursuant to a contractual text dictated by her adversary.

State courts have acknowledged the applicability of state K law to determinations of whether an arbitration agreement has in fact been reached, allowing them to hold numerous arbitration clauses unconscionable. This is usually not enough, leading to developments such as the Hatch exemption from the FAA in the Automobile Dealers’ day in Court Act: inserted principle of revocability in the Act in relation to franchise agreements dictated by automobile manufacturers. Strangely enough, the same exemption was not even considered re the K relationships between automobile dealers and their customers!!

POINT: Resurrection of the revocability principle would not mean the end of arbitration in any of the circumstances in which private dispute resolution is usefully employed, but only the end of clauses now deemed unconscionable (like in Ks of adhesion) and of many that are barely deemed conscionable.

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D. EXTRAJUDICIAL DISPUTE RESOLUTION IN CONTEMPORARY PRACTICE

N. Antaki, Le réglement amiable des litiges pp. 232 – 238

- Article goes through a bunch of studies that have been conducted on EDR and presents general findings. The purpose is to see what trends exist in the US b/c Que seems to be following the American model.

Deloitte & Touche Survey- Frequent users of EDR prefer mediation over arbitration. Moderate users showed no preference

btwn mediation and arbitration. - The 2 biggest reasons for preferring EDR were cost and efficiency. Confidentiality was surprisingly

not seen as that important (came in second last). - EDR is not seen as a good approach if one of the parties is hostile. - Monetary savings: EDR saved the majority of respondents btwn 11 – 50% of what they would

otherwise have spent on litigation. Price Waterhouse Survey

- Pretty much the same findings as above- 147 out of 170 corporations put arbitration clauses in over 50% of their Ks. 156 out of 167 put

mediation clauses in over 50% of their Ks. 159 out of 165 put in med-arb clauses. Cornell and Price Waterhouse Joint Survey

- Confirmed the growth of EDR by large corps. 88% used mediation, 79% arbitration. However only 41% used med-arb and only 23% the mini-trial.

- Mediation is becoming more popular than arbitration. - Sm corps are more likely to go to crt, while lrg, multinational corps are more likely to make use of

EDR processes. Objectives sought by corps using EDR processes:

1) Controlling and reducing costs2) Necessity of responding to legal and judicial demands (ie- fed and state gov’ts have since the 90s

encouraged gov’t bodies to use EDR) 3) Desire to have better control over the process. - Mediation is seen as more cost efficient and more respectful of the social environment of the corp

than arbitration. - More than ½ of respondents did not have confidence in available arbitrators and 1/3 were bothered

by the lack of the competent arbitrators.

Institute for Dispute Resolution Study- Of the 47 files opened in one yr, 68% were dealt w/ through mediation and only 21% by mediation.

Mini-trial was pretty much not used at all. - Study showed that mediation was an effective way to solve commercial conflicts and that substantial

savings were realised by resorting to it.

American Arbitration Assoc Example- Use of arbitration has been declining. - Using an arbitration assoc helps to solve the problem in making mistakes when appointing

arbitrators and makes choosing one a lot easier.

Lex Mundi International Study- Most parties favour direct party-to-party negotiations but when this fails prefer mediation, then

arbitration and lastly, the crts. - In-house lawyers preferred arbitration more than external lawyers , and in general were more

sensitive to the costs of litigating. - The most important characteristics when choosing a mediator: neutrality, knowledge of the legal

aspects (procedure etc) and familiarity with the industry. Less important was the quality of training.

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Extra-judicial Dispute ResolutionProf. Frederic BachandBruno Oppetit – Théorie de l’arbitrage p. 95-107, CH. 5 (CB 457– 463) pp. 95-107 Sociologie Some problems w/ arbitration:

- No public knowledge of the procedure and the remedies that may be imposed. There is therefore no systematic understanding of arbitration, which quantitative knowledge difficult.

- No pre-established, specialized or hierarchical organisation- No obligation for arbitration to belong be part of state functions. - Altogether it is hard to study arbitration for a sociological standpt.

Failure of “arbitrage sur compromis” [don’t know what the English equivalent is] - Compromise means that negotiations can be laborious. Sometimes can’t even come to an agreement

ex – can’t agree on the arbitrators or their mission. - Not as flexible as the transaction. - Conciliation as seen as better by corps than arbitration.- Too onerous, costs can still be very high because of this.

- The institutionalism of arbitration through tribunals (rather than just ad- hoc) gives a basic understanding of possible procedure and has led to availability of quantitative information

- There has been an increase in arbitration institutions throughout the world, even in counties like China.

- Of the international arbitration organisations, most are public - Any observations on the evolution of arbitration bring up several ? incl: - Is there really a difference with this type of justice? Does the fact that it originates from K and that it

is private in nature, really have a profound impact on how arb functions and is organised, making a comparison with public justice impossible?

- Some argue that arbitration cannot be separated from contracts.- But there is also a theory that the two forms of justice are in fact converging. Ex – the procedure that

is often followed is in the same “spirit” as that of public justice. There are parallels that can be drawn btwn how the forms evolved.

Conclusion: Can a form of justice that is so linked to what is commercially “just” continue to exist in the spirit of justice? The answer depends on those who use arbitration and their willingness to adhere to the traditional notions of justice.

Phillipe Fouchard – Où va l’arbitrage international? Summary: Intern’tl conventions and legislative reforms have made arbitration in the international commercial arena more efficient. But at the same time, arbitration is at a cross-roads: there are increased pressure of conflicting interests btwn the parties. Arbitration therefore finds itself at a legal impasse: bound up by procedural disputes. Flexibility of arbitration should help it to resolve these difficulties.

- When is arbitration international? See art. 940.6 CCP when it deals with international commercial interests.

- There should remain links btwn domestic arbitration and international arb because to a certain extent the latter depends on how the regulations applied to domestic arb.

- Ex – Canada hasn’t been at the forefront of intern’tl arbitration because traditional hostility of the the CML and CVL to arb and the subsequent strict regulation of arb generally.

- The popularity of intern’tl arbitration is increasing and it will continue to do so b/c there is no viable alternative. Furthermore, w/out international jurisdiction in private law it is difficult to circulate judgements internationally.

- The success of international arbitration has manifested itself in 2 ways: (1) quantitatively and (2) qualitatively by constantly improving its status in comparative and international law.

Levelling of obstacles: - Growth of international conventions as well as favourable state law. - Legislative reforms have been multiplying for the past 30-ish years. It began in 1979 with the

English Arbitration Act. - This international conventions, as well as national jurisprudence and laws, give international

arbitration it’s operational characteristics.

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- The next step was for international arb to become as autonomous as possible, to not be constrained by too much judicial and legislative intervention.

- Most new laws recognise the ability of the parties to decide which rules will apply as well as the ability of arbitrators to decide which rules are necessary.

- The role of judges wrt arbitration has been severely limited as well ex – can annul the decision but cannot revise the decision (ie –can’t say whether case well judged or not).

- Only certain serious infractions can be reversed ex – principe de la contradictoire was not respected. - Autonomy of international arbitrators lies in part on professional cohesion, “solidarité du milieu”.

Ex – Grain and Feed Trade Assoc put in place an Arbitration Centre which meant that they had easy access to arbitrators and could quickly resolved disputes.

- Although arbitration is supposed to be fast, simple, low cost and lacking in formalism, this is rarely the case now with large international arbitrations.

- Firstly, the defending will likely contest the existence of validity of an arbitration clause to not only the Centre of Arbitration but also in crt.

- Then there is a question of the composition of the arbitration tribunal, this too will be argued – may be at some time as above. This process entails a lot of evidence, docs, witness, experts, examination and cross. All this is due to American lawyers and brings an adversarial aspect back into arbitration. This approach loses sight of the desire to have parties work together.

- These procedural issues lead to increased costsConclusion:

- Arbitration will not waste away because of these procedural difficulties and conflicting interests btwn parties, however there will be an increase in ADR – a return to more pacifist techniques and the origins of arbitration.

- Arbitration is also flexible and so will likely adapt to deal w/ these issues. International arbitration will evolve btwn the two extremes of pacifism and confrontation.

II. Non-Adjudicative Extrajudicial Dispute Resolution: Mediation

A. THE MEDIATION AGREEMENT

E.g. “Any dispute arising out of or relating to this contract and that the parties have not been able to resolve amicably through negotiation shall be submitted to mediation…”

What are parties trying to do? Specifically, what obligations are parties trying to create with such a clause?

a. Negative obligation : prevent commencement of court action before mediation has taken place as provided in the clause

b. Positive obligation : two-step clause: one, preliminary obligation to undertake amicable/direct negotiations and two, if this fails, necessarily resort to mediation Obligation of result to participate in the process: oblige each other to actually at least come to the

table. The clause however does NOT create an obligation to settle, because mediation, by its nature, CAN

fail to produce a settlement. Obligation of means to negotiate in good faith: it is implied, since just obliging each other to come to

the table, and then acting in bad faith and NOT trying to do everything they can to settle.

Overall, the parties are attempting to keep control over the DR process as much as possible. By locking themselves into a promise to mediate, in good faith, before anything else, they are trying to extend their control over their own dispute.

(i) Legal perspective

How should the law treat such a clause?

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In a pro-EDR legal system, the law will essentially be geared toward giving full effect to the parties’ intention (i.e. giving full effect to both positive and negative aspect of the clause). Thus, remedies ought to be available to a party who wishes to enforce against an opponent who fails to comply with the clause.

But, possible objection: while this makes sense theoretically, is there any point in practice in forcing someone to comply with an agreement to mediate? If the individual has signaled their intention not to comply with the agreement to mediate, is there any point in forcing them to comply with it, because more likely than not, that person will NOT show good faith during the mediation, dooming it to fail. As such, then, the entire investment in mediation will be pointless. If this is so, having remedies for breach of mediation agreement would be useless/pointless.

However, the counter-argument is that remedies SHOULD be available, because the choice of whether to avail oneself of such a remedy should be left to the parties involved. It should NOT be the state’s choice. Practice has shown that forcing a party to mediate SOMETIMES changes their mind and thus is effective. Therefore, leaving the choice of whether to force the breaching party to mediate is best, as they can make an assessment of whether this will work or not, given the circumstances.

If the law should indeed provide remedies, what should they be?

i) If the reluctant party is the claimant:

Stay of action in breach of clause: the simplest way to make the clause have bite is suspending the lawsuit pending completion of the mediation process: claimant, you cannot obtain a judgment from the court until you fulfill the engagement to go through the mediation in good faith. This would leave claimant no choice but to go through mediation because that is the only way to reanimate the court action that he seeks.

There are however, traditional hurdles in both CML and CVL jurisdictions:

CML: traditionally, a contractual undertaking to negotiate was not invalid but was UNENFORCEABLE. There were no remedies available to a party who complained that opponent did not abide by the agreement to negotiate. In response to a stay of action as per above, claimant could claim that an agreement to negotiate is an integral part of the mediation agreement, and thus not enforceable by a CML court.

In Cable & Wireless, judge was stuck with this problem, as he was bound by precedent saying that undertakings to negotiate are not enforceable. He got around the problem by distinguishing: it is not ONLY an undertaking to negotiate, but an undertaking to take part in a DR process not solely to negotiate with opponent. As such, it is sufficiently certain and well-defined to be enforceable. This shows the difficulties courts are faced with in trying to implement the pro-EDR stance of the modern legal system.

Cable & Wireless plc. v. IBM United Kingdom Ltd.

Facts: IBM and C&W have agreed to terms under which IBM and E3M local party suppliers would supply information technology to C&W and their local parties. Under Schedule 10 of GFA, parties agreed to a benchmarking process: a method of comparing the quality of the services provided by IBM and the charges made for them, with those provided by the other competitors. In February 2002, Compass produced a report under this benchmarking process on behalf of C&W which indicated that IBM’s charges were above those of its competitors.

There are 2 disputes: 1) IBM challenges the validity of Compass’ findings, asserting that they are so fundamentally flawed that they do not amount to “benchmark results” as defined by GFA. C&W claims compensation. 2) IBM also disputes Compass’ method of calculation for amount of C&W’s claim of compensation, claiming that s. 5.3 of Schedule 10 of GFA does not entitle C&W for compensation for loss sustained during any part of the period before the issue of a valid benchmarking point.

With regard to dispute #2, C&W has sued for a declaration as to the meaning of s. 5.3 of Schedule 10, and IBM has made a claim for an order of stay of proceedings, while the parties engage in ADR proceedings as provided by s. 41.2 of the GFA (basically, IBM is asking court to enforce 41.2). In return, C&W claims that s. 41.2 is

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Extra-judicial Dispute ResolutionProf. Frederic Bachandunenforceable because it lacks certainty: it is an agreement to negotiate only, which is not enforceable under English CML.

Issues: Is s. 41.2 enforceable?

Held: YES. The hearing of C&W’s claim for declaratory relief on s. 5.3 should be suspended until after the parties have referred all their outstanding disputes to ADR.

Reasoning:

1) The dispute resolution structure in the GFA (s. 40, setting out the levels of escalation of the dispute, and s. 41, providing the methods of dispute resolution: negotiation first, and then ADR, if the former fails) indicates clearly that the parties meant to ensure that litigation would be resorted to only as a last resort. The “an ADR procedure which is being followed shall not prevent any party or local party from issuing proceedings” does not qualify this prohibition on resorting to litigation before all other means of dispute resolution are exhausted: this provision is meant to cover instances where there is a need for injunctive or other preservative or interim relief in cases so urgent that waiting for the outcome of the other DR processes is not feasible. As such, s. 41.2 is not incompatible with obvious mutual intention that litigation will ONLY be resorted to as a last resort, nor with concurrent mediation/arbitration DR going on at the same time as urgently needed injunctive, etc. proceedings.

2) The reference to ADR in s. 41.2 is NOT merely an agreement to negotiate, and as such, is enforceable in English law. Parties have not simply agreed to attempt in good faith to negotiate a settlement: here they have gone further than that by identifying a particular procedure, namely an ADR procedure as recommended to the parties by the Centre for Dispute Resolution (CEDR)

A mere undertaking to negotiate a contract or settlement agreement is uncertain because court would have insufficient objective criteria to decide whether one or both parties were in compliance or breach of such a provision. However, s. 41.2 includes a sufficiently defined mutual obligation on the parties to go through the process of initiating a mediation, selecting a mediator and at least presenting that mediator with its case and its documents and attending upon him. These requirements constitute sufficient objective criteria to determine whether a party has complied with the provision.

Court’s pro-EDR stance: Court advises that English courts should interpret DR clauses as enforceable as much as possible: should interpret them liberally, and not be astute to accentuate uncertainty. For courts to decline to enforce contractual reference to ADR on grounds of intrinsic uncertainty would be in contradiction with the pro-EDR tendency currently reflected in English courts and by policy makers.

As such, contractual references to ADR which do no include provisions for an identifiable procedure should not automatically fail to be enforceable for reason of uncertainty. The court must first consider whether the obligation to mediate was expressed in unqualified and mandatory terms or whether duty to mediate was expressed in qualified terms (“shall take such steps as they may be advised”). Where there is an unqualified reference to ADR, a sufficiently certain and definable minimum duty of participation should not be hard to find and thus the reference should be enforceable as including sufficient objective criteria for determining compliance.

3) How should the reference to ADR in s. 41.2 be enforced then, given that its validity has been established?

The reference to ADR is analogous to an agreement to arbitrate, which means it is a free-standing agreement capable of being enforced by a stay of the proceedings or injunction, if there are no pending proceedings. The jurisdiction to stay is in origin an equitable remedy, and thus at the discretion of the court.

The issue here is thus how and when should this discretion be exercised? The fact that C&W has refused to participate in ADR is only part of IBM’s entitlement to enforcement of the ADR agreement. Given the discretionary nature of the remedy, there are other factors that might also be relevant to the way in which this discretion is exercised:

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Extra-judicial Dispute ResolutionProf. Frederic Bachanda) strong cause must be shown before a court can be justified in declining to enforce such an agreement. In the present case, no such strong cause must be shown because mediation as a DR tool is not designed to achieve solutions which reflect the precise legal rights and obligations of the parties but rather solutions which are mutually acceptable. If the agreement to mediate is wide enough to cover pure issues of construction as in this case, there is at best a weak basis for inviting the court to withhold enforcement.b) enforcement must go ahead if there are extremely strong case management grounds for doing so. Here, enforcing the ADR agreement will directly impact on both the dispute brought to court by C&W about the construction of s. 5.3 and on IBM’s challenge of the validity of the benchmarking report, and thus it is important that both disputes are taken into account (i.e. if ADR agreement is not enforced, IBM’s dispute of the validity of the benchmarking report will not be addressed).c) delay with which party applying for enforcement of the ADR agreement has applied for it must also be taken into consideration: if this delay is such that enforcing the ADR agreement will impose material prejudice on the other party, the enforcement should be refused. This is not the case here.

POINT: Where an agreement to submit to ADR reflects a clear, obvious mutual intention to resort to litigation only as a last resort, and where there are sufficient objective criteria for the court to use in assessing whether parties have complied with the agreement, such an agreement can be enforced by a stay of proceedings at the discretion of the court.

Whether the court will and should exercise that discretion depends on a number of factors, but the court must also take into account the dominant pro-ADR tendency in policy and the courts. As such, unless there are really strong reasons to deem them too uncertain, courts should interpret such agreements liberally and thus enforce them.

CVL: traditionally, CVL never had such a huge problem with enforcing undertakings to negotiate, they did not find such undertakings too fuzzy, etc.

The CVL hurdle was different: clauses like this were considered, potentially, to deny a fundamental right of access to court. In the situation of a stay of proceedings based on breach of clause, claimant could argue that stay was illegal because it would, arguably, be against public policy to deny my right to have access to court.

In reality, this does not fly. A stay of proceedings does not entail a curtailment of the right to access to court, but merely a temporary suspension of that right. The suspension would be lifted as soon as breaching party complies with the obligation (this is of course assuming that the person claiming the stay can prove the existence of a meeting of the minds with regards to the agreement to mediate).

Jarrosson, Ch. “Note following Cass. Civ. 1ere, February 14, 2003, Poire v Tripie and Paris, May 23, 2001, SCM Port-Royal v. Pembay and Samper

La jurisprudence française, confrontée à la question de savoir s’il faut ou non – et dans l’affirmative comment – sanctionner le non-respect par une partie du préalable obligatoire de conciliation prévu au k, a hésité.

Depuis, les Cour de cassation et la Cour d’appel de Paris ont mis fin à cette incertitude. Dès lors que le défendeur souhaite voir jouer la clause instituant un préalable obligatoire de conciliation, il peut opposer avec succès à la demande (which initiates court proceedings) une fin de non-recevoir conventionnelle tirée de la stipulation contenue dans cette clause.

En effet, l’inexécution de la clause de conciliation préalable se heurte à une fin de non-recevoir, sauf urgence justifiant une action en référé.

Cette jurisprudence nouvelle s’inscrit dans un movement d’ensemble par lequel l’institution judiciaire prend concrètement en compte la complémentarité qui existe entre les mondes jurisdictionnels et amiables de règlement des litiges.

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Extra-judicial Dispute ResolutionProf. Frederic BachandI. L’inexécution de la clause de conciliation préalable se heurte à une fin de non-recevoir, sauf urgence justifiant une action en référé.

1. L’arrêt de la Cour de cassation

L’espèce: L’acte de cession conclu entre 2 parties contenait un engagement de garantie au profit des cessionnaires, mais prévoyait que tout différend relatif à sa mise en oeuvre, serait soumis à un concilliateur, préalablement à toute instance juridique. L’une des parties a engangé une action contre l’autre, qui lui a alors oppose le non-respect de la clause de conciliation préalable. La Cour d’appel de Paris a infirmé les jugements condamnant le défendeur sans égard pour la clause de conciliation et a jugé l’appel en garantie irrecevable en l’état.

La question: La validité de la fin de non-recevoir conventionnelle? Le pourvoi faisant grief à la Cour d’appel d’avoir déclaré l’action irrecevable vient d’un précédant mal interprété. Les fins de non-recevoir sont licites et admises depuis longtemps, dès lors qu’elles portent sur des droits litigieux disponibles et ne contreviennet pas à un quelconque texte impératif.La Cour de cassation lance donc un message très clair: la clause de conciliation est une clause commes les autres et non une clause au rabais, c’est-à-dire qu’elle a force obligatoire et que son inexécution doit être sanctionnée.

Conséquences de la décision: irrecevabilité en l’état. Le pourvoi argumentait que déclarer irrecdevable la demande en contravention d’une clause de conciliation préalable équivaut à l’écarter définitivement, donc, interdire à la partie de la réitérer une fois que, la conciliation d’abord éludée puis ayant échoué, elle se retrouvera dans le cas de devoir engager une nouvelle action en justice.En réalité, la décision d’irrecevabilité n’est pas destinée à bloquer définitivement la demande. La notion de jugement d’irrecevabilité en l’état veut seulement dire que tant que la conciliation n’a pas été mise en oeuvre, la demande est irrecevable. Une fois engage, elle devient recevable. Prétendre que l’irrecevabilité serait ici definitive fairait fi de tout la rationalité qui fonde la fin de non-recevoir découlant du préalable obligatoire de conciliation.

L’irrecevabilité en l’état: application à l’arbitrage. Le tribunal arbitral originaire pourra déclarer irrecevable en l’état la demande et constater que sa mission est suspendue jusqu’à ce que la clause d’irrecevabilité ait disparu, c’est-à-dire jusqu’à ce qu’il lui soit montré, les cas échéant, que le processus de conciliation prévu a été engage et a échoué.Qu’en est-il du délai l’arbitrage ou du fondement de la suspension de l’instance arbitrale? Si l’arbitrage est institutionnel, le délai pourra être suspendu, voire prorogé, par l’institution d’arbitrage qui se préoccupera de l’avancement et du sort de la conciliation. Si l’arbitrage est ad hoc il y a possibilité de recours au juge d’appui, au besoin à l’initiative du tribunal arbitral. Cette solution évite des frais et fait gagner du temps; elle peut être incluse par les parties dans la clause de règlement des differends.

Incidence du droit d’accès au juge? L’obligation (de résultat) qui pèse sur la partie demanderesse est de mettre en oeuvre le processus de conciliation; une fois celui-ci engagé, elle n’a plus qu’une obligation de moyens, celle de rechercher de bonne foi avec le tiers et l’autre partie, une solution au litige. Si elle pense que la situation est définitivement dans une impasse, elle peut alors mettre fin unilatéralement à la conciliation.

Absence d’autres inconvénients inhérents au régime des fins de non-recevoir. La jurisprudence sanctionne par des dommages-intérêts la partie qui tarde à opposer une fin de non-recevoir. Une telle condemnation sera rare, car la jurisprudence verra dans la demande en justice déposée sans égard pour la clause de conciliation, ou dans une défense au fond sans opposition de la fin de non-recevoir tirée de l’existnce de la clause de conciliation, une renunciation à s’en prévaloir.La Cour de cassation precise que la clause de conciliation constitue une fin de non-recevoir s’imposant au juge si les parties l’invoquent. Les magistrates n’imposeront pas le respect de la clause aux parties qui n’en veulent pas. Ainsi du point de vue du droit positif, la seule sanction procédurale est, en l’absence d’une intervention legislative, la fin de non-recevoir.

Convergence internationale sur la solution: Par cet arrêt la Cour de cassation participe à un movement en faveur de l’efficacité des clauses de conciliation qui, est de plus en plus souvent observé internationalement.

- UK: dans un jugement la High Court de Londres a donné effet à une clause prévoyant un processus ADR en stipulant que: “Neither party […] may initiate any legal action until the process has been completed, unless such a Party […] has reasonable cause to do so to avoid damage to its business or to protect or

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preserve an right of action it may have.” Le juge a conclut que la clause de processus préalable obligatoire était un engagement et non seulement un “agreement to negociate,” qui avait une force obligatoire et dont l’inexcecution devait être sanctionnée.

- Cette tendance rejoint celle observée en Amérique du Nord.- Allemage: Le Bundesgerichtshoft a décidé que la demande était temporairement bloquée tant que le

processus n’avait pas été engagé.- Article 13 de la loi-type CNUDCI: effet sera donné aux préalables obligatoires de conciliation jusqu’à ce

que les conditions dont elles s’accompagnent seront satisfaites.- Italie: contrairement aux autres jurisdictions, en Italie la clause de conciliation ressortissant au domaine

contractuel, elle ne peut avoir d’effet processuel.- Suisse: Semble s’éloigner de sa position initiale, similaire à celle de l’Italie.

Certains pays ont donc du mal à accepter l’idée qu’une convention puisse emporter des consequences procédurales, alors qu’ils l’admettent en arbitrage. Cette discrimination est fondé semble-t-il sur le fait qu’en arbitrage c’est le pouvoir de juger qui est en cause, l’effet processuel étant alors inéluctable. Ils ne semblent pas avoir d’égard pour la transaction dont la nature conventionnelle empêche la chose transigée d’être à nouveau soumise au juge.

Limite de la solution: La fin de non recevoir n’est pas une sanction appropriée dans tous les cas d’inexécution de la clause de conciliation obligatoire. Elle bloque la demande tant que le demandeur ne met pas en oeuvre le processus de conciliation. La fin de non-recevoir n’est efficace qu’à l’encontre du demandeur. Elle sera dépourvue d’effet à l’encontre du défendeur, à moins que celui-ci ne soit aussi un demandeur reconventionnel.La même difficulté de sanction du défendeur réapparait si l’on raisonne sur le terrain du sursis à statuer. En effet, le défendeur qui refuse de se conformer à la clause de conciliation obligatoire ne sera pas sanctionné, sauf par des dommages-intérêts éventuels, à moins que le demandeur ne demande au juge une condemnation à participer à la conciliation. Une telle contrainte est de mauvaise augure pour la conciliation à venir.

Deux inconvénients a la fin de non-recevoir demeurent: la demande cherchant une mesure d’urgence et la question de la suspension de la prescription.

2. L’arrêt de la Cour d’appel de Paris

La clause de conciliation n’est pas un piège. L’irrecevabilité de la demande ne concerne que la demande au fond et ne s’applique pas en cas d’urgence aux demandes qui pourraient permettre a une partie de sauvegarder ses droits. Celle-ci peut alors s’adresser au juge des référés afin qu’il la relève de son obligation.

Cette solution est en effet en harmonie avec ce qui se passe internationalement. L’article 13 de la loi-type CNUDCI stipule que l’on doit donner effet à la clause de conciliation “sauf dans la mesure où une partie estime nécessaire d’engager une telle procedure pour la sauvegarde de ses droits.” Cependant “l’engagement d’une telle procedure ne doit pas être considéré comme une renonciation à la convention de conciliation ni comme mettant fin à la procedure de conciliation.”

Une telle precaution peut figurer dans la clause de conciliation.

II. L’obiter dictum relatif à l’effet du processus de conciliation sur la prescription.

La Cour de cassation a pose le principe selon lequel la mise en oeuvre du processus conventionnel et préalable de conciliation suspend jusqu’à son issue le cours de la prescription.

Jusqu’alors, faute de dispositions législatives sur la conciliation ou la mediation conventionnelle, la jurisprudence décidait généralement que la participation a des pourparlers transactionnels n’interrompait pas et/ou ne suspendait pas la prescription.

La Cour de cassation deviance donc le législateur et se conforme aux souhaits de l’UE. Peut-être cet obiter dictum s’appliquera aussi en matière de médiation judiciaire car aucun texte ne réglemente la question; la loi-type CNUDCI sur la conciliation internationale n’en parle pas non plus. Il semble que ceci soit du au fait que certains ont du mal à fixer les moments à partir desquels la suspension prendra effet ou cessera. La question n’est pas

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Extra-judicial Dispute ResolutionProf. Frederic Bachandinsurmontable: la suspension peut internvenir lorsqu’une des parties manifeste son désir de recourir à la conciliation, et prendre fin lorsqu’une des parties indique qu’elle a mis fin à sa participation.

Le fondement de l’effet suspensif de la prescription n’est pas indiqué, mais il peut provenir de la règle Contra non valentem agere non currit proescriptio, de la notion d’équité ou encore de la bonne foi.

III. Opportunité pratique de la solution

La souplesse du régime des fins de non-recevoir se conjugue avec la liberté contractuelle afin de permettre la stipulation, sans risque ou effet pervers pour l’une des parties, d’un préliminaire obligatoire de conciliation. Bien que l’utilisation des fins de non-recevoir comme moyen de sanction soit parfois critique, ces critiques ne résistent pas a une analyse.

Les avantages découlant de l’inclusion d’une clause instituant un préalable obligatoire de conciliation:

Les parties ne sont pas tenues d’inclure une telle clause dans leur k; celle-ci n’est que l’expression de leur volonté libre.

Les parties ont le loisir de rédiger la clause comme elles l’entendent, en lui donnant la force contraignante qu’elles souhaitent, en stipulant des sanctions (contractuelles ou processuelles) etc.

Fixer une sanction processuelle ne fait pas des fins de non-recevoir des instruments privés; c’est un exercice de liberté contractuelle dans une matière disponible et en conformité avec l’ordre public. Puisque les parties peuvent par une convention (d’arbitrage) priver le juge étatique de son pouvoir jurisdictionnel sur le fond du litige, elles peuvent par une autre convention (la transaction) bénéficier d’une fin de non-recevoir.

La conclusion: d’un point de vue juridique, en l’absence de de stipulation particulière, lorsqu’une partie saisit le juge en violation d’une clause instituant un préalable obligatoire de conciliation, sa demande est déclarée irrecdevable si le défrendeur lui oppose son existence, à moins que la demande ait pour objet l’octroi d’une mesure urgente destinée à sauvegarder ses droits; l’exécution de cette clause suspend la prescription pendant la durée des pourparlers transactionnels.

In Quebec, there is nothing in the CCP that speaks directly to the availability of a remedy for a breach of a mediation clause, just a stay of proceeding remedy for breach of an arbitration clause. So, what happens? Because Quebec is very pro-EDR (see Desputeaux), it is likely that this remedy would be adapted to apply in cases of breaches of mediation agreements, not just arbitration clauses. Court would likely use discretion and inherent power to fill this gap in the CCP. This is especially the case since courts in other parts of Canada have done so.

Canada (A-G) v. Maritime Harbours Society et al. N.S.S.C. (p.39 CB) Facts: Deals w/ Order to Stay proceedings. MHS alleges that Transport Can is in violation of agreement b/c it failed to follow Dispute Resolution Proceedings before commencing proceedings and therefore it’s subsequent judicial action should be estopped. . The agreement stated in part, “… the parties agree to submit any claim or dispute arising out of or in connection w/ this agreement, other than any claim or dispute pertaining to a question of public law, to binding arbitration pursuant to the fed Commercial Arbitration Act.”

Issue: Is it appropriate for the Crt to exercise its discretion in this case and grant a stay of proceedings?

Held: Yes. Parties should follow the path of their own choosing and proceed to arbitration.

Analysis: - Transport Can argues that s.8(1) of the International Commercial Arbitration (which is the act that

applies in this case) has 3 prereqs before a stay may be granted: 1) Applicant must show that a party to the agreem’t has commenced legal proceedings2) The proceedings must relate to a matter that is covered by arbitration clause

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3) Application for stay must be brought before the applicant takes a step in the proceeding. - Crt deals quickly w/ the first two, there is no dispute re – these. - Time for invoking the ADR mechanism should not be strictly interpreted. - Rather the purposive rule of interpretation should be used to interpret the agreement. - Applying this approach, “one must recognise the desirability of (1) holding the parties to the K’tual obs,

(2) recognising the dispute resolu’t mechanism the parties entered into w/ the full desire and intent of avoiding lengthy and costly litigation.”

- Since this issue had not progressed “out of the starting gates of litigation” there is no problem with imposing on the parties what they initially agreed to.

Costs: Crt deems it appropriate to deny MHS costs even though they won.

Comment: Case shows Court’s pro-EDR bias.

Stay of suit and prescription: does stay of lawsuit mean prescription runs again, or does stay of lawsuit in order to undertake of mediation interrupt the running of prescription? In Quebec, there is a rule that DOES stay prescription when there is a stay on account of an arbitration clause: could be stretched to mediation?

Tricky issue: should courts have discretion to refuse to stay action that was clearly brought in breach of clause?

Firstly, discretion does not fit with fundamental issue of party autonomy central to contract law, which is at issue here. Moreover, allowing such discretion would over-complicate a stay-of-action, which only suspends the case anyway: must conduct cost-benefit analysis, balance the necessity of efficient and affordable remedies with the equitable need for such discretion. In CVL, the courts would not recognize such discretionary power anyway. In Cable & Wireless, court recognizes that, in exceptional circumstances, the court retains discretion to refuse such a stay of action, but this case is not representative of the law on this matter.

C.B. Richard Ellis Inc. v. Environmental Waste Management

Facts: Plaintiff CB Richard Ellis, Inc. entered into a k with defendant American Environmental Waste Management for the purpose of waste removal. Said contract contained a general mediation clause governing the resolution of “any dispute, claim or controversy arising out of or relating to this Agreement or the Work.” CB then entered into a separate oral k with AEWM, mandating it to remove and shred documents. Subsequently, CB commenced an action against AEWM claiming AEWM had overbilled CB for the document shredding. The plaintiff’s position is that CB’s claims arise out of the initial k and as such should fall under the mediation clause.

Issue: Does the dispute fall under the mediation clause?

Decision: Motion to compel mediation granted

Discussion: The mediation clause is valid under the Federal Arbitration Act, 9 U.S.C. §§ 1-15 (1988). Said Act embodies Congressional policy which favors the enforcement of arbitration clauses in commercial k. Section 2 states that a written clause in such a k shall be “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any k.” Section 3 states that courts stay proceedings pending arbitration if the court is satisfied that the issues presented are arbitrable. The Act leaves no place for the exercise of discretion by a district court; the agreement to arbitrate must be enforced, absent a ground for revocation of the contractual agreement. In determining whether the issues presented are arbitrable, the court must 1) decide whether the parties agreed to arbitrate, 2) assess the scope of the arbitration agreement, decide whether 3) any asserted federal statutory claims were intended by Congress to be nonarbitrable, and 4) where some but not all claims are arbitrable, whether to stay proceedings in the nonarbitrable claims.1) CB and AEWM expressly agreed to mediate their disputes.2) There is a presumption of arbitrability; consequently, any doubts concerning the scope of arbitrable issues are to be resolved in favor of arbitration. Arbitration clauses are to be construed as broadly as possible. In case of a broadly worded arbitration clause, the strong presumption in favor of arbitrability applies with even greater force. The language exempting certain types of disputes from arbitration must be clear and unambiguous. CB and

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Extra-judicial Dispute ResolutionProf. Frederic BachandAEWM agreed to a broadly worded mediation clause, and did not explicitly exempt any type of dispute from its purview.3) CB does not assert any statutory nonarbitrable claims4) Because CB’s claims subject to mediation represent the bulk of the case, the court orders a stay of all proceedings.

Next, consider Article 13 of UNCITRAL Model Law on International Commercial Conciliation:

Article 13, UNCITRAL Model Law on International Commercial Conciliation

Where the parties have agreed to conciliate and have expressly undertaken not to initiate during a specified period of time or until a specified event has occurred arbitral or judicial proceedings with respect to an existing or future dispute, such an undertaking shall be given effect by the arbitral tribunal or the court until the terms of the undertaking have been complied with, except to the extent necessary for a party, in its opinion, to preserve its rights. Initiation of such proceedings is not of itself to be regarded as a waiver of the agreement to conciliate or as a termination of the conciliation proceedings.

This article basically provides that, where parties have agreed to conciliate, the party who claims a stay for reason of breach of agreement to conciliate should be able to have it, except insofar as needed to preserve parties’ rights.

ii) If the reluctant party is the defendant :

Remedies for party who wants to mediate: what can they do when the other party refuses to abide by the mediation agreement?1) Sue for damages: losses incurred as a result of the refusal to mediate as agreed.

2) To give an extra incentive to mediate, and thus avoid such a lawsuit, a penalty clause could be included in the K. The trigger for such a clause would be an objective fact such as the reluctant party does not show up to mediation meeting.

Claiming damages as a remedy is ok in theory, but how do you quantify this in practice?? So, you WOULD turn to penalty clauses but CML is reluctant to enforce penalty clauses: against public policy. In Quebec, a penalty clause is not per se illegal/invalid as against PP, but are subject to a judge’s review, and will only be enforced if the court assesses that the amount of the penalty is a true reflection of the loss as a result of the breach being penalized. Again, then, we have a problem of quantification, and so we are back to the problem of enforceability of penalty clauses, and the problem of what remedies are there out there for the hurt party, when the reluctant party is the defendant.

3) The hurt party could also seek a declaration that the reluctant party breached the agreement to mediate. But is such a remedy useful in practice? Does it give any incentive not to breach?

POINT: Suit for damages, declaration of breach by the court, and penalty for breach clauses are not ideal remedies for breach of agreement to mediate.

4) A fourth possible available remedy is an injunction, to force specific performance of the undertaking to mediate.

In both CB Richard Ellis and Maritime Harbours Society, the courts issue positive orders for the parties to comply with their agreed EDR clauses. Under US and Canadian CML, therefore, the judges have the power to compel parties to abide by the EDR clause. This constitutes a GREAT incentive for the reluctant party to comply with the mediation agreement because not doing so would mean being held in contempt of court (criminal offense). Therefore, an injunction would be an effective remedy because the state steps in, rather than just having the potential civil liability.

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Extra-judicial Dispute ResolutionProf. Frederic BachandHowever, is it realistic that the hurt party will go through all the trouble to obtain this positive order, given that the reluctant party is already reluctant to mediate, therefore reducing the chances of having a good mediation anyway? It would probably only work as an incentive if obtaining the injunction would be fast and easy, despite the fact that it was done in both CB Ellis and Maritime: in those cases, the reluctant party was the claimant, therefore the parties in a lawsuit they didn’t want. As such, they had much more incentive to go seek out such injunctions.

5) The best remedy however seems to be imposition of court costs on the breaching, reluctant party (i.e. ask the judge to take into consideration the breach of the agreement to mediate): if you want to disregard the mediation agreement, and you want to go to court, you PAY for it. To increase the incentive to the maximum, such costs should be imposed on the breaching, reluctant party EVEN IF they win the adjudication.

iii) If parties cannot agree on the identity of a mediator, and there is no subsidiary method of appointment of mediator that is specified in the clause

But what happens when the issue is NOT that one party refuses to mediate, but the parties just cannot agree on the identity of the mediator, and the mediation clause does not specify subsidiary methods of appointment of mediator. Such a disagreement still jeopardizes the effectiveness of the agreement to mediate. Again, the law needs to step in to support and promote mediation. Remedies for this kind of situation include:

1) Include a procedure in the K to use if parties can’t appoint mediator.2) Allowing judges to step in and appoint mediator : in QC, there is no procedural vehicle for

appointment of mediators, as there is for arbitration; the most you can do is argue that judge should use his discretionary power to adapt this vehicle to mediation. As well, going to court always means getting the dispute into public sphere, which is one of the things EDR clauses seek to avoid in the first place!!!!

3) Name mediators from the outset, in the K : however, this is very dangerous because appointee may not be available at the time of the dispute, may not be so independent at the time of the dispute, may not be the perfect person to mediate the particular type of dispute: CANNOT ANTICIPATE THE NATURE AND TIMING OF DISPUTES and so need to remain flexible.

(ii) Practical perspective: the drafting of undertakings to refer future disputes to mediation:

“Any dispute relating to the interpretation of this contract and that the parties have not been able to resolve amicably through negotiation may be referred to mediation.”

What is wrong with above clause?

1) Use sufficiently broad language : “interpretation of this contract”= too narrow only covers disputes relating to interpretation NOT to breach of K, etc. BUT if this is the intention of the parties, then it would be fine.

However, most likely, parties will, if they resort to mediation, want to avoid going to court at all costs, therefore they will want to have the EDR clause to apply to EVERY imaginable dispute. While you MAY get a judge to interpret “interpretation of the contract” broadly and as including all sort of disputes arising out of or in connection with the K, uncertainty can be avoided by just using broader language!

ANSWER: Issue of scope:

Avoid:

(too narrow!)“any dispute relating to the interpretation of this contract”“any dispute arising out of this contract”“any dispute arising under this contract”

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Extra-judicial Dispute ResolutionProf. Frederic BachandGo for:

(covering disputes directly and indirectly connected with the K)“any dispute arising out of or in connection with this contract”

NOTE: English case law is very valuable in interpreting arbitration and mediation clauses, as there is a lot of it. Moreover, courts are starting to interpret clauses LIBERALLY, and flexibly, in accordance with the pro-EDR trend: they will overlook narrow drafting and go by the general meaning that a reasonable business person would give such a clause. However, it does not mean that this trend will guarantee a liberal interpretation of a badly drafted, too-narrow clause: court will have to have a valid reason/exceptional circumstances to give a narrow clause a liberal interpretation!

2) Use express/certain language : “may be referred”= will it or won’t it? How do you decide? Too vague, subject to interpretation will end up in court over it, to see if it should be interpreted broadly (it is an obligation) or not, even if parties may have truly intended to bind themselves!

As a result, should, as always, avoid uncertainty by using strong terms such as shall, will, etc. It is a good idea for added certainty, given that Article 13 of UNCITRAL Model Law on International Commercial Conciliation mandates that explicit language is needed in the undertaking to do or not to do something: this meaning that unless there is express language, very strong, as to an undertaking to mediate, courts will not enforce it (i.e. grant stay to any court proceedings). But this introduces a level of formalism that does not fit with pro-EDR trend: this is mirrored by the fact that the UNCITRAL Model Law on Conciliation has not been adopted by any country yet.

3) Include termination provisions : there is no reference to the timing of mediation, so technically it could go on forever. The problem arises in deciding when the defendant’s right to enforce the mediation clause stops and the plaintiff’s right to reactivate adjudicative proceedings begins: how long must mediation go on, and how far, before it becomes unfair to force plaintiff to keep going, and prevent him from going back to court. Knowing with certainty when right to reactivate adjudication proceedings if settlement does not occur is important to avoid confusion.

Potential termination provisions formats:a) state number of days for mediation to last; this poses a problem because it does not place any limit on

time within which mediation must start.b) State time limit for reaching a settlement without mention of number of days to be devoted to mediationc) Delegate power to terminate to the mediator: see examples in Art. 15 of UNCITRAL Conciliation Rules

(not Model Law); however, mediator has a financial interest NOT to terminate it (and his reputation will not necessarily suffer, because he is faced with a choice to terminate or not when there is no foreseeable solution). The best way is to combine the delegation of power to the mediator with a time limit for reaching a settlement: mediator can terminate at any time, but if he does not do so, mediation will end anyway at the time limit: this eliminates mediator’s incentive to block claimant’s access to adjudication for longer than reasonable, because he will know that he cannot drag things on forever.

4) Simple, effective procedure re: appointment of mediator : this is necessary to reduce problems that arise from deadlock over identity of mediator. Eg. Marineserve: “parties will jointly select a mediator. If after ten (10) days, the parties are unable to agree upon the choice of mediator, then a mediator will be chosen by the President of the Nova Scotia Barristers’ Society”

It is important to keep time limit for choosing mediator very short, to remain efficient. Also, make sure person designated to choose a mediator will agree to do so, can do so, will do this well, if they will charge a fee, etc.: check first with them! Also, have costs in mind when drafting the mediator selection procedure: check!

5) Confidentiality : make it very clear if you want the process to be confidential.

Article 14 UNCITRAL Rules: “The conciliator and the parties must jeep confidential all matters related to the conciliation proceedings. Confidentiality extends also the settlement agreement, except where its disclosure is necessary for the purpose of implementation and enforcement.”

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Bachand thinks, however, that express language to keep mediation confidential is unnecessary, as a duty of confidentiality is usually unnecessary in our pro-EDR system. However, in international mediations where confidentiality duty might not be recognized by certain systems, or where parties have a particularly high interest in confidentiality, it is a good idea to put in express language about confidentiality.

6) Ad hoc or institutional mediation ? This is a choice that must be made when structuring a mediation clause. The option of mediating under the supervision of an institution because institutions put at your disposal many resources: certifiable good mediators, rules, timelines, etc. This is much more efficient and certain than the parties providing for and organizing all these details of a mediation. However, institutional mediations cost more money, because you are not just paying for the mediator, but also administrative fees (in which there is great variation). Bachand thinks that, as opposed to institutional arbitration, institutional mediation might not be worth it, unless the costs are really low (a couple of hundred of $) and institutional mediation won’t get you that much more than an ad hoc mediation. Therefore, ad hoc is fine, unless there is a special reason for going institutional and adding to mediation costs.

Corresponding Readings:Dispute Resolution AgreementDraft Dispute Resolution Clauses – A practical guide (AAA)A Drafter’s guide to CPR Institute Dispute Resolution Clauses

B. THE MEDIATOR

Still focusing on the question of what can be done to reach a settlement, but now focusing on the mediator rather than the mediation clause.

(i) Judicial mediation

The first question is “should judges mediate”? (Desirability of judicial mediation)

Pro-EDR policy entails not only that State should promote EDR policies, but that State should OFFER DR services that are non-adjudicative in nature. Provision of these services should NOT be left entirely to private sector.

But how specifically should state be involved in provision of non-adjudicative DR services? And how? The emerging consensus is that the way State should be involved is by involving judges. i.e. by requiring judges to make themselves available to those who are already parties to a civil action and who agree to mediate.

Landerkin & Pirie - “Judges as Mediators: What’s the Problem w/ Judicial Dispute Resolution in Canada?” (p. 397 CB)

- Authors argue that JDR (judicial dispute resolution) is a good idea and that if it is judicially devised it could be an integral part of the functioning of the modern judge.

Modern Def’n of Mediation: Aims to facilitate the development of consensual solutions by the disputing parties…. The process is overseen is by a non-partisan 3rd party… whose authority rests of the consent of the parties that she facilitate her negotiations. Mediator has no independent decision-making power, or legitimacy beyond what the parties voluntarily afford her… Consensual settlement that will accommodate their needs.

- The procedure surrounding mediation is highly variable and indeterminate. - Understanding the practical and conceptual malleability of mediation is an important part

of realising how mediation fits w/in judicial function.- Procedural flexibility is due in part to goal flexibility. For ex – the goals may be

efficiency, qualitative justice claims etc, and there may be more than one goal. - There are also several diff ways of conceptualising mediation. Ex – facilitative,

evaluative, transformative, bureaucratic, open or closed, activist or accountable, 40


community (social justice), pragmatic. Another author suggests that mediation can also be seen as an oppressive tool – the informality, consensuality and neutrality accentuate power imbalances.

- Because mediation is so flexible procedurally it can accommodate judges. Ex- If judges are worried about getting down from the bench and into the fray, they could just mediate from the bench.

- Judge’s experience in seeing the strengths and weaknesses in parties’ positions could be used to help the parties resolve their issues expeditiously and fairly.

- If the concern is that mediation will eat up too much of judge’s time – time constrained mediation models could be developed.

- Judicial mediation could also be used as a way to regain support for and confidence in the judicial system could be seen as a good use of judicial elders, a way to open a widely misunderstood judicial system.

History of Judging and Procedural Justice - Emergence of managerial judges has changed things – judges increasingly meet with

parties and encourage settlement – more like negotiators, mediators and planners. - Major vehicle for judicial involvement = pre-trial conference in CAN there was less

emphasis on settlement w/in this process. - Only recently in CAN that mediation became part of the judge’s role, through rule

changes permitting mediation-type activities in certain crts /cases. - Crt procedures changed to permit more settlement-oriented pretrial conferences, mini-

trials, case mgmt and judge conducted mediations. Line btwn JDR and ADR

- ADR and adjudication have commingled as systems. - One author (Stempel) argues that crts should incorp and control the application of some

forms of ADR as part of what the judicial services offer to disputants. Judicial system should expand its services but retain enough of an adjudiciary role to cast the “shadow of law” that enables ADR settlement to function effectively.

What is the problem w/ JDR in Canada? - Should judges be doing JDR? The goals which the justice system has been trying to

achieve (ex – reducing recidivism, efficiency, reducing costs) are in line w. ADR goals, so JDR can be viewed as complimenting the admin of justice.

- The judicial function can be broader than that traditionally expected in an adversarial system. There has been an evolution to a role in settlement.

- Judges must be impartial and independent, values which are also incl in various code of ethics for mediators.

- Another fundamental characteristic of the judiciary – public confidence – would be undermined if the judiciary were not trained in mediation. This wouldn’t be a concern if adequate competency is ensured.

- Jurisdiction There doesn’t seem to be an issue w/ general jurisdiction crts, but there may be an issue w/ the power of statutory crts (in particular the provincial crts) to engage in JDR

- Absent an explicit conferral of legis authority to do JDR, a highly discretionary, private JDR process could be argued to unconstitutional under the rule of law.

- Skills Level With JDR there will be opportunities to take the knowledge that judge has gained throughout career and use it more fully than w/in adversarial model, through dialogue w/ parties

- There might be a problem w/ judges attitudes towards ADR though. May be seen as “soft or naïve” and therefore not natural for judges.

- May not have the appropriate skills – other people in ADR have to go through training to develop certain qualifications.

Conclusion- Author raises several questions. Will JDR perpetuate inequalities by encouraging further

privatization of justice? Will JDR be co-opted by judges as vehicles for diffusing dissent, pressuring parties to settle at the expense of justice?

- However, if there is support for JDR from judges, lawyers and the public, the task can complement traditional adjudicative functions of judges.

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But involving judges is not the only way for State to get involved. The alternatives are:

1. State-financed/State-sponsored mediation system in which public officials, fully trained and specialized in non-adjudicative DR—not judges—act as mediators.

Eg. Les conciliateurs de justice (France)—court maintains list of accredited conciliateurs as people who are empowered as such to provide public mediation services to people involved in litigation; they act pro bono; while not used frequently, a fair number of conciliations with high success rate have taken place (but still equivalent to only 10% of court actions). THIS IS IN ADDITION TO JUDICIAL MEDIATION.

Given that alternatives to judicial mediation exist in terms of State involvement, should judicial mediation still happen?

There are opposing arguments of decreasing costs/saving money (you are already paying judges, so you might as well use them to mediate), lack of judges’ competence (they are not used to mediation, but rather adjudication, mediators usually being more specialized in mediation, as well as in the particular industry the dispute takes place in—judges are jurists, not businessmen), incompatibility with aim of declogging the judicial system (if you want to do this, you do not want to give judges more work!).

Pros and cons of judicial mediation, when compared with alternative State-sponsored system comprised of full-time mediators:

Pros:1) Arguably less costly, but arguably will need more judges because there will be a higher workload;

however, less costly than a parallel system of public mediation.2) Potentially fairer process, especially for less powerful parties. May increase confidence in the

process.3) Could increase public’s confidence in judicial system as a whole: given general negative opinion

of public adjudicative system, having mediation be part of it will be reassuring because people find mediation more positive, even when it does not lead to a settlement. Moreover, having the judge get close to the parties would reduce the amount of judgments that seem disconnected, by enabling judges to better understand the parties.

4) Judges are by definition of the job impartial: there are institutional guarantees that ensure their independence, which is important for mediators.

5) Given their overall experience dealing with conflicts, they would be arguably better at resolving the conflict faster: procedural experience allowing them to find faster solution?

Cons:Training and competence issues : 1) Judges are first and foremost jurists/litigators, with experience before being appointed to the bench; their

experience is basically with adversarial adjudication; mediation and adjudication require different sets of skills and so there are very few people who are good at both.

2) Judges are generalists: they do a little bit of everything, so dealing with a dispute in a specific field might be more difficult than it would be for a mediator that is specialized in that area to whom you could go to outside judicial mediation.

3) Involving judges reduces flexibility of mediation, because it limits your choice of mediator: it is the CJ who appoints the judge mediator, you cannot pick OR the one that would be best is busy otherwise at the time when you need them.

HOWEVER, new judges could be slowly trained with the skills to be better mediators as well. Many of the disadvantages of judicial mediation result from the CULTURE of the judges that are available to act as mediators (old school judges, for whom EDR is not familiar). Still, the generalist nature of judges remains a problem, it cannot be fixed by mediation training.

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Extra-judicial Dispute ResolutionProf. Frederic BachandOther issues:

4) Having judges mediate detracts judges from core task of applying, developing, clarifying and ensuring effectiveness of legal rules. Instead of spending the time writing the judgments, thinking about the law, making sure that law reflects society (i.e. performing their traditional functions), judges would be saddled with MORE cases, thus diluting their fundamental functions in the public interest.

5) Access is usually restricted to parties involved in a civil action: why restrict it to disputes that have gotten so bad that it has ended up in court? Could it not be made available to all disputes, before they reach the stage where it has to go to court. Of course, costs and resources are one reason. But could it not be financed on user-pay-per-use basis? In reality, the issue could be fixed by amending the procedural rules: instead of filing a claim under adjudication procedure, an amendment to the procedure code would allow you file a claim under mediation procedure instead, bypassing the restriction to just disputes that have gotten to the lawsuit stage. But would this be politically realistic that judges would accept broadening the availability of mediation, since it would create more work for judges?

6) Judicial mediation may be fine if judge’s role in the mediation is purely facilitative, but less so if parties are looking for a more evaluative process: judge would then have to express an opinion on each party’s case; if judges start adopting evaluative role, and start giving opinions on each party’s case without trial, parties will start giving a lot more weight to evaluation of a judge than if the same opinion had been rendered by a private mediator; but this is a fallacy because while it is rendered by a judge, it is done without the benefit of a full trial, therefore there is no reason why the judge’s evaluation should bear more weight than that of a private mediator. The status/position of a judge in society could distort the parties’ perception of what is in their best interest: this is problematic, especially when you are dealing with unsophisticated parties. For unsophisticated parties, there is a chance that the awe inspired by the judge’s status would prematurely lead them to accept an evaluation/resolution of the conflict with which they do not fully agree. This would lead to a later realization that the way the conflict was solved in a way that they actually did NOT want, restarting the conflict and ending up at ground 0 again. So, facilitative judicial mediation could potentially be less effective at solving conflicts.

Still, overall, getting an opinion that you hold in esteem is the point of mediation, so having a judge, a person whom you respect, render it is actually what you want! This is the counter to the above objection to judicial mediation.

7) Risk of overly formalizing mediation by integrating it in judicial process: the setting of a courthouse, the intimidating nature of a judge, etc.

(ii) Some aspects of the relationship between the parties and the mediator (i.e. quality of the mediation process)

The second question is “what are the mediator’s obligations vis-à-vis the parties”? eg. Mediator’s ethics (mediator=just make settlement happen or also make it fair), mediator’s liability and immunity (should same facilities be afforded to mediator as to judges/arbitrators?).

a. Mediation Ethics

This is about the relationship between the mediator and the parties: what are the rules regulating this relationship?

Standards of Conduct applicable to the Mediator:

In a system where mediation is encouraged, do we need standards of conduct for mediators? Will having that encourage the use of mediation, encourage parties to use it?

Firstly, you must ask “can ethical problems really arise in mediation”? Even if mediators misbehave, this will not change anything given parties always retain control over outcome. However, in practice parties’ decision will be

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Extra-judicial Dispute ResolutionProf. Frederic Bachandsignificantly influenced by what mediator says and does: they place their trust in the mediator. It is thus in the parties’ interest that mediator complies with certain norms of conduct.

Then, agreeing that you need mediators to follow certain norms, you ask “is there a need for ethical norms to be designated to ensure proper mediator behaviour, or are market incentives sufficient”? In practice, market cannot be completely trusted to provide sufficient incentive to ensure mediators behave. Thus, there should be designated ethical norms.

Finally, given the consensus that there should be designated ethical norms, “who should be responsible for articulating them”?

The legislature: While some articulation of rules have been done, they cannot be expected to cover everything: the legislatures will only articulate very limited, specific rules.

The courts: Since private lawsuits against mediators are rare, courts do not have much opportunity to articulate what is good and bad mediator behaviour. Plus, are judges really the best to decide these standards?

The community: This would entail mediators themselves developing a framework applicable to their own behaviour. The community would comprise DR associations, mediators themselves, etc. In practice, it is these actors that have taken responsibility for articulating ethical standards governing mediators’ behaviour, which will hopefully offer incentives to use mediation services. The downside of this type of articulation is the uncertainty of whether a certain code of norms applies to just the institution which puts it out, or is it like a codification of widely applicable norms. There is also the issue of enforcement: there are no enforcement proceedings for these norms, no possibility of disciplinary proceedings, they are purely suggestive.

SUMMARY:

Market incentives are not sufficient to ensure proper mediator behavior; ethical norms/standards are needed.

So far, legislatures have been rarely involved in articulating such standards. Dispute resolution associations/institutions have been primarily responsible for articulating such standards. (eg. AAA/ABA Model Standards of Conduct).

Uncertainty remains re: concrete sanctions, as mediation is not a profession per se.

FOOTNOTE: is there an obligation to at least consider mediation/EDR and if it cannot be proven in court that you have at least considered the option, and you just went directly to public adjudication, then you may be penalized in the trial, even if you are the winner. This is apparently what the English courts have been doing. Since English law is increasingly influential in EDR, this seems to then be the leading trend and would be influential before Canadian judges in both CML and QC.

What should the CONTENTS of ethics norms be?

Independence/impartiality

There must be no pre-existing circumstances giving rise to doubts as to mediator’s ability to perform mediation in unbiased manner. Disclosure of such circumstances is necessary before mediation goes forward, to allow parties to decide if they can live with the potential for bias.

Mediator must give equal and impartial treatment to the parties during mediation. This entails that the obligation to be impartial and independent and disclose any circumstances that would prevent him from doing so extends to before, during and after the mediation.

Competence

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Extra-judicial Dispute ResolutionProf. Frederic BachandThis refers to ability to effectively mediate, not issues of jurisdiction. As per AAA rules, mediator must have official mediation training to be able to affect mediation mandate.

Efficiency/diligence

Mediator has obligation to mediate in a manner as swift as possible and to make themselves available to the parties. Another more specific obligation is to comply with the specific obligations of the mediator as formulated by the parties.

Confidentiality

This has to do with the mediator’s obligations to keep quiet about the existence, content and procedure in a mediation.

Fostering self-determination by the parties

Since mediation is all about party control of the outcome, mediator cannot coerce the parties in any way, and must respect parties’ freedom to determine the outcome.

What about the contents of the settlement? Does the mediator have any obligation with regard to the content of the settlement?

Does mediator have duty to ensure parties know all the facts needed for informed consent to the mediation? i.e. when a car manufacturer wants to settle to not attract publicity, and they withhold information that there are similar claims to the claimant’s in other countries; this would make claimant’s case stronger and he would not be as willing to settle, having car manufacturer end up in court which would attract bad publicity. In this case, does the mediator have a duty to inform the claimant of the other claims? Should the mediator be concerned with substantive justice of the parties’ settlement?

1) No, job is just to make sure they agree, not on the justice of the agreement.2) Yes, mediator should be concerned with substantive justice.

According to the ABA, (and this is the general model) the mediator’s job is not to ensure that parties give fully informed consent to the settlement. His main job is to get them to agree. The most a mediator will/should do is make sure parties understand the importance for parties of seeking further advice, where appropriate, to help them make informed decisions.

While this seems harsh, the mediator cannot concern himself with the parties’ ability to make an informed decision because this would compromise his independence/impartiality, as well as breach his obligation of confidentiality. As soon as he advises one party that they are not making a fully informed decision, he is giving them an advantage they do not otherwise have. As well, as soon as he discloses the reason why the party is not making an informed decision, he is breaching his obligation of confidentiality towards the other party, whose secret he is sharing with the first party. Therefore, judges should be left to be the guardians of substantive justice of settlements.

However, there are counters to this: 1) on principle, it would defeat the point of EDR (which is to avoid public adjudication), it would be

inefficient if some cases would just have to end up in court anyway.2) consumer might never realize the fact that the consent they gave to the settlement was not fully informed,

so might never get an opportunity to rectify the injustice.3) Even if consumer/wronged party does realize the injustice they have suffered, there have to be procedural

mechanisms to enable them to bring the settlement to a judge and have them set it aside; the public adjudication system must be accessible! But, in general, it is considered to be inaccessible, so judicial review of content of settlements is not really a practical remedy.

We need to also ask whether the mediator has a general duty to ensure compliance with the rules of public order/public policy? This would mean mediator would have a duty to prevent a weaker party from consenting to

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Extra-judicial Dispute ResolutionProf. Frederic Bachandan unfair settlement, not to just ensure that they have all the information to ensure informed consent. But does not such a duty entail that only jurists could provide efficient mediation services because they are the ones familiar with these rules of public policy? This would sacrifice an important aspect of mediation’s flexibility, as it would reduce the pool of those who could act as mediators.

CONCLUSION: neither the approach that mediator DOES have a duty to ensure a substantively informed and fair settlement, nor the approach that he has no such duty are a perfect solution.

Pirie A.J. Alternative Dispute Resolution – Skills, Science and the Law (CB 560 ff.)

MEDIATION ETHICS

The primary purpose of ethics codes is the protection of the public interest. A number of mediation-focused organizations have come out with codes, but no one dominates and there are differences between these statements as to what mediators’ obligations are.

Compilation of points made by different codes:

General Definition: Mediation is cooperative, problem solving process in which qualified impartial third party neutral assists

participants to resolve dispute by mutual agreement Mediator facilitates communication, promotes understanding, focuses parties on their interests, seeks creative

solutions that enable parties to find own agreement Mediator has no power to impose resolution

Confidentiality: Confidentiality is critical, both in terms of releasing information outside the process, and in terms of

undertakings to keep certain info confidential within the process May only release info if required by law or if the parties agree If law or regulations dictate that mediator must release confidential info, he must advise parties of this

imperative Mediator must disclose if a party makes violent threats towards the other party Mediator must keep confidential all information that parties would reasonably expect him to.

Impartiality Mediator must avoid conduct that gives appearance of partiality Must guard against partiality or prejudice based on the parties personal characteristics Must not allow mediation to be unreasonably delayed There must not be any prior professional or personal involvement between the mediator and any of the parties Despite duty of impartiality, mediator must still help participants to consider how their proposed arrangements

realistically affect other persons Must not provide any professional services to only one party during mediation

Qualifications: Mediator should be qualified by education and training to undertake the mediation in a way that satisfies the

reasonable expectations of the parties. Must maintain professional competency in mediation skills Must upgrade his skills on an ongoing basis

Conflict of interest: Mediator must disclose all actual and potential conflicts of interest reasonably known to him, occurring

before, during and after the mediation. Shall not establish a professional relationship with any of the parties Shall avoid any activity that could create a conflict of interest Conflict of interest is a dealing or relationship that might create an impression of possible bias If all parties agree to mediate after being informed of conflicts, mediator may proceed with the mediation

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Extra-judicial Dispute ResolutionProf. Frederic BachandOther issues: Duty of mediator to suspend or terminate mediation when continuation of process is likely to harm or

prejudice one or more of the participants or when it appears that further discussion between the parties is unlikely to be productive

Mediator must educate people about availability and nature of mediation. Mediator must work to ensure a quality process and encourage mutual respect between parties Must be sensitive to impact of culture and religion on parenting philosophy and other decisions Must not engage in sexual relationship with mediation participants (2 year term suggested) Mediation services should be available on same basis as other services of the court

The Resolution of Mediation Ethics

The need to articulate ethical guidelines for mediators has been identified with increasing frequency. But is it fundamentally desirable?

1) what does ethics mean in the mediation context?

Whenever the action to preserve one value involves undermining another, a mediator is in an ethical dilemma that, if it is to be resolved, requires ethical action.

Ethical dilemmas occur in 9 different situations: 1) keeping within limits of competency2) preserving impartiality3) maintaining confidentiality4) ensuring informed consent5) preserving self-determination/maintaining non-directiveness6) separating mediation from counseling and legal advice7) avoiding party exposure to harm as a result of mediation8) preventing party abuse of the mediation process9) handling conflicts of interest

Other perspectives on the meaning of ethics that help inform the mediation contexta) before being able to sort out the issues within each arena of debate, mediators should investigate and understand philosophical theories such as utilitarian, virtue and deontological theories.b) concept of professionalization: codes of ethics should reflect the norms of what it means to be a profession as much as the nature of the mediation itself.

Relying on the notion that respect, caring and procedural fairness are three universal principles needed in conflict resolution, ethical policy in mediation will depend on asking what mediator and process qualities engender trust and demonstrate respect, caring and fairness, while avoiding ethics that emphasize individuals over communities and individual rights over responsibility to others, as different cultures might have different views on these.

2) What are the difficulties in identifying the ethics of mediation?

i) theoretical difficulties we cannot determine what the ethics of mediation will be until we are clear what the role of a mediator is. Notion of ethics is a relative one: what might be an ethical dilemma to one mediator might not be to another Mediation is too complex a process to have general rules of conduct enunciated for it. Debate over the status of mediation as a profession Identification of what the ethical goals of mediation should be: the main issues that would be in any code are

preserving self-determination, ensuring informed consent, mediator impartiality and mediator neutrality; however, a code of ethics for mediators could not enunciate rules to protect these goals because these goals will always be in conflict with each other; discourse on ethics must mature to extinguish this conflict first.

ii) Practical difficulties

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Extra-judicial Dispute ResolutionProf. Frederic Bachand Who should be creating these codes? There is no authoritative body of mediators, it is arguably undesirable

that such a body emerge, and entrusting this task to government is problematic because they will have problems in determining standards that clearly reflect the values central to the mediation process

Who should the code apply to? Should different forms of mediation have different ethical standards? How a code of ethics will be enforced? If mediation does not emerge into a unified, self-regulating profession,

the duty of enforcement will probably fall onto courts or the government; the costs associated with this are immense.

c) A best ethical response

While the dominant sources of ethical guidelines remain professional associations of mediators, and the professions that the mediators belong to, it should be noted that the movement to government-created ethics has begun. The final look of mediation ethics is however not clear.

Model Standards of Conduct for Mediators (AAA)

Stulberg, J.B., “Should a mediator be Neutral?”

1. Introduction: A mediation conference should constitute a justice-event for its participants. Consequently, the mediator must be neutral because his posture alone secures the broader goal of mediation as a justice-event. By contrast, other priority goals such as economic efficiency, case disposition etc. do not require the intervener to be neutral. (S)he could be impartial or smart, and that in and of itself could be sufficient to ground effective intervention.

2. Disturbing Pictures of Intervener Conduct:Situation 1: A university adopts a mediation program allowing supervisors and subordinates to discuss disputes arising between them. The mediators are independent third parties hired and paid by the university. A separate, more formal dispute resolution process is adopted to deal with allegations of sexual harassment. Parties involved in the mediation program are prohibited from discussing sexual harassment allegations.

Presume that during a mediation conference a subordinate worker complains that her supervisor is creating a hostile work environment by emails he sends to her and comments he makes in the presence of other employees. The mediator notes that according to the program’s rules they may not discuss those allegations since they constitute prohibited acts of sexual harassment and therefore must be addressed in another forum.

Situation 2: A professor suspects a favorite student of hers of plagiarism. The College honor code provides that a trial must be held and that any conviction must be either suspension or expulsion. Sidestepping the formal process, both parties meet with a mediator and agree that the student will do extra work and so obtain a passing grade. The mediator believes she helped 2 parties to work out acceptable settlement terms and says she would do it for any persons similarly involved.

Situation 3: A mediator is hired by an insurance company. Income from mediations involving that particular company constitutes 90% of her annual earnings. In the opening statement to parties in mediation she does not mention either that she has mediated on behalf of the insurance company or the extent to which it generates her income.

Situation 4: An about-to-become father insists that only Caucasian staff assist his wife during delivery. The hospital representative, a Caucasian herself, refuses but after a mediation session conducted by a private mediator consents to the father’s request.

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Extra-judicial Dispute ResolutionProf. Frederic BachandAssuming that the substantive outcome in each scenario was acceptable to the parties involved, that no one was coerced into accepting it nor was denied access to information, each nevertheless tramples justice considerations.

Situation 1: The mediator is perfectly impartial; she displays neither bias nor prejudice in enforcing jurisdictional rules. However, if allowing participants to raise any negotiable issues that are of concern to them makes a conversation a justice-event, then the mediator’s intervention undermines justice considerations.

Situation 2: Here the mediator is impartial because she asserts she would perform the same service for all persons thus involved. However, what makes it unacceptable to the author is that the settlement is made possible only on the grounds that its terms be not made public. No party “waives” a right it possesses: rather, the justice principle vitiated is that the effectiveness of the solution developed by the parties depends on the participants being exempt from obligations binding all other community members.

Situation 3: This scenario challenges the proposition that the mediator ought to be impartial. While the mediator has been effective in helping parties to reach acceptable settlements, she cannot claim to be impartial, let alone neutral, due to her involvement with the insurance company.

Situation 4: While the mediator was arguably impartial and neutral, no care was taken to include parties who could be harmed by the outcome (persons of color employed by the hospital) in the mediation process. The justice consideration the mediator trampled is that which ensures that those harmed by the negotiated settlement have the right to participate in the decision-making process that leads to the outcome.

3. Mediation, Neutrality and Justice:Some disavow that the term “neutral” has any meaning, or claim that it is impossible to be “truly neutral.” The Uniform Mediation Act defines a mediator without referring to neutrality. The author argues that no reasonable disputant would consent to resolve any controversy if that approach were not justice-based. And the only way to insure a justice-based process or outcome is for the mediator to be neutral.

Mediation is a justice process when:- party participation is voluntary;- parties cannot alienate their fundamental interests;- the mediated outcome must, in principle, be public;- parties participate in a manner that accords each person dignity and respect;- participants have the capacity to envision and appreciate alternative courses of action for living a life of

normal duration, so that decisions are informed and;- Parties are capable of tolerating conflicting fundamental values among one another.

If these features are present and honored in a mediation process, then any party-generated outcome meets justice requirements. To advance these justice-features the mediator must be neutral and not only impartial. Impartiality and neutrality are not synonymous. Impartiality reflects the consistent application of stated rules in a rule-governed procedure; it means to treat similar cases similarly. Impartiality in a mediator promotes participant confidence.

Neutrality on the other hand commits a person to support discussion in a way that does not foreclose or skew consideration of what constitutes the bargaining agenda items, what parties will participate, or what the substantive outcomes will be. Being neutral does not mean indifferent, but it means not being paternalistic.

A mediator who is neutral makes sure that his preferences/biases for a particular outcome do not govern his conduct when serving as an intervener in a social process dedicated to promoting party autonomy. Every mediator intervention “influences” the interaction of disputing parties but this doesn’t mean that a mediator cannot be neutral because influences qua influences occur. Unlike being impartial, being neutral requires that one does not have a tangible stake in the outcome of the process.

Mediator conduct is shaped by many principles, such as impartiality, efficiency and predictability among others. But it is the weight accorded to neutrality that is always decisive. Without neutrality, a participant involved in mediation may suspect the process to be “stacked” against him, that the mediator’s intervention is designed to undermine his interest.

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Though parties may resolve their disputes without the intervener’s commitment to neutrality, that is not sufficient. Only a neutral intervention can promote two central values: personal autonomy (freedom) and fairness (justice).

4. Why Justice?To resolve disputes in a manner which sustains individual dignity and freedom one must resolve conflicts in a fair manner, in a way consistent with justice principles. Mediation should be measured by this standard – for that to be possible, neutrality is required.

UNCITRAL Model Law of International Commercial Conciliation

Article 5(5)

Article 6

Article 8

Article 9

SUMMARY:

What (if anything) should mediator do if he feels one party:--is unaware of key info held by opponent--is about to consent to unfair settlement--is unaware that solution contemplated conflicts with rule of public order/public policy

Dominant view is that mediator should go no further than reminding party of importance of consulting legal adviser or other professionals.--fits with neutrality/impartiality expected of mediator--but since not all settlements bring justice, this model is only acceptable if courts can subsequently review settlements

However, as we will see next:--such review is not automatic: therefore, party must be aware of settlement’s unfairness, and then initiate and finance the court proceedings--grounds for reviewing settlements tend to be very (too?) narrow

An alternative to settlement review by the courts as a means of ensuring access to justice in mediation would be to have lawyers present for each party, to watch out for the above justice problems. While this raises an issue of costs, the fact that costs if you have to go to trial to review the settlement are much higher, PLUS considering the fact that parties may not even realize the unfairness of a settlement in order to get it reviewed, having lawyers there to advise and watch out for their clients’ interests could be a good thing.

b. The mediator’s liability and immunity

Need to think about the need to shield mediators from liability and the extent of mediators’ liability. Given that the relationship between mediator and the parties is first and foremost a contractual one, are there not at least some issues with respect to which immunity should not operate? Where should the line be drawn? Is the analogy

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Extra-judicial Dispute ResolutionProf. Frederic Bachandwith the immunity of an adjudicator (judge, arbitrator) an appropriate one? Should the immunity afforded to arbitrators be absolute or relative?

The issue is civil liability as an incentive to ensure proper mediator behaviour.

Firstly, there are different types of mediator misbehaviour:1) The mediator poorly executed his core duty to promote a settlement: failed to add anything to the

parties’ own efforts.2) The mediator failed to execute his incidental duties: duty to be available, fully and continually disclose

anything that could affect his impartiality, duty of confidentiality, etc.3) The mediator misbehaviour relating to his acts or omissions, not his duties as a mediator: mediator

makes statements defamatory to one or another party, which could give rise to a claim that has nothing to do with mediation itself; as well, verbal or physical assault of one of the parties by the mediator would also lead to a claim against the mediator unrelated to the mediation.

There are two basic questions:

1) Should it be possible to sue mediators for breach of standard of conduct?

Judges/arbitrators are regularly given immunity for their acts accomplished as judges/arbitrators, as neutral third parties involved in the resolution of commercial disputes; since mediators fulfill the same role, why should mediators not benefit from the same thing?

The analogy is not perfect because mediators are service providers: they are hired by the parties! But so are arbitrators.

Another difference is that there is a strong institutional mechanism for disciplining judges, and they can be reversed on appeal. But this does not happen for arbitrators!

Bachand: the difference actually lies in the fact that judges and arbitrators are adjudicators: in such a setting, the adjudicators must feel free and unthreatened by the possibility of a lawsuit by the aggrieved party, in order to render a proper, fair, real decision. This is not the case with mediation, because mediators do not make any decisions. Therefore, since adjudicators and mediators perform such different tasks, the immunity issue does not apply in the same way.

Some people argue that it is a good thing to encourage mediation, and offering immunity would encourage people to act as mediators. Others argue that doing so will just encourage mediators to misbehave, making them be bought out easier.

What about limited immunity? Perhaps immunity for core duties, but not for gross misbehaviour, fraud, etc.

HOWEVER, the main point is that the ONLY reason for which immunity is at all afforded to judges and arbitrators (i.e. ensuring freedom to make a decision unencumbered by a threat of lawsuit from an unhappy party) does not apply to mediators. As well, mediators, while useful and helpful, do not do something that is so valuable to society that their work must be protected and encouraged through a grant of immunity: there are many other professionals in society which do much more, and are still not immune (i.e. surgeons).

2) Can private lawsuits be an effective way to promote proper mediator behavior?

Firstly, imprecise standards of conduct for mediators make proof of fault very hard. As a result, as per 2003 survey of AUS, NZ, US, UK and CAN, there have been no reported cases of successful lawsuits against mediators. You would have a problem proving breach of core duties.

There are also problems of quantifying your prejudice: how do you go about proving how much you lost because the mediator failed to conduct the mediation well: how do you quantify loss of chance to get more out of the mediation in such a context?

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POINT: Lawsuits are usually NOT an effective incentive against mediator misbehaviour.

An alternative to suing the mediator would be trying to set aside the settlement based on procedural unfairness.

Thibault, J. “Les procedures de reglement amiable des litiges au Canada”

Quebec Code of Civil Procedure“A judge may preside a settlement conference. A judge enjoys immunity while presiding such a conference.”

C. THE MEDIATION PROCESS

(i) i. Overview of the mediation process

Pirie, A.J., Alternative Dispute Resolution – Skills, Science and the Law (CB 391-396)

MEDIATION: THE PROCESS

After parties select to undergo mediation, how the process proceeds depends on many variables, including the nature of the mediation process used, goals pursued, the mediator, the ideologies involved, other negotiation related variables. Overall, what happens next in mediation must be dynamic, diverse, unique to the setting and somewhat unpredictable from mediation to mediation.

1) Mediation as a Staged Process:

Mediation as a staged process that relies on interest-based bargaining: the stage descriptions isolate what might be appropriate mediator skills (see CB 464-65). There are twelve and six stage models, as well as interest-based mediation models.

Twelve stage model:1) Establish relationship with disputing parties2) Select a strategy to guide the mediation3) collect and analyze background information4) design a detailed plan for mediation5) build trust and cooperation6) begin the mediation session7) define issues and set an agenda8) uncover hidden interests of the disputing parties9) generate options for settlement10) assess options for settlement11) final bargaining12) achieve formal settlement

Six Stage model:1) introduction2) gather the facts3) issue clarification and development4) identify interests5) generate options and select a solution6) formalize agreement in a clear, comprehensive, accurate, enforceable way

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Interest-based mediation models: two general structures

Chornenki/Hart:a) joint session in which all parties and their professional advisors meet with mediatorb) opening statements by parties: the dispute from each party’s perspective and outline of positions taken by each on outstanding issuesc) mediator questions parties to clarify facts/issues, or begin involvement of parties themselvesd) mediator moves discussion from positions to interests (needs, motivations, concerns underlying dispute): this is in order to maximize the possible options mediator can offer for settlemente) final join session: if there is agreement, write down and sign memorandum of settlement; if no agreement, summarize the process to assist in further DR.

Walker:a) intake process: emphasis on describing what mediation is, how it works, what is expected, setting of ground rules; mediator also gathers data that will be used to assess parties’ motivation and ability to negotiate together; goal is to establish a clear picture of the manifest and underlying issues and ensure that parties have a clear understanding of mediation and determine if they wish to proceed with itb) fact finding and planning the agenda: after ensuring that all relevant data is on the table, this step entails clarifying areas of agreement and disagreement and thus be able to set the agenda.c) exploring options and alternatives: each party is helped to articulate the options they know or want and to develop new alternatives; mediators are facilitative and creative during this part of the processd) negotiation and decision-making: mediator helps parties negotiate, which entails compromise on both partse) clarifying and summarizing agreements: this is the production of some sort of document or draft agreementf) review: time is often given for the parties to try arrangements out and review them, possibly with their lawyers; this is a safeguards against making agreements that have unforeseen consequences.g) implementation and reviewing agreements: this is like a follow-up session if it is needed to resolve any issues of discontent and offer positive reinforcement for continuance of mediation plan.

The benefits of Structuring Mediation: Keep negotiations on track Highlight actions and skills necessary for negotiation success Convey a sense of progress to parties Provide a framework to move off a difficult point Give parties a sense that they are taking a new approach to the issues in dispute Encourages parties to discover their underlying interests before talking about possible positions The stages of mediation allow for a process that can be studied and applied more conveniently, and thus

enables mediation to be more credible as a profession rather than just a general, uncertain process such as negotiation, parenting, to which there are no predictable rules.

2) Open Consensual Mediation:

This is another approach to mediation. While in interest-based mediation, it is the mediator that is in charge of the process (and can apply any of the different templates as outlined above, or make up his own), in open consensual mediation, the mediator and the parties as well as anyone else that they agree on, will be in charge of deciding what the process will look like.

Therefore, in open consensual mediation, parties are involved in making both the SUBSTANTIVE decisions (i.e. what the outcome will be) and PROCEDURAL decisions (how the mediation will proceed), while in interest-based mediation, the parties only make SUBSTANTIVE decisions, and let the mediator set the process.

As a result of the fact that parties are involved in the procedural decisions, the open consensual mediation process is very open-ended, and can look very different from one mediation to another. The advantage of this kind of mediation is that while slower at the beginning, while the procedural decisions are made, it can go faster later on, because parties will be happier with the process, since they created it rather than having it be imposed on them by someone else.

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Extra-judicial Dispute ResolutionProf. Frederic BachandConsensual mediation has two major stages:

1) Commitment: must determine if there is party commitment to open consensual mediation and provide an overview of what this kind of mediation entails, and answer any questions.2) Processing: what occurs in this stage depends on the context; the mediator’s main role at this stage is to make sure that progress is being made and to maintain the commitment to open consensual mediation.

Quebec Code of Civil Procedure

Art. 151.16

Art. 151.17

Art. 151.18

UNCITRAL Model Law on International Commercial Conciliation

Article 6 – Conduct of Conciliation

Article 7 – Communication between conciliator and parties

Article 11 – Termination of conciliation proceedings

(ii) Focus on confidentiality and privilege

The law must protect the confidentiality of what goes on in mediation. The focus is on the regulation of “mediation communications”. i.e. any “statement whether oral or in a record verbal or nonverbal, that occurs during a mediation or is made for purposes of considering, conducting, participating in, initiating, continuing, or reconvening a mediation or retaining a mediator” (US Uniform Mediation Act, Section 2(2)).

Confidentiality and privilege are not the same thing. They are parallel rules.

Privilege is narrower: it is a rule that prohibits the use of these mediation communications in subsequent adjudicative proceedings. Eg. One party’s offer to settle for 50% of amount of the claim can’t be used against that party in a trial if no settlement occurs. There is a consensus on the need for such a privilege.

Confidentiality is broader: it is a prohibition on the use of mediation communication in other contexts than adjudicative proceedings. E.g. disclosure to the media, the public, competitors, etc. There is also a consensus on the rational behind the desirability of this rule.

Privilege and confidentiality are parallel notions, and confidentiality does not necessarily include privilege!54


There is also a difference in the approach between US Uniform Mediation Act and the UNCITRAL Model Law on Conciliation.

The UNCITRAL Model Law extends default confidentiality protection to ANY communication related to the mediation, unless the parties agree otherwise.

The US Uniform Mediation Act also acknowledges the importance of confidentiality, but it does not have a general rule of confidentiality that parties can contract out of, but rather puts this general rule to the disposal of the parties and leaves the burden on the parties to contract into it.

These different approaches show that there are differences of opinion on the way the law should protect confidentiality. This matters when you draft an undertaking to mediate: because there is this uncertainty, you have to be aware of how sensitive to confidentiality your client is and not take any chances and write that level of sensitivity into the K by specifying WHAT should be subject to confidentiality. Therefore you should not assume that, in practice, confidentiality protection will be offered to your client automatically by the legal framework.

What should be the limits of privilege attaching to mediation communications?

a) A party must be able to adduce written settlement concluded in mediation in subsequent legal proceedings alleging that opponent failed to comply with settlement. It would be counterintuitive that producing this out-of-court settlement would be barred by the rule of privilege. Otherwise, the settlement would be unenforceable and it would frustrate the purpose of the mediation process. (s. 6(a)(1) US Uniform Mediation Act, Art. 10(3) UNCITRAL Model Law on Conciliation)

What about an attempt to prove an oral settlement allegedly reached at mediation?To do so, any testimony would breach the mediation privilege because it would contain details about what took place, was said during the mediation. Should there be an exception in this case (i.e. allow testimony despite breach of privilege)?

On one hand, there is a public policy need to ensure the enforceability of settlements and not frustrate the purpose of mediation. However, there is the great risk that there is no way to define when there is an oral settlement, thus triggering the exception: extending the exception therefore to oral settlements opens the door to ANY allegations of a settlement being reached opening up the mediation to public exposure, bringing out all the details of it under a bad faith pretext. Furthermore, if the rule of the formal writing requirement is clear, then reliance on oral agreements should be effectively deterred and parties should be able to adjust their behaviour accordingly.

Both Ontario (Rudd) and Quebec (DL v. PB) decisions uphold privilege against oral settlement. Failed oral settlements are collateral damage in a system trying to uphold an essential ingredient to a functioning mediation. These decisions conform with the US Uniform Mediation Act that has no exception for oral settlements (and the commentary confirms this).

1) ON: Rudd (IMP: 2006, revision of 2004 decision in course pack) = mediator cannot be compelled to testify. Here, Kaiser wants the mediator to testify, it is not a case of the party wanting to testify being barred from doing so. This testimony would be very important to establish if Kaiser was part of the settlement. The original 2004 decision raised fears that if mediators could be subpoenaed to testify, they could lose their impartiality, etc.: could be hindered from properly mediating, etc. The Bar of Ontario intervened with these suggestions, and ON Court changed the 2004 decision on appeal.

Rudd et al. v. Trossacs Investments Inc et al. [2004] Ont Sup Crt (p. 185 CB) **overturned 2006!

Facts: On motion, pltfs seeking interim order to require mediator to give evidence as to what occurred at a mediation btwn the parties held earlier. This is to aid the main motion of the pltfs which is to have the written minutes of the settlement changed to indicate that MK was a party to the settlement. Pltfs allege MK was inadvertently left off the written agreement. Defendants deny that MK was a party. The

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Extra-judicial Dispute ResolutionProf. Frederic Bachandmediation agreement contained terms re – confidentiality (all communications and docs wouldn’t be discoverable).

Issue: Can the mediator give evidence on this issue (where the terms of settlement are at issue)?

Held: Yes, but examination of mediator is restricted to his knowledge of whether MK was a party to the settlement.

Analysis: - Mediation privilege isn’t absolute. Once a settlement is reached and its interp is at issue,

disclosure may be necessary to ensure substantive justice. - In such circumstances, disclosure will not undermine the mediation process b/c it is sought, not

as an admission vs. a party’s interest but only for the purpose of determining the specific terms of the agreement that both parties arrived at.

- However, mediation shouldn’t be lightly disturbed, since confidentiality is critical to success of mediation.

- Some evidence must be adduced on motion to show that there is some probative value of the mediator’s evidence, and that the benefit is greater than any injury to the mediation process due to disclosure of discussions that took place.

- In this case, it’s deemed that if there is any impairment of justice it is minimal.

POINT: Mediator MAY be compelled to testify.

2) QC: D.L. v. P.B., July 2006 Qc SC = party can’t testify; court said that confidentiality trumps other interests, even the ability of parties to prove a settlement. This is because all the parties would have to do to ensure being able to prove the settlement is put it in writing and sign.

3) there is no exception for oral agreements in US Uniform Mediation Act: cannot use mediation details to prove an oral agreement because doing so could easily swallow up the rule of privilege, since this exception could trigger the publication of mediation details as a result of any unbased allegation of an oral settlement.

b) Malpractice/misconduct lawsuits against mediators . See s. 6(a)(5) of the US Uniform Mediation Act. This exception is important because, in order to pursue such a lawsuit, you need to establish mediator misconduct, and you can only do so by bringing in information about the mediation. Of course, this exception must be viewed in the context of the rules on the limited immunity afforded to mediators.

What about professional negligence of a lawyer representing a party in mediation? This is a similar conflict of principles as with the mediator’s wrong-doing, but the accountability interest is towards lawyers. There exist far more accountability measures in general towards lawyers than for mediators. However, it would be a much more fundamental flaw in the justice system to lose trust in lawyers. Furthermore, the lawyer is the one who you should also be able to trust to keep the mediator in line. Should the public interest in favouring EDR override the public interest in keeping lawyers accountable to their clients?

The law has stated that exception to rule of privilege should not be extended to instances of pursuing professionally negligent lawyer. Kosko v. Bijimine, June 2006, Qc CA. This was a judicial mediation and this influenced the decision. But the reasons extend further and the decision would likely be the same in a private mediation. Bachand is unconvinced by the decision since its reasoning relies in large part on judicial independence. Bachand also thinks the judges might have been influenced by te fact that the case of negligence was probably baseless anyway.However, s. 6(a)(6) of the US Uniform Mediation Act states that such an exception SHOULD be allowed: not extending it is not necessarily how you limit frivolous lawsuits!

c) Allegations that settlement is invalid/unenforceable. Evidence not otherwise available, the need to set aside the privilege to prove the fraudulous/vitiating nature of the settlement should override the importance of

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Extra-judicial Dispute ResolutionProf. Frederic Bachandconfidentiality. However, the evidence as to consent is harder to limit. Thus s.6(2)(b) US Uniform Mediation Act contains qualifications to the exception: (1) necessity; (2) interest in truth outweighs the interest in confidentiality.

d) Waiver of privilege. See s. 5(a) US Uniform Mediation Act. If parties waive the privilege, there is no public policy reason for why the exception to privilege cannot apply.

Are there risks to privilege reaching too far? Shouldn’t courts have general discretionary power to set aside privilege in order to ensure, in appropriate cases, that truth will prevail? The Folb case.

Folb v. Motion Picture Industry Pension & Health Plans CA District Court (p. 106 CB)

Facts: Trial deals w. wrongful dismissal suit. Defendants (Plan) allegedly relied on complaint that Folb had sexually harassed another employee, V, as a pretext to discharge him. Prior to trial, the Plan and V had attended mediation in attempt to settle V’s claims against the Plan re- sexual harassment. Parties signed agreement to keep mediation process confidential. Parties finally settled after mediation. Pltf seeks to compel production of a mediation brief and related correspondence re – settlement between Vasquez and employer. Judge denies motion.

Issue: Can the crt order defendants to produce mediation brief & correspondence from settlement proceedings after mediation?

Held: Yes.

Analysis: - Information Folb seeks to disclose is relevant to case b/c it would tend to make it more likely than

not that the Plans terminated F for a reason other than b/c he sexually assaulted V. (ie – evidence that is relevant an element of a defence).

- To determine whether a privilege = public good, crt must consider: 1) Whether the privilege is rooted in the imperative need for confidence and trust2) Whether the privilege would serve public ends3) Whether the evidentiary detriment caused by exercise of the privilege is modest- Point 1 - Conciliators must maintain a rep for impartiality and the parties must feel free to talk

w.out any fear that the conciliator may subsequently make disclosures as a witness to other proceedings, to the possible disadvantage of one of the parties.

- Want to encourage mediation b/c it’s more cost-effective for parties and reduces the crts unmanageable dockets –parties should perceive mediation as a confidential and impartial process.

- Refusing to estbl a privilege to protect confidential communications creates an incentive for participants to w/hold sensitive info in med or refuse to participate at all.

- Point 2 – Mediation privilege serves important public ends by promoting conciliatory relationships among the parties, by reducing litigation costs & by decreasing size of crts dockets, which would in turn increase the quality of justice in cases that don’t settle.

- Point 3 – Mediation privilege may be attenuated in crim cases where the defendant’s constitutional rights are at stake. Apart from very specific cases, there’s little evidentiary detriment generally.

Contours of the Privilege- In order for the privilege to accomplish it’s goals must be predictable and certain, if parties don’t

know which discussions will remain confidential, it is almost the same as having no privilege at all.

- On the facts of this case – communications btwn the mediators and the parties and bwtn the parties themselves are protected. Communications in prep and during the course of mediation w. a neutral must be protected. But subsequent negotiations btwn the parties are not protected even if they incl info initially disclosed in mediation.

- To protect additional communications the parties must return to mediation.

POINT: in the end, Court decided that privilege was more important than Folb’s right to have access to all potentially relevant evidence from the mediation between the employer and Vasquez. The Court therefore ruled that it does NOT have a discretionary power to set aside the privilege

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Extra-judicial Dispute ResolutionProf. Frederic Bachandwhen equity requires it.

Comment: is this a good thing (=absolute privilege, no court discretionary power)? What about the competing interests of maintaining privilege v. the huge private interest of Folb to prove his innocence with regard to the sexual harassment, a very serious accusation which could have potentially serious effects on this individual, in the context of the case. The court is essentially telling him that procedural interests to encourage settlement is more important than the substantive importance of the emergence of the truth. Is not the pro-EDR philosophy taken too far in a case like this one? Bachand is troubled by the strict conception of the scope of privilege, and the refusal to recognize the existence of any exceptions. There is of course the lack of guarantee that Folb would even find anything in the mediation documents from the Vasquez mediation, but can this chance be taken? This argument could be taken into account in balancing the competing interests but the court does not even allow for such a balancing of interests!

Thibault, J., Les procedures de reglement amiable des litiges au Canada (pp 141-163)

Quebec Code of Civil Procedure

Art. 151.21

Commercial Mediation Procedure (AAA)

s. M-11

s. M-12

Mediation Procedure (CPR)

s. 9

Model Standards of Conduct for Mediators (AAA)

s. V


Article 8 – Disclosure information

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Extra-judicial Dispute ResolutionProf. Frederic BachandArticle 9 – Confidentiality

Article 10 – Admissibility of evidence in other proceedings

D. THE MEDIATED SETTLEMENT

What are the limits (if any) to the parties’ freedom to resolve the dispute as they see fit? When a judge is asked to enforce a settlement, what should his or her role be? Should s/he only be concerned with the existence and validity of the parties’ consent? Should fairness or reasonableness matter? Should the compliance of the solution arrived at by the parties with legal rules matter? What about rules of public policy/public order? Are there types of civil/commercial disputes (or claims) with respect to which settlement should be prohibited?

Are disputes regarding the bindingness of transactions/settlements frequent?

According to some US authors, no (Kovach)But, consider this French doctrinal statement: “Sans aller jusqu’a affirmer qu’elle engendre autant de proces qu’elle en evite, il faut reconnaitre que l’abondance extraordinaire des decisions judiciaries appelees a mettre un terme a un process derive d’une transaction ne plaide pas en faveur du role appaisant de cette justice contractuelle (Jurisclaseur, France).

Could this be due to important differences between bindingness of civil law transaction and bindingness of common law settlement?

Three grounds on which transactions/settlements can be impeached:1) no valid consent (procedural ground)2) unfair settlement (substance-based ground)3) conflict with public policy/public order (substance-based ground, related to unfairness

—I argue that it is also related to consensual issues, in the sense that consent to the settlement should act as a bar to attempts to impeach a settlement based on public policy; however, this will depend on whether the particular rule of PP can be contracted out of)

(i) NO VALID CONSENT

The settlement/transaction is invalid as a matter of contract. At both CML and CVL, transaction/settlement must first and foremost be valid as a matter of K.

At CML, consent issues are essentially analysed in light of generally applicable rules of K (Korobkin article).

a. deceit (misrepresentation)

Examples:- “My client’s injury is substantial.” - “My client was never at the site of the accident and has 2 witnesses to prove it.”- “My client will have to file for bankruptcy if you don’t accept to settle for $15,000.” - “Your claim is clearly prescribed.”

If the above are untrue, should someone be able to get out of a settlement where they relied on them? How to distinguish between the above statements? It would seem that the question is about the reasonableness of the reliance:

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- Adversarial dispute means that it is not reasonable to expect the other party to do your job of discovery for you. At the same time, the duty to negotiate in good faith (and indirectly, codes of ethics) suggest that you have a right to represent your cause and/or remain silent, but not mislead. (#2)

- Definiteness of the statement will influence how much of a “misrepresentation” it is versus a mere puff. (#1)

- Access to information that could verify the truth might influence the decision on misrepresentation. Only one party may be able to verify a fact and the other party may have no choice but to rely on the statement. (#3) Consider that there is no discovery procedure in mediation!

- Statements of law by definition more uncertain than statements of fact. They are usually seen opinions instead of facts, that are not to be relied upon. (#4)

- Offers are part of the formation of the settlement agreement. It is hard to construe them as statements that can be reasonably relied upon. Even so, this is expected custom that parties are not under obligations to disclose their bottom line accurately.

SUMMARY:Fact v Opinion distinction as rough guideGeneral v Specific as rough guideLying about one’s bottom line is fair game

b. non-disclosure of material facts

Examples: - Failure to disclose a material fact: e.g. that the damage started more than 3 years ago and is prescribed. - Failure to correct an implied falsehood: e.g. saying “my client’s hand injury seriously jeopardizes her

career as a painter” without disclosing that she actually paints from the other hand.- Failure to disclose newly discovered information: e.g. it turns out that the victim’s leg was only broken in

one place as opposed to a previous allegation of multiple fractures.

This raises questions about the duty to negotiate in good faith: not only refraining from lying, but also disclosure of all information that could affect other party’s decision to enter into a settlement. There are extensive duties to disclose, even in adversarial court processes (e.g. discovery). However, the negotiation/mediation context does not impose such specific obligations. Thus, there is hesitation to vitiate settlements on the basis of simple non-disclosure. (#1) However, if a fact is clearly implied by another factual statement, disclosure is more expected. (#2) Even further, it is less accepted that one can remain silent as to a clear previous factual statement that is only later discovered to be wrong. (#3)

POINT: failure to disclose a fact that contradicts an impression, and failure to correct a statement previously made in good faith are just exceptions. The general rule in mediation is that failure to disclose information useful to the other party cannot be the basis for vitiated consent and the basis of a challenge to the settlement.

c. Unilateral mistake

There are few cases where unilateral mistake will be sufficient to vitiate agreement. There are some specific situations (e.g. medical exam done by an insurance company) that allow vitiation of a settlement (half because of consent, half because of policy reasons). However, this comes closer to deceit if the other party knows of the mistake – i.e. the mistake is not really unilateral. Some degree of bad faith is necessary for a unilateral mistake to serve as a basis to a challenge.

An important caveat is that unilateral mistakes of law will NEVER be a ground to have settlement set aside.

d. Coercion

Examples:- “I will never do business with you again if you don’t accept this offer.”- “I will tell La Presse about my claim if you don’t accept this offer.”- “I will tell you wife about the affair you’re having if you don’t accept this offer.”- “I will kill you cat if you don’t accept this offer.”

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Claims that a party was unduly coerced into a settlement will form basis for a challenge, because it makes consent to the settlement vitiated. However, it is difficult to define the limits of acceptable coercion and undue influence.

There are other criteria for making the distinction, but the clearest is the legality of the threat in question. Clearly, threatening to do something illegal creates unlawful coercion. (#4) Threatening to do something full within your rights is clearly lawful. (#1-2) In fact, unless other circumstances exist that make it an illegal act (i.e. #1: consequential breach of contract; #2: privacy/confidentiality and defamation issues), barring these acts would violate fundamental rights (freedom of contract, freedom of expression). However, there is a large grey area in the middle. (#3) If it falls into the definition of criminal extortion, then it is unlawful coercion. However, even if it is lawful, it is still irrelevant and inappropriate. The caselaw in France suggests that these threats can vitiate consent even if completely lawful. The most extreme example is where a statement of “accept this or I’ll see you in court and you’ll lose” was sufficient to vitiate consent. This goes too far.

e. Error

CCQ 2637

Where the parties have made a transaction on all matters between them, the subsequent discovery of documents of which they were unaware at the time of the transaction does not constitute a cause for annulling the transaction, unless the documents were withheld by one of the parties or, to his knowledge, by a third person.

However, the transaction is null if it relates to only one object and if the documents later discovered prove that one of the parties had no rights in it.

Although there is a clear differentiation between a settlement on all matters and those regarding only one issue, this difference rarely arises in practice. Almost every settlement deals with “only one object” even if that one object is the totality of the claim at issue. Parties rarely make blanket settlements without reserving their rights.

Thus, in practice, the second paragraph is the norm. This provides that if you find the smoking gun after the fact, the settlement can be set aside.

(ii) Unfairness

Settlements can be unfair to one party versus the other. However, to vitiate a settlement on the basis of unfairness is a serious derogation from party autonomy. At the same time, we know that the circumstances underlying the formation of these transactions can be questionable. Indeed, these risks are greater in the context of litigious settlement than with other contracts.

Nonetheless, there is a broad consensus that unfairness is not a valid ground to set aside a settlement. At CML, unconscionability doctrine is theoretically available (although it also requires the absence of a meaningful choice – imbalance in bargaining power). However, this is a very hard case to make in general or in the context of a settlement:

(1) it is not a contract of adhesion(2) it is negotiated between the parties(3) the option of going to court is always available(4) there is pro-settlement public policy

CVL usually follows the CML, but CCQ 2634 clearly states lesion to be a potential cause of nullity. It is interesting, however, that only the English version of the CCQ specifically mentions lesion. The mention of lesion is absent altogether from the French version. In the only time this difference has been judicially examined, the Court of Quebec used the context to read out the mention of lesion from the English CCQ. (This mattered because lesion is otherwise very limited in Quebec CVL. It is only available when expressly allowed by law – CCQ 1405.)

There are other exceptions to the binding nature of settlements:- no settlement is effective when it regards a bodily or moral injury and is made within 30 days of the injury

(CCQ 1609)

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- class actions- family matters (Miglin)

Miglin v. Miglin

Russell Korobkin “The Role of Law In Settlement” CB 335-364

It is not completely true that the choice between public litigation of a dispute and ADR is one between the public rule of law and substituting a contract for that public rule of law.

Law significantly affects non-adjudicative settlements in two related but distinct ways: firstly, parties’ substantive legal entitlements affect out-of-court settlement outcomes because a litigant with a strong case can demand more as a condition of agreeing not to go to court; secondly, legal rules governing settlement behaviour and many of the rules governing the adjudication process also influence nominally “private” dispute resolution. The article focuses on this way in which law affects ADR.

1) Bargaining power and dispute resolution: a model for how parties make the choice between litigating or settling.

The author argues that there is a combination of money and non-monetary provisions where a party is indifferent between adjudication or ADR to solve the dispute. This is the RP point: for the plaintiff, an offer that will exceed the RP point will make settlement more preferable; for the defendant, an offer that is less than his RP point (the maximum he is willing to offer) will make settlement more preferable.

Litigants determine their RPs by evaluating what substantive legal rights a court would vindicate, but also take into account the transaction costs and risk associated with adjudication. Information learned during settlement negotiations and some rules of court procedure might also affect the RP.

If plaintiff’s RP > defendant’s RP, no settlement is possible: there is no set of terms that would cause both parties to prefer settlement to adjudication.

If plaintiff’s RP < defendant’s RP settlement is possible: there are one or more sets of terms that would make settlement more preferable for both parties (a bargaining zone).

A litigant’s bargaining power depends on both the opposing litigant’s estimate of his RP and the opposing litigant’s own RP.

Procedural rules governing litigation have a direct impact by affecting the expected benefits and costs to disputants of both out-of-court settlement and adjudication. Rules governing behavior in ADR processes have an indirect impact by affecting the ability of litigants to persuade their adversaries to reassess the adversary’s estimates of one or both parties RPs.

2) The Law of Bargaining Behavior: how various elements of the law of settlement indirectly affect the ability of litigants to persuade their adversary to reassess his estimates of one or both parties’ RP:

An agreement to settle a dispute voluntarily is a contract, and the negotiation of such an agreement is subject to the same limitations on behavior that the common law provides in any contracting context. Rules of professional responsibility are an additional layer of limitation on behavior of attorneys/negotiators. All these limitations affect the outcome of ADR processes.

A. Deceit:

Entails persuading an opponent that his prospects for adjudication are less desirable than previously believed.

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a. Affirmative misrepresentation:

Lies, or factual misrepresentations, can create bargaining power in out-of-court settlement negotiations when used by a disputant to convince the opposing party to change his estimate of his own RP or his estimate of the speaker’s RP.

The law of contract, tort, and professional responsibility deem some (but not all) affirmative misrepresentations made in the course of bargaining to be ILLEGAL, meaning that making one of these proscribed affirmative misrepresentations can void the resulting agreement and bring on the reinstatement of an original lawsuit, a damage award or professional sanctions. Sometimes it is unclear to which extent a lawyer may LEGALLY use deception to increase his client’s bargaining leverage.

The more general the false statement is, the more likely it is that it is legally permissible, because the legal standard in this case is whether the statement is of the sort that generates REASONABLE RELIANCE.

Misrepresentations may be of facts but also of the status of the law. Courts are traditionally more sympathetic to a bargaining party with inferior knowledge who relies on claims made by the another party with greater knowledge or access to information or who pretends he is particularly knowledgeable on the topic. Misrepresentations of BOTH fact and law present, at least implicitly from Professional Responsibility rules in the US, a theoretical risk of professional discipline as a result of misstatements.

Bargaining power can be obtained by either misrepresentation to convince the other party that their RP is lower than they thought or by convincing them that the speaker’s RP is higher than the other party previously believed.

Claims about one’s own (or one’s client) RP are never actionable, even if demonstrably false at the time made. This is justified by the fact that no reasonable negotiator would rely on such openly false claims, and by the fact that, unlike a false statement concerning the underlying merit’s of the case (which could affect the other party’s estimate of its own RP), believing a false statement about the opposite party’s own RP cannot cause the party who believes it to enter into a settlement that is worse than its own RP.

False claims that are based on facts that would be better known to the speaker than to its adversary are more likely to be held to be illegal/proscribed.

b. Nondisclosure:

Disputants have no general duty to voluntarily disclose information to their negotiation counterparts. In the settlement context especially, however, there are exceptions. The law here effectively requires negotiators to sacrifice bargaining power by providing information that causes the adversary to determine that his RP is better than he otherwise would have thought or reveals that the speaker’s RP is not as strong as the adversary otherwise would have believed.

The law treats failure to disclose in response to a discovery request like an affirmative misrepresentation, subjecting the perpetrator either to rescission of the settlement agreement, or money damages, as well as sanctions. Therefore, the discovery regime limits the ability of a disputant to gain power by simply failing to disclose material information that would add strength to its opponent’s legal position.

The law requires disputants and their lawyers to disclose material information that is inconsistent with the implications of their actions, even when they have not made an affirmative false statement.

Examples of actionable non-disclosure: the failure to provide truthful information that induces a false belief on the part of his adversary, even when the party has not provided any information likely to create the false impression; when a litigant fails to disclose relevant facts in response to an incomplete or ambiguous discovery request.

Disclosure of relevant facts is also required of disputants who learn new information that materially

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Extra-judicial Dispute ResolutionProf. Frederic Bachandcontradicts statements previously made, rendering them inaccurate.

The law establishes more extensive disclosure requirements when there is a fiduciary relationship between disputants or the agreement is otherwise not negotiated at arm’s length. However, the range of relationships that trigger heightened disclosure requirements is unclear and subjective.

Courts can rescind settlement agreements based on the doctrine of “unilateral mistake”: when one party knows that the other party is mistaken as to a material fact but makes no effort to correct the mistake. In theory, a unilateral mistake should not make a settlement agreement voidable if the error results from the negligence of the mistaken party. Not all courts enforce the unilateral mistake rule, instead finding that, in arms-length transactions, both sides are responsible for knowing the relevant facts, and neither side has an obligation to correct another’s mistake, even if known.

c. The Mediation Context:

Law of bargaining has yet to develop heightened standards of behavior for disputing parties or their lawyers engaged in mediation or similar non-coercive ADR procedures involving a neutral. Laws in some states designed to strengthen mediation as a DR process might effectively reduce constraints on using deceit to create bargaining power in this setting. The consequence is that in jurisdictions that recognize an absolute mediation privilege, contract and tort law might technically limit the ability of negotiators to use deceit to create bargaining power, while evidence law effectively makes these limitations unenforceable.

B. Coercion:

Entails weakening the opponent’s RP by persuading him that he will suffer negative consequences in addition to the risks of adjudication, should he refuse to settle out of court.

The law permits a plaintiff to warn a defendant of external consequences that might arise from a failure to settle, and it also permits him to gain bargaining leverage by threatening that, if an impasse occurs, he will take action that will harm the opponent. However, the law places limits on the ability of disputants to use threats to gain bargaining power:

1) Limits protecting society as a whole from negative externalities from the disputant’s decision to settle : i.e. plaintiff cannot make dropping criminal charges conditional on the defendant settling in a civil suit, because society not the plaintiff is the rightful beneficiary of a criminal suit (i.e. this kind of thing is not the plaintiff’s to give).

2) Limits, embodied in the doctrine of duress, constraining bargaining behavior for the protection of the target of the coercive conduct: while these duress in a settlement context is difficult to define, it is a safe definition that threats to which the target has no reasonable alternative but to accede to constitute duress and are prohibited.

Improperly coercive threats are not limited to threats to commit a tort or a crime, but the threat must at least approach this standard for the court to consider it an improper use of bargaining power. Published court opinion seems to suggest that if courts determine a threat is improper, they are likely to interpret loosely the requirement that the victim had no reasonable alternative but to acquiesce. This pattern is not uniform, however.

In general, disputants may generate bargaining power by threatening to take collateral actions to the detriment of their adversary unless the adversary agrees to proposed settlement terms. Threats become impermissible, however, when the threatened action approaches being tortuous or criminal conduct.

As is true of misrepresentation, claims of coercion are likely to be looked upon more favorably by courts when the complaining party is not represented by counsel: the law permits greater use of bargaining power against represented than against unrepresented adversaries.

3) Adjudication Rules and Bargaining Entitlements: how procedural rules of litigation can indirectly impact out-of-court settlement by affecting the desirability of litigating for the parties (indirectly affecting their RP)

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A. Fee Shifting Statutes and “Offer-of-Settlement” Rules

Fee shifting:

Generally, the rule in the US is that there can be no fee shifting: every litigant pays their own costs. The appearance of various statutes providing for “loser pays” litigation procedures for disputes governed by statute in question, affects both whether a bargaining zone exists and the distribution of the surplus/benefit that arises out of the two parties cooperating and reaching a settlement agreement.

i) Effect on bargaining zone : if each disputant feels he has a 50% chance of winning, loser pays rule will decrease plaintiff’s RP and increase defendant’s RP, thus broadening the bargaining zone. However, if the combined adjudication prospects of the two disputants, as seen by themselves, are >100%, the bargaining zone narrows, as the plaintiff’s RP increases and the defendant’s decreases.

ii) Effect on the distribution of the benefit arising out of settling out of court : if defendant has a better chance of prevailing in court, a loser pays statute would cause a lower settlement price, by reducing both the defendant;s and the plaintiff’s RPs, although the possibility of reaching a settlement would not necessarily change; the opposite effect would arise if the plaintiff has a better chance of prevailing; in the case of an asymmetrical loser pays rule (i.e. allows a prevailing plaintiff but not a prevailing defendant to collect attorney fees from the other party), both plaintiff’s and defendant’s RPs would increase, making a higher settlement price likely.

Offer-of-settlement rules:

Under such a rule, a party that makes a formal settlement proposal can recover from the opposing party (who supposedly rejects this proposal and proceeds to go to trial) his attorney’s fees and/or costs incurred after the offer is made if the recipient does not achieve a trial verdict that is superior to the settlement offer.

Such a rule has a range of effects on dispute resolution dynamics:

i) It will reduce the RP of a recipient plaintiff (or increase RP of recipient defendant) because the offer increases the recipient’s expected cost of litigating the case.

ii) It will encourage disputants to make settlement proposals earlier in the litigation process than they otherwise might, because cost shifting does not begin until the date the proposal is made.

The Federal Rules of Civil Procedure, etc. employ modified offer-of-settlement rules which often are conceived to dampen the traditional effects (above) on ADR dynamics of regular offer-of-settlement rules.

B. Admissibility of Settlement Discussions:

Rules of litigation procedure that limit the admissibility in court of communications made during ADR processes also can affect whether a bargaining zone exists and if so how the benefit arising from settling is divided between the disputants.

Such rules seek to prevent disputants from using settlement discussions as a tool for gaining a litigation advantage, but they have a secondary effect of encouraging parties to volunteer information during ADR, knowing that doing so cannot hurt them in any subsequent litigation.

These rules can also be understood as providing disputants with a tool to create bargaining power in the settlement context that would otherwise not exist: without the certainty that statements cannot be used against him in any subsequent litigation, a party may fear employing any bargaining power he has to its full extent.

Protection conveyed for statements of pre-litigation negotiations should also extend to mediation, and some jurisdictions have enacted special rules to formally extend this protection to mediation. There are also rules of privilege for statements made in a mediation, which goes beyond a simple exclusionary rule. However, privilege could end up protecting a perpetrator who is guilty of deceit in the context of settlement challenge

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Extra-judicial Dispute ResolutionProf. Frederic Bachandproceedings.

C. Judicial Review of Settlement Terms:

In special circumstances, the law requires judicial approval of the contents of a private settlement agreement before the parties are permitted to dismiss a lawsuit on the matter (i.e. criminal plea agreements, situations where disputants need to be protected against overreaching by adversary, situations where third parties need to be protected because they have no say at the ADR table). Divorce, class action and antitrust lawsuits are the most common instances where the law requires judicial approval of private settlements.

What the law is doing here is, for public policy reasons, placing limits on the ability of disputants to exercise bargaining power in non-judicial fora, although it fails to specify the exact extent of this constraint.

POINT OF ARTICLE: Both the law governing bargaining and aspects of the law governing litigation shape the outcomes of settlement agreements by placing limits on the ways in which disputants are permitted to exercise bargaining power against their counterparts.

(iii) Public policy/public order

The question is whether one can seek the annulment or resist enforcement of a settlement/transaction on the ground that the solution arrived at by the parties conflicts with rules of public order/public policy.

Here is a concrete example to illustrate the problem (it is inspired from the recent Migneault decision, which is in the further readings section of the WebCT site):

Imagine that A’s car breaks down—a massive engine failure. A turns to the dealer and the manufacturer, who inform A that the engine will have to be replaced. A asserts that the dealer and the manufacturer ought to pay for a new engine, but they refuse to do so on the ground that the contractual warranty has just expired. The parties further discuss the matter, and the dealer and the manufacturer agree to provide A with a free engine, but only on the condition that A agrees to pay for the installation. A accepts the offer and the new engine is installed. Imagine that A subsequently learns of Art. 37 and 38 of Quebec’s Consumer Protection Act, which read as follows:

“37. Goods forming the object of a contract must be fit for the purposes for which goods of that kind are ordinarily used.

38. Goods forming the object of a contract must be durable in normal use for a reasonable length time, having regard to their price, the terms of the contract and the conditions of their use.”

A is convinced that on the basis of the legal warranty set out in these two provisions—public order provisions which are clearly intended to protect consumers—the manufacturer and the dealer were, after all, legally responsible for the installation costs that A ended up assuming. A sues, seeking the recover the sums he paid. Predictably, the manufacturer and the dealer respond by invoking the settlement. The question is this: should the settlement be set aside if A can show that the solution contained therein is inconsistent with the public order rules set out in Art. 37 and 38 of the CPA?

At common law, there doesn’t seem to be any general rule to the effect that a settlement’s finality depends on compliance with public policy rules that were applicable to the dispute; in our example, A would thus lose.

But on contrary, the civil law seems—generally speaking—to be much more concerned with preventing settlements that conflict with public order rules that were applicable to the dispute. Assuming that this is a valid objective—something that the law should strive for— various approaches can be taken.

One is to prohibit settlements altogether whenever a dispute relates to matters that are governed by public order rules. This is what 2632 of the CCQ seems to do: “no transaction may be made with respect to the status or capacity of persons OR OTHER MATTERS OF PUBLIC POLICY”). In our example, the settlement would thus

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Extra-judicial Dispute ResolutionProf. Frederic Bachandbe unenforceable because public order rules set out in the CPA were applicable to the parties’ litigious legal relationship. Such an approach is obviously an excellent way of preventing settlements that conflict with public order rules. But it also suffers from obvious overkill, given that so many areas of private law are replete with public order rules. Surely the law shouldn’t go as far as prohibiting settlements altogether in areas such as employment, insurance and consumer contracts, especially given that we are here concerned with rules of directive public order which, of course, can be validly waived once the relevant right has been acquired (Garcia Transport, [1992] 2 S.C.R. 499; e.g. a consumer cannot validly waive the benefit of Art. 37 and 38 of the Consumer Protection Act at the moment that the contract is concluded, but s/he can validly waive it subsequently, such as after a dispute has arisen).

It thus makes more sense to read a provision like Art. 2632 of the CCQ narrowly, as prohibiting transactions only with respect to disputes engaging rules of political, moral and directive public order, which can never be validly waived.

So back to our example about the car breaking down. That dispute does not engage rules of political, moral and directive public order, so the transaction is not automatically unenforceable under Art. 2632. But can A nevertheless have it set aside on the ground that the solution arrived at in the settlement conflicts with Art. 37 and 38? In other words, should the Court have the power to review the compliance of the settlement with the relevant provisions of the CPA? In Migneault, the Court basically says no: as long as there was valid consent, A validly waived the benefit of these provisions when he entered into the transaction.

Xavier Lagarde would, however, disagree. He argues that a valid waiver of the benefit of provisions such as Art. 37 and 38 can only occur if the beneficiary of the rules of protective public order at issue (A, the consumer, in our example) is conscious—when the transaction is concluded—of the fact that s/he is thereby waiving the benefit of the public order rules. In Migneault, however, the evidence showed that the consumer had no knowledge, when the transaction was concluded, of the legal warranty set out in Art. 37 and 38. There are thus good reasons why, on such facts, the consumer should not be prevented from subsequently challenging the transaction on the ground that it conflicts with the relevant public order rules. But—to play devil’s advocate—isn’t Lagarde’s approach inconsistent with Art. 2634 of the CCQ, and the basic rule to the effect that mistakes of law are not valid grounds to have transactions set aside?

Lagarde, Xavier – Transaction et Ordre Public

Point: Deals with whether we should be concerned if transactions (see art. 2632 CCQ) comply w/ rules of public order. As a K they fall under the purview of art.6 code civil (FR) which does not allow derogation from mandatory rules. However if this was strictly applied there would be serious problems in implementing these decisions and their ultimate success would be challenged. Consequently it is best not to follow exactly the constraints caused by public order. Author advances 2 ideas: (1) A separation must be made within the mandatory rules, only mandatory rules of the highest order (derogate completely from public order) justify imposing a limitation on the right to make transactions. (2) Transaction settlements that are only in part a derogation from public order may be allowed.

- Basis for prohibiting transactions in some kind of dispute (art. 2632): very broad terms used when saying “other matters of public order”. In practice, it would mean that we are only allowed to settle in few instances, because few areas are not regulated by any public order rules.

- Some mandatory rules can be waived, as long as waiver occurs after the dispute arises, not before. These ‘waivable’ rules are defined as ‘ordre public de protection’ as opposed to the ones you can’t waive ‘ordre public de direction’.

o Ordre public de direction: protects the public at large, like rules regarding competition law that can never be waived by parties because so fundamental

o Ordre public de protection: can be waived validly once a dispute has arisen, no need to prohibit transaction in those fields.

- If transactions are authorised when they deal with matters protected by rules of public order, does this mean that we shouldn’t care if the agreement reach by the 2 parties doesn’t fully comply with mandatory rules?

- Lagarde argues that such a settlement should be upheld only if the weaker party was consciously

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waving the mandatory rule at the time the transaction was concluded. - If the parties specifically compromise under rules of public order, it is fine and the settlement

should be upheld even if doesn’t comply. - If it cannot be shown that the parties deliberately compromised on these rules, than it should be

possible for the weaker party to put it aside.


Article 14: “[i]f the parties conclude an agreement settling a dispute, the settlement agreement is binding and enforceable… [the enacting State may insert a description of the method of enforcing settlement agreements or refer to provisions governing such enforcement].”

CCQ 1609

CCQ 2631

CCQ 2634

CCQ 2635

CCQ 2637

2632 CCQ No transaction may be made w/ respect to the status or capacity of persons or to other matters of public order.

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Extra-judicial Dispute ResolutionProf. Frederic BachandIII.ARBITRATION

A. THE ARBITRATION AGREEMENT

(i) Validity and applicability of the Arbitration Agreement

Because of the consensual nature of the process, the validity thereof—and the validity of the ensuring award—depends first and foremost on the parties’ consent to refer the dispute to arbitration.

A tribunal that acts absent such consent acts without jurisdiction.

The basic question is: under which conditions can it be said that the parties to a dispute can be said to have indeed consented to refer the dispute to arbitration. i.e. that an arbitral tribunal properly has jurisdiction over the dispute?

There are two contexts in which such jurisdictional questions arise in practice:

1) A sues B in court: B alleges that claim falls within the ambit of arbitration agreement and seeks referral of dispute to arbitration; A disagrees (eg. Buckeye): says dispute is not covered by any enforceable arbitration agreement.

2) A commences arbitration against B: B objects to the arbitral tribunal’s jurisdiction on the ground that A and B never agreed to arbitrate the dispute.

In both contexts, the object of the disagreement is the same: did A and B agree to refer that claim to arbitration? Answering this question requires three more specific questions to be answered:

This question can be broken down to some sub-elements addressing the existence, validity and applicability of the arbitration agreement:

1) Existence (i.e. choice of arbitration) – Did the parties agree to arbitration (as the dispute resolution process)?

2) Validity/effectiveness (i.e. proper consent) – Was that consent to arbitration valid and effective at law?3) Applicability (i.e. scope) – Did the parties agree to arbitrate the particular dispute in question?

In every legal system, including pro-EDR jurisdictions, there are two sets of rules that may be applicable to the arbitration clause:

a. Generally-applicable rules of contract

The effectiveness of an arbitration agreement depends, first and foremost, on its validity as a matter of contract law. For example, general rules regarding the existence and quality of consent or the assignment of contractual obligations can all have a bearing on the agreement’s effectiveness This entails, for example, that rules applicable to contracts of adhesion – i.e. “[...] standard-from contract[s] prepared by one party, to be signed by the party in a weaker position, usu. a consumer, who has little choice about the terms” (Black’s Law Dictionary) – may be of some relevance when assessing the effectiveness of an arbitration agreement.

There are different types of generally-applicable rules of contract:

1. Consent, capacity, transmission of obligations, etc.2. “Contractual morality” rules, e.g. unconscionability/abusive clauses, external clauses, contracts of

adhesion, consumer contracts, etc.

CCQ 1437 – ineffectiveness of clauses that are excessively and unreasonably detrimental to consumer/adhering party.CCQ 1435 – “external” arbitration clauses (i.e. clause in K saying that all disputes are subject to conditions set out in some other place other than the K, like a website, or another document separate from the K) relating to contracts of adhesion or consumer contracts; ineffective unless brought to the attention of adhering party/consumer at conclusion of contract.

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Extra-judicial Dispute ResolutionProf. Frederic BachandCCQ 1436 – illegible/incomprehensible clause found in contract of adhesion/consumer contract.

3. Rules on interpretation of contracts

this is important when disagreement is about the scope of the clause, i.e. whether parties agreed to arbitrate THAT dispute how do you interpret the arbitration clause to figure out whether the parties agreed to arbitrate THAT particular dispute? The current trend: interpret arbitration agreements like other contracts, use general contractual interpretation rules. This will help determine if the scope of the arbitration agreement is limited to a particular dispute or whether it is broader. In the past, any ambiguity with regard to the scope of the arbitration clause would be interpreted so as to preserve one’s right to go to court as much as possible (i.e. arbitration clause would be interpreted narrowly). This was due to a suspicion of EDR, and a presumption of maintaining one’s right to go to court. Today, the shift to in some jurisdictions: today, the opposite trend is occurring: ambiguities should be interpreted in favor of resort to arbitration (pro-arbitration presumption), over court proceedings (no contractual rules analysis).

But does the pro-arbitration presumption make sense? Not necessarily, because the entire power of an arbitral tribunal is based on consent. And a pro-arbitration presumption can lead to situations where an analysis of the factual context would show that parties did NOT consent to arbitrate!

Special rules applicable to arbitration agreements:

b. Separability

See Art. 2642 of the Civil Code of Quebec: “An arbitration agreement contained in a contract is considered to be an agreement separate from the other clauses of the contract and the ascertainment by the arbitrators that the contract is null does not entail the nullity of the arbitration agreement”

See also Art. 16 of the UNCITRAL Model Law on International Commercial Arbitration; S. 7 of the Arbitration Act, 1996; R-7(b) of the Commercial Arbitration Rules (AAA)

How does the separability doctrine affect the application to arbitration agreements of rules relating to contracts of adhesion?

The rule: arbitration clause inserted in contract to be treated as distinct/separate agreement.

Key consequence: nullity of main contract does not necessarily entail nullity of arbitration clause contained therein.

Illustration of this principle: Buckeye

Buckeye Check Cashing Inc. v. CardegnaUnited States Supreme Court, February 21, 2006Facts: John Cardegna and Donna Reuter entered into various deferred payments with petitioner Buckeye Check Cashing. For each, the signed a “deferred deposit and disclosure agreement” (“Agreement”) which included arbitration provisions that said that, in case of any dispute, each of the parties to the agreement or any third parties involved can CHOOSE to have the dispute resolved by binding arbitration under the FAA.

Respondents brought a class action in Florida state court alleging that Buckeye charged usurious interest rates and that the Agreement violated various Florida lending and consumer protection laws, rendering it criminal on its face. Buckeye moved to compel arbitration. Trial court denied the motion, arguing that it is the court not the arbitrator that must resolve a claim that a contract is illegal and void ab initio. District Court of Appeal reversed, because respondents did not challenge the arbitration provision itself, but rather the contract as a whole, and the question of contractual legality should go to the arbitrator. Florida Supreme Court reversed again, reasoning that following what the Court of Appeal had suggested would be equivalent to reviving a potentially criminal contract.

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Extra-judicial Dispute ResolutionProf. Frederic BachandIssue: Does the arbitrator have jurisdiction to consider a claim that a contract containing an arbitration provision is void for illegality? (Is the FAA applicable to state, or only federal, court proceedings?)

Held: YES. (The FAA is applicable to both state and federal proceedings.)

Reasoning:

Section 2 of the Federal Arbitration Act embodies the national policy favoring arbitration and places arbitration agreements on equal footing with all other contracts.

Challenges to the validity of arbitration agreements on the same grounds as can be used for revocation of other contracts are of two types:

1) Challenges specifically the validity of the agreement to arbitrate.2) Challenges to the contract as a whole, either on a ground that directly affects the entire agreement (e.g.

the agreement was fraudulently induced) or on the ground that the illegality of one of the contract’s provisions renders the whole contract invalid. THIS IS THE TYPE OF CHALLENGE MOUNTED BY RESPONDENTS.

The issue of the contract’s validity is different from the issue whether any agreement between the alleged obligor and obligee was ever concluded.

Prima Paint Corp. v. Flood & Conklin Mfg. Co.: if the claim is fraud in the inducement of the arbitration clause itself—an issue that goes to the making of the agreement to arbitrate—the federal court may proceed to adjudicate it. The statutory law does not however permit the federal court to consider claims of fraud in the inducement of the contract generally.

The Respondents tried to argue that the question of severability of the arbitration agreement was a question of STATE law not FEDERAL law (like the FAA) and thus if the state law held that arbitration provisions could not be severable, a challenge to the contract as a whole would be decided by the court. The Supreme Court rejected this, applying Prima Paint.

Southland Corp.: the FAA created a body of federal substantive law which was applicable in state AND federal court.

The Respondents tried to argue that state law could bar enforcement of s. 2 of the FAA, even in the context of state-law claims brought in state court. The Supreme Court rejected this, applying Southland.

RATIO: because respondents challenge the Agreement, but not specifically its arbitration provisions, those provisions are enforceable apart from the remainder of the K. The challenge to the K as a whole therefore should be considered by an arbitrator, not a court.

The Supreme Court also rejects the Florida Supreme Court’s decision that the enforceability of the arbitration agreement should turn on “Florida public policy and contract law.”

Dissent: Justice Thomas remained of the opinion that FAA s. 1 and following only applied to proceedings in FEDERAL COURTS and not state ones, therefore, in state-court proceedings, the FAA could not be the basis for displacing a state law that prohibits enforcement of an arbitration clause contained in a contract that is unenforceable under state law.

Class Comments: In that case, it is a dispute between a consumer and a lender. It is an issue of a loan agreement containing an arbitration clause. Consumer is suing lender in court, arguing that the loan contract is invalid because it actually calls for a CRIMINAL interest rate. Therefore, arguing that main contract fails to comply with public policy rules, and thus the entire agreement is null and invalid. In answer, lender invokes arbitration clause: should not be in court, says lender, must be in arbitration: asks the court to refer dispute to arbitration. Consumer is saying court CANNOT refer dispute to arbitration, as it is about the very validity of the main contract. However, because of the principle of separability, the challenge to the validity of the main contract does not affect

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Extra-judicial Dispute ResolutionProf. Frederic Bachandthe arbitration clause, and dispute can STILL be referred to arbitration. The argument raised by consumer only related to validity of loan agreement itself, and NOT to the arbitration clause.

POINT: Nullity of main contract does not necessarily entail the nullity of the arbitration clause.

Principle of separability however has LIMITS:

If the party claiming the contract was invalid because there was no proper CONSENT, then the analysis would be very different: he would be making the argument that the reason vitiating the validity of the K applies to ALL clauses of the K, because there is no way he could have been able to consent to the arbitration clause but not to the actual K. Here, the argument is directed at BOTH contracts, which is not true when invoking rules specifically targeted at the main contract only (see Buckeye).

POINT: It is not that the nullity of the main K NEVER entails nullity of the arbitration clause, but that it does not NECESSARILY entail that.

c. The requirement that the arbitration agreement be set in writing

See Art. 2640 of the Civil Code of Quebec: “An arbitration agreement shall be evidenced in writing; it is deemed to be evidenced in writing if it is contained in an exchange of communications which attest to its existence or in an exchange of proceedings in which its existence is alleged by one party and is not contested by the other party”

See also: Art. 7 of the UNCITRAL Model Law on International Commercial Arbitration; Arbitration Act, 1996, S. 5; Art. 1443 and 1449 of the French Code of Civil Procedure; S. 2 of the U.S. Federal Arbitration Act

Is this the raison d’etre of arbitration agreements, now that legitimacy of arbitration has been fully accepted? i.e. should this requirement even be there, now that arbitration has been accepted as a practice?

This reasoning does not fit with the idea that arbitration agreements ought to be treated like any other contract. There is therefore a growing suspicion as to the desirability of a writing requirement for the validity of arbitration agreements.

The growing suspicion as to the desirability of the writing requirement has had certain consequences:

a. Narrower scope of the requirement:

Traditionally, the writing requirement was conceived as a requirement that the CONSENT to the agreement was expressed in writing. Today, however, this is no longer the case: there has been a shift away from the traditional conception, to a more liberal conception of the writing requirement: all that is now required is that the TERMS of the arbitration agreement are set out in writing.

It is interesting to see the contrast between the definition of the writing requirement in the UNCITRAL Model Law s. 7(2) (very clear acceptance of the traditional definition of the requirement) and the UK Arbitration Act, s. 5(1) (much more liberal definition). Quebec, however, is unclear. CCQ 2640 is unclear what “evidenced in writing” means: it could be interpreted in both a traditional and a liberal way: there is enough in the text to potentially convince a court of both a traditional and a liberal conception of the writing requirement.

POINT: Today, the writing requirement is met if you have a verbal oral agreement to arbitrate in accordance to an arbitration clause that is set out in writing.

b. Growing movement to abandon writing requirement:

UNCITRAL is currently considering such a proposal, and some jurisdictions such as Ontario and Alberta have already done away with the writing requirement.

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d. Arbitrability

We already know that the Supreme Court of Canada rendered a fundamental decision on arbitrablity (Desputeaux v. Editions Chouette (1987) Inc.) confirming two key points on which legal systems that favour resort to EDR tend to agree:

i) the mere fact that a dispute is somehow governed by mandatory rules does not render it inarbitrable; ii) statutory provisions (such as S. 37 of the Canadian Copyright Act) will only be interpreted as excluding arbitration if they contain explicit language to that effect

Courts in North America are split on a tricky question which, from a practical perspective, is very important: can class actions be commenced when the members’ claims fall within the ambit of a valid and applicable arbitration agreement? In other words, do provisions governing class actions have an impact on the arbitrability of disputes?

Legislatures are starting to intervene:

Section 7(2) of the Ontario Consumer Protection Act (“Without limiting the generality of subsection (1), any term or acknowledgment in a consumer agreement or a related agreement that requires or has the effect of requiring that disputes arising out of the consumer agreement be submitted to arbitration is invalid insofar as it prevents a consumer from exercising a right to commence an action in the Superior Court of Justice given under this Act”)

Section 8(1) of that same statute (“A consumer may commence a proceeding on behalf of members of a class under the Class Proceedings Act, 1992 or may become a member of a class in such a proceeding in respect of a dispute arising out of a consumer agreement despite any term or acknowledgment in the consumer agreement or a related agreement that purports to prevent or has the effect of preventing the consumer from commencing or becoming a member of a class proceeding”)

Section 11.1 of the Quebec Consumer Protection Act (“Any stipulation that obliges the consumer to refer a dispute to arbitration, that restricts the consumer’s right to go before a court, in particular by prohibiting the consumer from bringing a class action, or that deprives the consumer of the right to be a member of a group bringing a class action is prohibited. If a dispute arises after a contract has been entered into, the consumer may then agree to refer the dispute to arbitration”)

Another difficult question relates to the debate about the use of so-called religious tribunals to resolve family disputes (see Gaudreault-Desbiens).

Even if there is an agreement to arbitrate that i) is fully effective as a matter of contract and ii) that meets the writing requirement, public policy/public order rules may render the agreement unenforceable.

Every legal system contains public policy/order rules that restrict one’s freedom to undertake to arbitrate. E.g. CCQ 2639: “Disputes over the status and capacity of persons, family matters, or other matters of public order may not be submitted to arbitration.”

The underlying justification behind the theory of arbitrability is that arbitration is not suited to certain types of disputes. Unsurprisingly, the number of such public policy/order rules tends to decrease as legitimacy of arbitration tends to increase.

The modern, pro-party autonomy approach tends to be adopted (illustrated in Desputeaux). In that case, the SCC ruled on the side of arbitration, and did NOT consider that copyright is one of those sensitive areas protected from resort to arbitration by public policy.

The mere fact that public policy/order rules apply to the dispute is not sufficient to render dispute inarbitrable.

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Extra-judicial Dispute ResolutionProf. Frederic BachandFirstly, as illustrated in CCQ 2639 (2), compliance with such rules can be ensured through subsequent review of the award (=there is still a system of checks and balances that will ensure that an arbitration does not breach mandatory rules of public order/policy: the judicial review of the award).

Moreover, statutes will only be interpreted as limiting arbitrability of disputes if it was CLEARLY intended to do so. The court is saying that legislature MAY limit access to arbitration, but may only do so clearly and unequivocably. In Desputeaux, the statute on which the party resisting arbitration said that copyright disputes may be dealt with in either Federal Court of Provincial Superior Court. The party resisting arbitration sought to have the court interpret the silence of Parliament as not giving permission to arbitrate. However, the court said that this silence should be interpreted as the legislator not regulating arbitration in any way and thus arbitration being an option at the choice of the parties, from this point of view.

Lastly, Courts will generally refrain from creating new limits to arbitrability of disputes. Courts adopt the view that because legislator did not limit the arbitrability of a certain dispute, they will not do it. This shows the pro-EDR attitude of the courts, because they are being deferential to Parliament/Legislatures despite the fact that they have the power to raise such limits.

However, there remain areas that are problematic in terms of arbitrability, even in pro-EDR jurisdictions: family, bankruptcy and consumer issues. While prohibitions on arbitration of these kinds of disputes are different and of different strengths, they exist across North America.

The area of consumer disputes is most controversial. There is a question as to whether there should be a blanket prohibition on the arbitrability of consumer disputes.

Dell is the example of a problem re: effectiveness of an arbitration agreement.

Dell Computer Corp c. Union des consommateurs et Dumoulin [2005] QCCA 570 (CB p. 77) Facts: From the 4th to 7th of April 2003, Dell sells two products on its website for 89$ and 118$. The 5th of April they realise that the prices are wrong. Measures are taken to stop customers from accessing the website. By the 7th of April, the error has been corrected and Dell publishes a notice explaining the mistake and indicating that the actual prices are 379 and 549$. Despite the measures taken, several people order the product at the low price. On April 8th, consumers are notified that the order at the low price can’t be carried out and a new order at the corrected price will be made. Consumers think that Dell must honour the original order at the low price. The condition of the K are published on the internet site and incl an arbitration clause. (Dumoulin is the representative of a class). Motion seeking authorization to institute a class action filed in QC on behalf of Dell customers. Appeal from Superior Crt.

Issue: (1) What law is applicable re – K and the place of arbitration? (2) Is the arb clause an external clause? If yes, were consumers made aware of the clause? (3) Can an arbitrator render a decision on a subject that is dealt w/ by the Loi sur la protection de la consommateur? (LPC) (4) Does the clause mean that there is no right to a class action?

Held: (1) QC law can apply. (2) yes, no, therefore clause is void. (3) Yes. (4) Don’t really answer this question b/c it is a moot pt now. Dell’s application dismissed.

Analysis: Le droit applicable

- Dell argues that all litigation must be before the NAF in the US. - Crt finds that the NAF’s code of procedure doesn’t preclude litigation being heard in QC – it states the

opposite “… hearing shall be held… for all consumer Ks… at a reasonable convenient location [in any] other nat’l judicial district where the Respondant to the initial claim resides or does business…”

- Dumoulin resides in QC. Dell does business in QC.

Clause externe- Art. 1435 CCQ – in a consumer K an external clause is void where at the moment of formation of the

K, it was not expressly brought to the attention of the consumer, unless the other party can prove that the consumer otherwise had knowledge of the clause.

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- External clause as defined by Lluelles: found in external documents or as an annexe to the main K. The are used to avoid a signed document that is too lengthy – save money and time for the person writing the K.

- 3 types of external Ks: “clauses that one is referred to, clauses included in a poster, clauses that are posterior to the formation of the K. The clause here is of the 1st type.

- Since the crt finds that the clause is external it then must answer whether the conditions of art. 1435 CCQ are met.

- Al. 2 of art 1435 provides that in order to be valid an external clause, the seller must prove that the consumer had knowledge of the clause at the time of the formation of the K.

- It is admitted that the purpose of this type of clause is to avoid having the consumer take their attention away from purchasing a product.

- The consumer is not forced to consult the Terms and Conditions section before they make their purchase.

- Even if the conditions are read they are not complete – the consumer would also have to consult the NAF’s website. (hyperlink)

- Dell has not met their burden to prove that the consumer had knowledge of the Terms and Conditions which contained the arbitration clause. Clause is void

- The pltfs never validly consented to standard Terms and Conditions and thus had never undertaken to arbitrate w/ Dell.

Can an arbitrator make a decision re – a matter dealt w/ under LPC?- Art. 2639 CCQ – a question that concerns public order can’t be the subject matter of arb. - It’s argued that consumers can only litigate against sellers that contravene the LPC in front of a

Tribunal (term is not defined)- Crt finds that the legislator didn’t mean to exclude arbitration by using the word Tribunal.

L’exercice du droit au recours collectif ? - Theoretical b/c of decision on issue 2. - The CCP doesn’t give any restrictions re- what types of cases can be undertaken by class action.- However, the right to act by class action is not absolute (see art. 2639 CCQ) and the clause is subject to

the conditions of the CCQ or specific laws.

Observations by Frederic Bachand (CB p. 83) - Bachand feels that in obiter the C.A hinted at the possibility that the Que S.C.’s jurisdiction over class

actions could supersede undertakings to arbitrate, but the Crt refrained from drawing any conclusions. - It is likely that the SCC will uphold the CA decision which confirms the arbitrability of consumer

disputes. They have already confirmed the broad scope of arbitral matters in QC in Desputeaux case. - In this case the SCC pointed out that al. 2 of 2639 CCQ makes it clear that the mere fact that some of

the substantive rules applicable to a dispute are rules of public order has no bearing on its arbitrability. - So it’s unlikely that the SCC would find an obstacle in art. 2639 to the arbitrability of consumer

disputes. - Not allowing consumer disputes to be arbitrated would only be good if the clauses were seen to be

inherently unfair to consumers. (ie – impeded access to justice). B argues that arb clauses can sometimes be unfair but they’re not inherently unfair.

- Procedural circumstances where they can actually increase a consumer’s access to justice. - Ex – even if a claim is sm enough to be brough in sm claims – a clause that contains enough safeguards

re – costs and venue could increase consumer’s access to justice b/c will be able to obtain a judgement must faster.

Consenting to arbitration in Cyberspace- Crt saw the web page through which the impugned orders had been placed and the web page setting out

the standard terms as 2 distinct docs, even though they were located on the same web site. - B doesn’t find this characterization as convincing. Dell will likely argue that it should be considered as

2 separate pages not documents. In this case it would be like a consumer signing a multi-pg doc w/out consulting ea page.

- Whether the stipulation purporting to incorp NAF rules is enforceable vs the pltfs has no direct bearing on the juris of QC crts over the claims asserted vs. Dell (ie – doesn’t matter if NAF hyperlink is an external clause or not)

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Extra-judicial Dispute ResolutionProf. Frederic BachandLegal Effectiveness of Arb Clauses Invoked in a Class Action Context

- Can an arb clause oust the juris crts have over class actions? - The case in Dell – the arb clause contained a stipulation that excluded the possibility of classwide arb

(“solely btwn the Customer and Dell”) - Trend is to interpret these no-class action stipulations as not invalid per se but that it is merely 1 factor

that may be taken into consideration while determining the arb clause’s legal effectiveness in light of rules of K’tual morality (ex – unconscionable). Under this view the clause should only be disregarded if pltf can show that his access to justice would be severely impaired were he forced to arbitrate on an indiv basis.

- 2nd Solu’t – (less favourable to party autonomy) where individual arbitral proceedings would likely constitute a less preferable option than the proposed class action.

- 3rd solu’t – class actions = always invalid as against public policy or public order. (this doesn’t seem to be an option under the CCQ)

- Class action right is seen as very important in QC (and Can) – B argues that it is on par with the right to legal aid.

- So the SCC is likely to rule that no class-action stipulations are always invalid under QC law. But they could find in Dell case that the stipulation is severable and order that arb proceed on a classwide basis.

- This option upholds both the parties intention to arb but doesn’t encroach on pltf’s right to proceed on a classwide basis.

Conclusion: Case raises issues re – where should the limits of the general principle favouring resort to arb be traced in consumer matters and other similarly sensitive areas of private law?

Class comments:

The SCOPE of the clause is not at issue here, given its broad wording. Fraud, mistake, duress, capacity, etc.: not at issue either.

Writing requirement is not an issue.

The key issues are:

1) Whether the arbitration clause is external as per 1435 CCQ?

Dell’s site was structured differently: you could contract to purchase something without having the terms and conditions being put in your face. You had to click on a link to see them, but this was not necessary to do in order to contract. As opposed to sites where seeing the terms and clicking a button in agreement, here you would have to look for the terms.

The issue is whether the way Dell was structured turned the arbitration clause contained in the terms and conditions into an external clause (in which case it could ONLY be considered part of the contract and enforced against the consumer if the firm drew specific attention to it). Olivier Dumoulin argues that the clause is external and was not brought to his attention at the time of contracting, and Court of Appeal agrees.

However, why should the business be disadvantaged by a consumer’s refusal to inform themselves?

2) Were consumer disputes generally inarbitrable before Bill 48?

Court of Appeal rejects the contention, in accordance with pro-EDR Desputeaux, etc. However, Quebec National Assembly intervened and made arbitration clauses unenforceable against consumers. This means that arbitration clauses are not illegal in consumer context, but can only be enforced by consumers against business, not by business against consumers. This compromise is meant to mitigate the fact that most consumer contracts are contracts of adhesion. MENTION: this only applies to arbitration clauses, NOT the rest of the terms and conditions; this is supposedly justified by the argumentation that being forced to give up right to go to court by contract of adhesion is an issue of access to justice, which is an especially important issue of public policy where the consumer must be protected. But is it the case that consumers always at a disadvantage if they go in arbitration?

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As well, the rule can be thought of not as presuming arbitration is always ineffective for the consumer, but that rule simply permits the consumer to decide if the arbitration puts him at a disadvantage in that case, and make the choice that will protect him from that.

Criticism: prohibition on enforceability of arbitration clauses against consumer is overkill: there is enough protection/judges have sufficient tools to prevent unfairness in doctrines already existing in QC, such as abusive clause doctrine.

Drahozal & Friel - Consumer Arbitration in the EU and the US (CB p. 282 ff)

- In the UK – consumers agree after a dispute arises to arbitration; in the US, generally consumers agree to arbitrate before a dispute arises, at time they originally K w. the business.

The Structure of Consumer Arbitration Systems- Post-dispute non-binding arb after dispute arises, parties agree to resolve dispute by arb. If

dissatisfied w/ the result, either party can go to crt instead. Least restrictive. - Post-dispute binding arb Same as above except that the arb agreement precludes parties from

going to crt to challenge award. - Pre-dispute non-binding arb Parties agree to arbitrate future disputes at the time their

original K is formed. Award is non-binding. - Pre-dispute non-binding arb w/ exhaustion req Same as above except that parties can’t go

to crt until they have exhausted their arb remedy (ie – arb proceedings are completed). - Pre-dispute conditionally binding arb only the business party is bound by the award. If the

consumer is dissatisfied they can go to crt. - Pre-dispute binding arb Arb agreement precludes parties from going to crt unless they are

challenging the award under the standards prescribed by law. This is the most restrictive. Legal Framework Governing Pre-Dispute Consumer Arbitration AgreementsEU Unfair Terms in Consumer K Directive

- Provides that any term of a consumer K (except subject matter and price) can be challenged on the grounds that it has not been individually negotiated and is unfair.

- Applies only to clauses that haven’t been individually negotiated by the parties (ex – applies to standard form Ks).

- The term must be unfair ie – a significant imbalance in the rights of the consumer to his detriment AND “contrary to the principles of good faith”

- How to determine the latter: (1) strength of the bargaining position of the parties, (2) any inducements made to the consumer to secure agreement to the term, (3) whether the subject of the K was a special order by the consumer and (4) the extent to which the seller or supplier has dealt fairly or equitably w/ the consumer.

- Unfair terms ex – any term that excludes or hinders the consumer’s rights to take legal action incl “ terms requiring the consumer to take disputes excl to arbitration not covered by legal provision” (this last part is subject to interp).

UK Traditionally under the CML any K clause that was seen as an attempt to oust the jurisdiction of the crts was seen as void as contrary to public policy. But strict enforcement of rule is ineffective and inappropriate. Ex 1) It’s ok if it’s a matter of fact and not law) 2) Clause that requires a condition precedent to litigation wither (a) the appt of an arbitrator or (b) an award from an arbitrator prior to the commencement of a legal action is valid b/c the clause doesn’t oust the juris of the crts but merely sets reasonable preconditions.Arbitration Act 1996

1) Certain provisions in pre-dispute arb clauses of non-consumer class are ineffective. 2) Pre-dispute consumer arb are deemed to be unfair when amt of the potential claim is less than 5

000£. 3) In all other cases the above are unfair according to Unfair K Terms Directive.

US Overturned the CML hostility toward arb by making pre-dispute agreements valid irrevocable and enforceable. They didn’t distinguish btwn consumer & business Ks.

- Fed Arbitration Act (FAA) applies in most cases

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- 2 grounds on which the crt may invalidate a pre-dispute agreement to arbitrate: 1) If it would preclude the litigant from effectively vindicating her fed stat rights. IE – if arb costs

are too high or if the arb agreement attempts to waive a nonwaivable stat remedy. 2) Parties can raise general K law defences to defeat enforceability ex – unconscionability.

Online Contracting Practices and Consumer Arbitration - Looked at Dell, Compaq and Gateway In the US two incl a binding arb clause in their

consumer Ks. In the UK none had binding arb clauses, but Gateway provided for pre-dispute arb clause in business Ks.

Dell - Terms and conditions excls the possibility of class wide arb proceedings. - Texas would be the place of hearing (by 3 arbs – 1 each appt by the parties and the 3rd appt by

these arbitrators). - In the UK – terms much simpler. Provided English law would apply

Compaq - Didn’t incl a dispute resolution clause in its Terms and Conditions for US. Would go to arb only

if parties agreed after a dispute arose. Gateway

- Previously clause provided for Intern’tl Chamber of Commerce arbitration. This was ruled as unconscionable b/c of the high cost of ICC arb relative to the sm amt at stake in proceeding.

- Clause stated in bold print “In the absence of this provision, You would have had a right to litigate disputes through crt… you have expressly waived this right…

- UK – b/c they provide for arb rather than litigation in business Ks – it seems that they would have had a similar provision in consumer Ks if they could have.

Tradition, Politics and Consumer ArbitrationCVL Interference w/ the right of freedom to K is undertaken more freely. Focus is on the subjective ability of consumer to make their own agreement in the abstract.

- For this reason see pre-dispute clause as one-sided and contrary to general principle of good faith. - Consumer is being asked to surrender their rights at a time when the consumer really doesn’t

know what they are agreeing to, but the seller w/ commercial experience will have a better idea. Trying to protect the weaker party.

- American law is focused on freedom of parties to arrange their affairs according to their own needs.

- As well, the FAA which originally applied to business evolved through court decisions to cover consumers. There was no legislative changes.

English CML Hostile towards arb but b/c of limited resources couldn’t get rid of it completely. So imposed an overall supervisory role. Also saw arb as tool for the econ powerful. EU Approach can be seen in Unfair K Terms Directive. Consumers question any Ks that seem to remove their rights. PoliticsUS jury trial in civil cases, broadly avail class actions procedures and wider availability of punitive damages (arbitrators are perceived as less likely to award these) – American business use arb to reduce their legal risks from ea of these sources.

- Basically the opposite in European legal systemsConclusion: But as the demand for regulation grows in the US (from consumer grps and trial lawyers), the legal treatment of pre-dispute arb agreements in the EU and the US may converge.

"A word on the Quebec-specific requirement of a “perfect” undertaking to arbitrate: express language in clause to the effect that arbitration is *mandatory* and that award is to be *final*"

The point here is to draw your attention to the fact that in addition to the separability rule, the rules limiting the arbitrability of some types of disputes and the writing requirement—all rules that you will likely come across in a pro-EDR legal system today—you sometimes come across other rules that are specifically applicable to arbitration agreements, but that are not so universally accepted.

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Extra-judicial Dispute ResolutionProf. Frederic BachandFor example, in Quebec, courts tend to consider that for an arbitration clause to be valid, it must contain express language to the effect that i) it is mandatory (i.e. the parties will *have* to arbitrate) and ii) that the award will be final and binding. Quebec is increasingly isolated, as most systems having abandoned such requirement.

Personally, I find them unnecessary in a pro-EDR legal system, which is why I criticized the relevant cases in (2004) 64 Revue du Barreau 121. This being said, to my knowledge, our Court of Appeal has never clearly abandoned these requirements.

So two lessons here: i) when you are drafting arbitration clauses that are likely to be governed by Quebec law, make sure they contain the required language; ii) more broadly, as I just mentioned, don’t assume that separability, arbitrability and the writing requirement are the only issues to have in mind when you are analyzing the effectiveness of an arbitration agreement which is otherwise valid as a matter of contract; the law sometimes contain additional conditions of validity that are specifically applicable to arbitration agreements.

(ii) The effect of the arbitration agreement

What are the parties trying to achieve when they take an undertaking to arbitrate?

There are negative effects and positive effects that arise out of concluding an arbitration agreement.

a. Negative effect

Negative effect: an arbitration agreement gives rise to an obligation not to bring claim before the court (or any other forum). A Party will thus breach an arbitration agreement by commencing in court an action asserting a claim that falls within the ambit of a valid arbitration agreement. In a pro-EDR system geared towards ensuring the full effects of the arbitration agreement, what should law do in such a case?

The law must provide for a rule that imposes on the court seized of the action commenced in breach of the arbitration agreement a DUTY to stay proceedings/refuse to assert jurisdiction (upon request of the defendant to that effect—THIS IS IMPORTANT, because defendant has the right to waive the CONTRACTUAL arbitration agreement at any time: parties remain in control of the arbitration agreement!): i.e. prevent plaintiff from going forward with the court action, enforcing the arbitration agreement. E.g. Art. 940 CCP, Art. 8 of the UNCITRAL Model Law on International Commercial Arbitration; S. 9 of the Arbitration Act, 1996; Art. 1458 of the French Code of Civil Procedure; S. 3 of the U.S. Federal Arbitration Act.

b. Positive effect

The arbitration agreement also has positive effects: it creates a private tribunal with exclusive jurisdiction to which the parties agree to submit.

But why “creation” of a private tribunal? Because unlike courts, arbitration tribunals are not pre-constituted jurisdictional institutions.

Therefore, agreeing to arbitrate necessarily entails AGREEING TO THE CREATION OF A TRIBUNAL ONCE A DISPUTE ARISES.

In practice, parties sometimes face important problems at the tribunal constitution stage. These problems may jeopardize the realization of the agreement’s positive effect: if can’t constitute tribunal, parties can’t arbitrate. In such cases, the law must provide for some sort of remedy or procedure to ensure that any deadlock at the constitution stage can be overcome, i.e. to ensure the full realization of the agreement’s positive effect.

Examples of situations of deadlock that jeopardize creation of tribunal constitution stage:

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1) If parties have agreed to tribunal comprised of sole arbitrator: parties can’t agree on identity of arbitrator and there are no provisions in the agreement as to what they can do in this situation (or they have delegated power of decision to a third party but that party fails to act).

2) If parties have agreed to three-member panel: defendant fails to appoint his/her arbitrator, or party-appointed arbitrators fail to agree on the chair, and parties have not delegated to third party power to appoint in those cases (or they have, but third party fails to act).

While you can reduce the risks of deadlock by going through institutional arbitration, the point here is that in arbitration you can never COMPLETELY prevent issues of deadlock in an arbitration agreement. For this reason, it is wise to make as many provisions in the agreement to avoid deadlock, such as delegating appointment power to a third party (hopefully, after checking with them, but even THEN, they might not accept mandate, when a dispute arises).

What should the LAW provide for to overcome situations of deadlock that, while can usually be avoided contractually through a carefully drafted arbitration clause, can arise in practice when arbitration agreements are NOT carefully drafted?

The simple and universal solution: give courts the power to step in and do whatever is necessary to overcome the deadlock that has arisen in practice, and thus ensure the constitution of the tribunal and the realization of the positive effect of the arbitration agreement. E.g. CCP 941.1-941.2, Model Law Art. 11

The downside of this is that your dispute will become partly public, as this is what happens every time when you go to court. You therefore want to avoid going to court because having the dispute become public might not be in your client’s interest, and so should ensure that the arbitration agreement is drafted as well as possible.

c. Selected issues

A. Should a court seized of a stay/referral application have a discretionary power to refuse to give effect to an arbitration agreement, that is otherwise valid and applicable? Can the plaintiff resist a motion seeking the referral of the action to arbitration on the ground that arbitration would be inconvenient, unfair, too costly, inappropriate, etc.?

This issue is whether courts should have a discretionary power to refuse to give effect – for reasons of convenience of fairness – to an arbitration agreement which is valid and applicable to the dispute. See BWV Investments Ltd. v. Saskferco Products Inc. and GreCon Dimter Inc. v. J.R. Normand Inc.

BWV Investments Ltd. V. Saskferco Products Inc. CB p. 22Facts: Construction K btwn Saskferco (owner), UHD (contractor) and BWV (subcontractor). SubK contained an arbitration clause which said in part: that the arb would be settled under the rules of the ICC by 3 arbitrators appointed in accordance w/ the ICC’s rules. The interp, application and performance of the subK would be governed by the substantive law of Switzerland and arb will take place in Zurich. BWV commenced action under the Builder’s Lien Act (BLA), ie – crt for $.UHDE claimed that they owed nothing. UHD applied for an order under s. 8(1) Model Law in the ICAA ie – that the matter be sent to arb. Chambers judge found that the ICAA applied to dispute and that the matter should be referred to arbitration. However he recognised that the matter would normally be resolved under the BLA and asked whether the ICAA can override the BLA and if not whether staying the BLA action and ordering arb to proceed would contravene or infringe the BLA. The judge concluded that the arb agreement was void under BLA provisions (there was a provision in the Act which would make void any agreement to waive rights under the Act).

Issue: Generally, what’s the status of internat’l commercial arbitration (ICA) in Canada? Particularly, is the arb clause valid, so as to deny its enforcement under s.8(1)?

Held: Appeal allowed. Dispute should be submitted to arb, agreement is valid despite BLA.

Analysis: Canvasses the law of other countries

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Extra-judicial Dispute ResolutionProf. Frederic BachandEngland Review of arbitral awards = very restricted. Award may be appealed only if both parties consent or the crt grants leave. Latter will only be granted only where the crt finds that the arbitrator was “probably wrong” in interp of terms of K or in all other matters arbitrator was so obviously wrong so as to preclude the possibility of being right

- Trend of increasing autonomy for the ICA process France may only look to intern’tl public policy as basis for interference with arbitral award, ie – they are rarely disturbed. US Recent trend in favour of arbitration in the name of freedom of K. Ie – parties are strictly held to their agreements to arbitrate, little rm for judicial intervention.

- The court in Canada that dealt with this issue most thoroughly = BC. Crt in Quintette Coal held that concerns for international comity, respect for foreign / transnat’l tribunals and the need for predictability are compelling concerns in Can as elsewhere.

- Therefore should adopt a standard that seeks to preserve the autonomy of the forum selected by parties and to minimize judicial intervention when reviewing ICA arbitral awards.

- Another objective of the ICAA = consistency btwn jurisdictions. - Crt looks at the purpose of the BLA and concludes that arb is not inconsistent with the legis. - A builder’s lien action is not the only avenue to determine a quantum in relation to Ks where

liens have arisen. To invoke arb does not undermine the purposes underlying the BLA. - There were also sub-subcontractors in this case, so the crt must deal w/ stay orders in the

presence of 3rd parties. Orders that the actions of the sub-subK’ters be stayed pending arb. This pays deference to the the contractual intention of the parties but also demonstrated flexibility in accommodating the interests of 3rd parties.

POINT: Courts should adopt a standard that seeks to preserve the authority of the forum selected by parties and to minimize judicial intervention when reviewing ICA arbitral awards.

GreCon Dimter Inc. v. J.R. Normand Inc.

Facts: JR Normand, a Qc company, bought equipment from GreCon Dimter, a German company, and sold it to Tremblay, another Qc company. The k between JRN and GreCon had a choice of forum (Germany) and choice of law clause (German law), re “any dispute between the parties would be subject to the exclusive jurisdiction of the German courts and would be decided in accordance with German law.”Because of the delays encountered by GreCon, JRN was unable to execute its contractual obligations with Tremblay. In 2002, JRN filed an action in warranty at the Qc Superior Court. Consequently, GreCon contested the Qc court’s jurisdiction (based on 3148 paragraph 2 CcQ) arguing that the choice of forum clause in the k barred the jurisdiction of the Qc court. JRN argued that there was more “connexity” between the principal action and the witnesses were in Qc, etc.

Decision: the declinatory exception based on the existence of a choice of forum clause in favor of a foreign authority should be allowed.

Analysis: Legal frameworkThe problem comes from the possible contradiction between 2 conflicts of law rules. 3148 CcQ al. 2: “a Qc authority has no jurisdiction where the parties, by agreement, have chosen to submit all existing or future disputes btw themselves relating to a specified legal relationship to a foreign authority.” 3139 CcQ al.2 on the other hand confers jurisdiction on the Qc authority to hear any action in warranty if it has jurisdiction over the principal action. Furthermore, 3135 CcQ codifies the forum non conveniens rule (discretion to decline jurisdiction). In short, the issue concerns the tension between party autonomy (3148 al2) and legislative rules (ex. 3139) and the hierarchy of rules in private international law rules in CcQ.

Primacy of the Autonomy of the Parties-important because good to achieve legal certainty, stability and foreseeability in international transactions. Recognizing effectiveness of choice of forum clauses and arbitration clauses is thus consistent with the general principles of private international law.

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Extra-judicial Dispute ResolutionProf. Frederic Bachand- This is also reflected at the international level in the trend toward international harmonization of the rules of conflicts of laws and of jurisdiction (think: UNCITRAL).

Limits on the Autonomy of the PartiesNevertheless, certain limits are imposed on the expression of the autonomy of the parties- eg. 3151 CcQ (civil liability resulting from use of raw materials originating in Qc), eg. 3149 CcQ (consumer ks)- Also, the wording of the arbitration clause = must be valid (mandatory, clearly written, meeting of the minds).The Rule in Art. 3139 CCQ and Incidental Demands- Because this provision has the potential to unduly enlarge a lot the jurisdiction of Qc authority, it has to be interpreted narrowly. - Also, while reading 3139, there is the implicit idea that there must be connexity between the principal action and incidental.

Forum non conveniens3135 gives an authority with jurisdiction the power to decline jurisdiction if the authorities of another country are in a better position to decide a case. A party has to raise the issue.

Hierarchy of the Legal Rules in Issue3148 al 2 : party autonomy is a fundamental principle; this article is the cornerstone of a legislative policy of respect for the autonomy of the parties. Courts should defer to a choice of forum clause where the parties have clearly stated that they intend to submit any disputes between them to a foreign authority.Limits = see above (3149, 3151). But 3139 is not one of those limits; nothing indicates that it is mandatory or intended to limit authority of the parties. This article is permissive only, and must be interpreted in relation to the fundamental principles of private international law: autonomy of the parties and legal certainty of the international transactions.

Legislative ContextThe legislative context also points towards primacy of party autonomy (eg. recognition of judgments – 3168 (5))

Conformity with the Development of International LawNY Convention, UNCITRAL, etc : primacy of arbitration clause. Qc’s international commitments --) points towards arbitration clause before procedural provision such as 3139.

Suppletive Function of the FNC Clause3135 and forum non conveniens doctrine apply only where the jurisdiction of the Qc court has been firmly established acccording to the usual rules governing jurisdiction. It is thus suppletive.

Issue raised in class: should courts have a discretionary power to refuse to give effect (for reasons of convenience of fairness) to an arbitration agreement valid and applicable?

Traditionally: CVL: no, CML: yes.

A typical situation where common law courts would exercise their discretion is multiparty context (eg. Grecon, BWV Investments). In a multi-party context, you could end up with a main action in court, and then a third-party proceeding with one of the court parties and another party, who are linked by an arbitration clause, ending up in arbitration. Should judge have the discretion to prevent his situation?? Other situations: disputes raised mostly questions of law, arbitration would be too costly.

The typical common law position had been adopted in Quebec in context of multiparty proceedings (G’N’R case, reversed by SCC in Grecon).

The clear trend today: no-discretion approach in transnational law (e.g. Model Law, NYCC) as well as in legal systems where discretionary approach used to be adopted (e.g. BWV and GreCon cases, English Arbitration Act,

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Extra-judicial Dispute ResolutionProf. Frederic Bachand1996). The idea of judicial discretion in this situation does not fit very well with the idea of a system that treats arbitration agreements like regular contracts, a pro-EDR system.

B. Should a court seized of stay/referral application perform a full or merely prima facie review of the arbitration agreement’s effectiveness?

This issue concerns the role of a court which is asked by the defendant to give effect to the (alleged) arbitration agreement: should the court make a final ruling on the effectiveness of the arbitration agreement invoked by the defendant or should it rather refer the parties to arbitration upon mere demonstration that prima facie, the dispute falls within the ambit of a valid arbitration agreement? See Dalimpex Ltd. v. Janicki; is this a convincing/desirable solution? (This issue is currently before the Supreme Court of Canada; it arose in the Dell case)

Dalimpex Ltd. v. Janicki

Facts: Dalimpex (Canadian firm) imports and distributes food. Agros is the supplier, based in Poland (YES!). In 1983, they make an Agency agreement. This agreement provides that only Polish law applies and that disputes shall be referred to the Polish Chamber of Foreign Trade. In 1989, the latter ceased to exist. (LOL!) A new Court of Arbitration was created. Does the 1983 clause of arbitration encompass the new arbitration tribunal? The agreement between the 2 companies was terminated by Agros in 1998. Janicki is a former employee of Agros who became an executive at Dalimpex. Once the agreement between Dalimpex and Agros ended, he left. Dalimpex accuses him of stealing customers, confidential infos, etc (accusation of breach of trust, breach of fiduciary duty, etc). Dalimpex also sues Agros for interference, conspiracy, etc. Dalimpex sues in Ontario; Agros initiated a proceeding in Court of arbitration in Poland (1998) claiming reimbursement of the monies paid under the letter of credit for unpaid goods purchased by Dalimpex. Dalimpex argued in Poland saying that the bank guarantee fell outside the jurisdiction of the tribunal (but did not contest the jurisdiction of the tribunal itself) – because it was outside the scope of the arbitration agreement. Dalimpex did not present any argument based on merits. The Court of arbitration said it had jurisdiction and awarded damages to Agros. Dalimpex went before the Polish courts and tried to have the award set aside (appeal still pending).

There are 2 proceedings under appeal:1 – Motion for a stay and referral to arbitrationAgros asked for a stay of the action commenced by Dalimpex in Ontario. It was concluded that the clause was broad enough to include the Court of arbitration, even if it was not named (didn’t exist at the time) in the arbitration clause.2- application for recognition and enforcement of the arbitral awardIn 2000, Agros asked the Ontario Sup Court to enforce and recognized the arbitral award. Is was deemed valid and enforceable in Ontario in a “provisional” judgment. (note: we are not concern with this issue).

Dalimpex appeals both.

Analysis: A) The Motion for a Stay and Referral to Arbitration1. The role of the court(The following is important for the class): is the role of the court, in cases where the arbitrator has the power to rule on its own jurisdiction, to make a definitive pronouncement on the jurisdiction of the arbitrator, or whether the preferable approach is to leave the matter to the arbitrator as decision-maker of first instance?Problem: s.8 of the Schedule to the International Commercial Arbitration Act says that court has competence to determine its jurisdiction. S.16 says arbitral tribunal has competence to rule on own jurisdiction.If the agreement is not null and void, inoperative or incapable of being performed, any issue related to the “existence or validity of the arbitration agreement” shall be left to the arbitral tribunal.

2. The identity of the arbitrator

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Extra-judicial Dispute ResolutionProf. Frederic BachandAs mentioned above, one of the issues was “is the Court of Arbitration of Poland (not mentioned per se in the arbitration clause) the legal successor of the College of Arbitrators (mentioned in the clause)? Significance: if it is, then the clause is enforceable. Key: the clause said “...will be settled by the College of Arbitrators/Arbitration Court at the Polish Chamber of Foreign Trade...” Is the term “arbitration clause”, clearly generic, there to give flexibility in the determination of the choice of forum clause?The divisional court (Ontario) held that the Court of Arbitration in fact replaced the College of arbitrators and that the term ‘arbitration court’, in the clause, was there to give some flexibility. The test is “whether the language used by the parties, reasonably interpreted, is capable of being construed as including a referral is capable of disputes to the new Court of Arbitration in Poland” (note: very broad conception of “party autonomy’).

Agros also submits that Dalimpex is estopped from disputing the jurisdiction (is the Court of arbitration the successor?) – because Dalimpex failed to raise the issue before the arbitral tribunal.

The Court agrees with the divisional court: it was reasonable to interpret the arbitration clause as encompassing the new Court of arbitration. It is also true that Dalimpex failed to object the identity of the tribunal. “It would have been preferable in all the circumstances for this jurisdictional issue to have been decided in the first instance by the arbitral tribunal.”

3. The scope of the arbitration clauseDoes the clause include arbitration of the tort claim brought by Dalimpex (interference, etc)?In the judge’s view it is preferable to leave the matter (whether the matter is arbitrable re the clause) for final determination to the Court of Arbitration and to stay the action v. Agros until final determination of the disputes by arbitration, or order of the Superior Court of Justice.- Because the wording of the clause is large enough (“any dispute in connection with interpretation or execution”).

Issue in class: this case concerns the role of a court which is asked by defendant to give effect to alleged clause of arbitration agreement: should the court make a final ruling on the effectiveness of the arbitration agreement invoked by the def or should it rather refer the parties to arbitration upon mere demonstration that prima facie, the dispute falls within the ambit of a valid arbitration agreement? Bachand asks if it (Dalimpex) is a convincing solution and mentions that the issue is currently in appeal at SCC in the Dell case.

Suppose A v. B in court. B seeks referral to arbitration and A objects on the ground that there is no arbitration agreement, or that the agreement doesn’t apply to the claim: basically, jurisdictional objections.

Traditional Approach: court should deal fully with objections dealing with the applicability and effectiveness of the arbitration agreement: parties should not be sent to arbitration unless they are sure that the tribunal has jurisdiction. This view is still adopted today inter alia in US, England, Germany.

Prima facie approach: courts should not deal fully with B’s assertion that A acted in breach of an arbitration agreement: they should only perform a prima facie assessment of the agreement’s effectiveness, and refer the matter to arbitration if B’s assertion APPEARS to be well-founded. In this scenario, courts do NOT fully deal with objections to the effectiveness of the arbitration agreement, leaving the arbitration tribunal to take a FULL look and make a decision on these objections, either in the form of a preliminary decision or as part of the final award. Of course, tribunal ruling on the jurisdictional issue would be subject to subsequent court review to ensure that it did not erroneously assert jurisdiction, or did not do so out of personal interest.

The justification for this view is that practice shows that many if not most objections to the jurisdiction of arbitral tribunals are made in bad faith: they are tactical moves designed to delay the arbitration. Thus when B’s argument seems to be well founded, A is presumed to be acting in a tactical/dilatory manner. Instead of wasting time in court dealing (fully) with objection which is likely ill-founded, parties are sent to arbitration tribunals (whose jurisdiction is presumed to exist).

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Extra-judicial Dispute ResolutionProf. Frederic BachandIf court has power to fully review jurisdictional issues, this gives an opportunity to parties to delay the arbitration, avoid the entering into effective practice of the arbitration agreement!! And this is counter to the needs and intention of a pro-EDR system.

This view is adopted interalia in France, Switzerland, Canada (issue before SCC in Dell), Model Law.

Traditional view: COURT examines jurisdictional/effectiveness of the agreement objections of a defendant.

New view: TRIBUNAL examines jurisdictional/effectiveness of the agreement objections of a defendant, COURTS only ensure that there is a chance that tribunal has jurisdiction over the claim.

POINT: There is no consensus on which of these two approaches is best, and the ambiguity on the issue in legislative instruments like the Model Law shows this uncertainty.

C. The idea that the parties to the arbitration agreement are under a duty to arbitrate is obviously not problematic; but can these positive effects/effects of arbitration agreement also extend to persons who are not parties to the arbitration agreement? The Québec Court of Appeal seems to think that they can: Concordia Project Management Ltd. v. Décarel Inc.

A v B (company) and C & D (main shareholders/officers), and, factually, claims against B, C & D are interrelated. Agreement signed by A and B only! A seeks referral of entire dispute to arbitration, including claims against C & D; Court of appeal agrees!

Is there a proper legal basis in agreement for extending the arbitration clause to non-parties? Does the court’s reasoning make sense?

Concordia Project Management Limited v. Decarel Inc.[1996] R.D.J. 484 (Que. C.A.)

Facts: Concordia and Decarel entered into a contract to do some work on the Casino Montreal. Chiniara and Salicco signed the K as administrators of Decarel, and they are the main stockholders in Decarel. Concordia sued Decarel under contract and delict in the Superior Court for deliberately prolonging the duration of the works. It then made a further motion to have the court submit the dispute to arbitration, as per the clause linking Concordia and Decarel, and as per CCP 940.1, and include Chiniara and Salicco, personally, as parties to the arbitration.

Superior Court ruled that, despite the fact that the clause only linked Concordia and Decarel, two legal persons, because the two individuals were so personally implicated and held such a high interest in the dispute, as the main stockholders of Decarel and its administrators, that they should also be parties to the arbitration. Decarel, Chiniara and Salicco appeal the ruling, arguing that neither Decarel nor the two individuals should go before an arbitrator.

Issue: Should the dispute be submitted to arbitration? Should Chiniara and Salicco be parties to the arbitration in their individual capacity?

Held: Yes. Yes.

Reasoning:

JUDGE VALLERAND: Watson Computer Products c. 136067 Canada Inc. et Quality Micro Systems Inc. (1987) stated that the Court is prohibited from referring to arbitration a dispute involving two parties, only ONE of which is party to an arbitration clause. This is so in order to avoid imposing arbitration on a party who has not agreed to it.

Since Watson, the Court has modified and liberalized its principle on the subject: it has shown a tendency to examine each case individually, according to its particular circumstances.

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Extra-judicial Dispute ResolutionProf. Frederic BachandIn the case here, the only reason why Decarel was a party to the arbitration clause was because and as a result of the will of Chiniara and Salicco. In principle and in practice, all litigation arising between Concordia and Decarel could only originate from the behaviour and actions of Chiniara and Salicco. Any decision in the case, as regards Decarel, whether by a judge or an arbitrator, could only be based on the behavior of Chiniara and Salicco. Any attempt to separate Decarel from C and S would only be a blind technicality that knowingly ignores the particular circumstances of the case.

POINT: Given the particular circumstances in the case, all interested parties in the case should go before the arbitrator, as per the arbitration clause which the individual initiating parties (C and S) seek to escape.

Dissent in part:

JUDGE CHAMBERLAND: The Court’s principles with regards to sending a dispute to arbitration do not go as far as permitting the ordering of an natural person to submit to an arbitrator’s jurisdiction arising from a contract to which he is not a party.

Here, the fact that C and S are directly responsible for the conduct of Decarel does not diminish the importance of the fact that C and S are not personally parties to the arbitration clause. They have the right that the dispute against them be adjudicated in the Court, even if they have accepted to be submitted to arbitration under the guise of Decarel.

The risk that there might be conflicting decisions on basically the same dispute does not justify that we submit C and S to a jurisdiction they never agreed to.

Class comments:

– A. v. B (co.) and C & D (main shareholders/officers)

– Factually, claims against B, C and D are interrelated

– Arbitration agreement signed by A and B only

– A seeks referral of entire dispute to arbitration, including claims against C and D; Court of appeal agrees

– What’s wrong here?

• Unconvincing extension of agreement to non-signatories

• Does it make sense to grant contested referral application made by party who commenced the court action?

– A word on the “group of companies” doctrine

B. THE ARBITRAL TRIBUNAL

(i) Constitution of the arbitral tribunal

Legal perspective: how should the constitution of the tribunal be regulated in a pro-EDR legal system?

a. Party autonomy

1. The principle

UNCITRAL Model Law on International Commercial Arbitration, Art. 10-15 and 34(2)a)iv); Quebec Code of Civil Procedure, Art. 941ff.; Nouveau Code de procedure civile (France), Art. 1493; Arbitration Act, 1996 (U.K.),

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Extra-judicial Dispute ResolutionProf. Frederic BachandS. 15ff.; Commercial Arbitration Rules (AAA), R-11ff.

The general principle is: parties decide (party autonomy)

What if no party agreement on constitution of tribunal (or one aspect thereof)? This is a possibility since parties don’t have to agree on trib. const. for arbitration clause to be legally effective.

The generally-accepted gap-filling rule calls for subsidiary application of the rules of the seat of arbitration. Example: the Quebec CCP provisions: CCP 941ff.

Party autonomy entails freedom re: identity, number, and appointment procedure.

2. Limits to party autonomy

UNCITRAL Model Law on International Commercial Arbitration, Art. 18; Quebec Civil Code, Art. 2641

Public policy/order limits on parties’ freedom:

1) Impartiality requirement (more on that next week)2) General rule of party equality

E.g. Art. 2641 CCQ: “A stipulation [in arbitration agreement] that places one party in a privileged position with respect to the designation of the arbitrators is null”

The idea: public policy/order requires that parties be treated equally in appointment process; parties can’t agree to procedure that fails to provide equal treatment.

Party equality problems: three examples

1./ The Dutco problem

A v. B and C; ICC clause, 3 arbitrators. Under former ICC rules, A was to appoint one arb. and B & C were to jointly appoint second arbitrator. A appoints arbitrator, but B and C can’t agree on identity of 2nd arb.; ICC rules provided that ICC was to step in and appoint 2nd arb. Struck down by French Cour de cassation: B and C do not have equal input as A does in constitution of tribunal. Solution?

2./ The Desbois problem ([1990] A.Q. (Quicklaw) No. 616 (C.A.)

K between Davie (a shipbuilder) and Desbois re: construction of fishing boat. Qc gvt, who subsidizes important aspect of Davie’s activities, is also a party to K. Arbitration cl. provides that arbitrator will be… Qc Minister of Agriculture. Struck down as contrary to party equality (+ contrary to requirement of impartiality).

3./ Consider this clause:

“Any dispute arising out of or in relation to this agreement shall be referred to final and binding arbitration. The tribunal will be comprised of three arbitrators. Each party will appoint an arbitrator; the third arbitrator will be appointed by the two party-appointed arbitrators. However, if the Defendant fails to appoint an arbitrator within 30 days of the appointment of the first arbitrator, the latter will act as sole arbitrator.”

To some (e.g.: J.E.C. Brierley), this is contrary to party equality principle. Others (e.g. Paris C.A., Sept. 8, 2005) disagree. Who’s right?

GUEST SPEAKER: March 20, 2007

Judicial Mediation in Quebec:

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This was an initiative of the Court of Appeal. This basically entails the challenge of a judgment of first instance. How democratic is this?

At the stage where CA authorizes the appeal, they encourage submission to mediation as a win-win situation. This means that if the parties agree, the delays for their appeal will be suspended, and the judge presiding will be blacked out from any proceedings in the CA that might later take place. Therefore, there will basically be two files in the CA: one on mediation (private file, set up by judge), one legal, public CA file.

The bench, if there is an appeal proceedings, MIGHT know that there was a mediation proceeding, but will not know the content of it. The mediation will only leave a trace if the outcome is positive.

**ADD SYLVIE’S NOTES**

b. Subsidiary application of rules relating to the constitution of arbitral tribunals in force at the place of arbitration

c. The appointment of arbitrators: some practical considerations

Practical perspectives: arbitrator selection dos and don’ts

1) The key: experience in arbitration

• Especially in one-member trib., but also true re: 3 arb.

– Language

– Reputation -- the Air France example

• Libyan Arab Airlines commences arbitration v. Air France; contractual dispute over aircraft maintenance.

• AF objects to arbitral jurisdiction; says UN embargo against Libya and related UNSC resolutions render invalid the K as well as the arbitration clause contained therein

• The tribunal makes a first ruling on AF’s jurisdiction objection: dismissed, arbitration ought to carry on

• AF then seeks intervention of Qc SC (link to Qc: seat of arbitration was Montreal), challenging validity of decision + legality of arbitration

• Tribunal comprised of 2 judges of the ICJ and one judge of the ICTY…

2) Subject-matter expertise/nature of dispute

• If sole arbitrator, as opposed to 3 arbitrators, go with a jurist

• In a three-member panel, may be different; Pure Tech example:

– Share purchase agreement; purchaser pays by issuing shares to sellers; shares had to be registered by purchaser before they could be sold by sellers

– K contained provisions re: when shares to be registered by purchaser

– Question: were shares registered in timely manner?

– Price of share had gone down between date on which--according to seller--shares were supposed to be registered and date on which shares were effectively registered; sellers sued for shortfall

– To sellers, mostly a dispute about usages and practices: lawyer with substantial exp. in securities industry

– To purchaser, this was legal dispute, contractual interpretation: lawyer

– 3rd arb: jurist or experienced broker?

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Lavergne v. Pure Tech International Inc.[1998] Q.J. (Quicklaw) No. 2308 (Quebec Superior Court)Facts: Lavergne and Pure Tech had an Agreement of sale whereby Lavergne sold Pure Tech some of their shares in Les Plastiques Petco Inc. Clause 15(h) of the Agreement provides for arbitration in Quebec, in English, according to the CCP, of all disputes arising from that Agreement. The Court here has been asked to appoint a third arbitrator to complete an Arbitration Tribunal whose two other members have been appointed by the parties, to preside over a dispute as per Clause 15(h).

Issue: Who should be the third arbitrator? What principles should Court keep in mind in doing so.

Held: Hon. Francois Chevallier.

Reasoning:In conducting this case, the court constrained its comments to the issue at hand: appointing a third arbitrator, as per CCP 940.3, which states that “a judge or the court cannot intervene in any question governed by this Title except in the cases provided for therein.

The issue at the basis of the arbitration, in the Court’s view, raises both questions of interpretation of the contract between the two parties, and of securities law and practice in the US. However, just because the two arbitrators already appointed both have legal backgrounds, it does not mean that the third may not also have such a background. A panel not composed of experts in the stock business is not a concern, because CCP 944.1 provides that “[arbitrators] have all the necessary powers for the exercise of their jurisdiction, including the power to appoint an expert.”

The important thing for the Court to keep in mind when making its choice, after having considered the subject-matter of the arbitration, is to weigh the relevant competence and impartiality of the person to be appointed, and his or her experience in arbitration.

POINT: J. Brian Casey’s description of the composition of the arbitral tribunal outlines the main reasons why the choice of arbitrator is the most important part of the arbitral process:

1) Because the process is consensual and operates to a great extent outside the rules of procedure and practice, the role of the arbitrator is crucial in maintaining the integrity and efficiency of the process.

2) Inevitable jockeying for tactical position, strategic delaying and the adversarial stance taken by most lawyers trained in the CML court system necessitates a strong and knowledgeable arbitral tribunal.

Bachand’s comments: This was a case as to how should a judge go about appointing an arbitrator when there is no agreement between the parties. Interesting, but the main point is that it is better and judges will usually want to appoint a JURIST.

So, while if you do not want a certain lawyer to be appointed, try to argue for a retired judge to be appointed, because they are impartial and have been out of the commercial circle for a while. As for the argument that you may need specialized knowledge, then the answer is simple: get an expert!

POINT: You will not be able to get full use out of the arbitration process if you don’t select a good arbitrator!

(ii) Status of the arbitrators

This is about the role and the essential mission of arbitrators/arbitral tribunal in the process.

Arbitrators have a hybrid role: a service provider and judge.

a. Contractual: arbitrators as service providers

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Extra-judicial Dispute ResolutionProf. Frederic BachandThe arbitrator is party to a contract whereby he is bound to the parties to give them a service in return for which he gets fees.

1. Existence and nature of the contract between the arbitrators and the parties

Nature of the contract that binds the arbitrator to the parties is important.

A key question is what kind of K is it?

i. Normative instruments often suggest that it is a joint mandate/agency contract.

e.g. UNCITRAL ML, Art. 14(2): “If, under this article or article 13(2), an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator [...]”.

Is this a valid characterization? Must think of what mandate/agency is in the CML.

As per CCQ 2130: “Mandate is a contract by which a person, the mandator, empowers another person, the mandatary, to represent him in the performance of a juridical act with a third person, and the mandatary, by his acceptance, binds himself to exercise this power.” But in an arbitration, the parties do not delegate the power to represent them in the accomplishment of a juridical act.

Therefore, mandate/agency is not necessarily the best way to characterize the relationship between arbitrator and the parties. So, must not read too much into provisions such as the UNCITRAL Art. 14(2) which use the word “mandate”.

ii. Alternatively, K between arbitrator and parties could be characterized as a contract for services.

The CCQ 2098 defines it as “A contract […] for services is a contract by which a person […] the provider of services […] undertakes to provide a service, for a price which the client binds himself to pay.”

This is a closer characterization, but there are still problems:

Consider provisions such as CCQ 2100: “The contractor and provider of services are bound to act in the best interest of their client with prudence and diligence.” But while arbitrators are bound to render quick and efficient decisions, most commentators still say that there is too much proximity between the contractor and the provider of services in a K for services, which does not characterize the arbitrator-party relationship.

MAIN POINT: The bottom line (the emerging consensus): the arbitrator-parties K is a sui generis K, which entails that the obligational content shouldn’t be determined by reference to pre-existing categories.

b. The arbitrators’ contractual rights and obligations

The arbitrator’s basic OBLIGATIONS under the arbitrator-parties K:

MAIN OBLIGATION: render an award.

This implies certain secondary obligations:

a) to not resign without valid reasonsb) to act with reasonable dispatch (eg. Art. 14 UNCITRAL ML, 942.5 CCP) This is an obligation of means (?). This is accompanied by specific procedural remedies for enforcing it: going to judge to ask judge to remove arbitrator for not doing so. This however does leave it open for parties to bring the proceedings out into the public domain if you are in an ad hoc arbitration: in an institutional arbitration, this is handled IN PRIVATE by the institution.

c) to resolve all the issues submitted by the parties. If arbitrator forgets to adjudicate ONE even minor dispute having been brought up by the parties, he breaches this obligation.

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IMPLIED OBLIGATION: render an ENFORCEABLE award

The parties want an award that will resolve the issues in a final and binding manner. This means that the award MUST be enforceable in court if one of the parties fails to abide by it.

To do so, arbitration award must:

a) comply with applicable jurisdictional requirements (i.e. that you resolve only issues brought to you by parties).b) comply with applicable rules of procedure applicable to the arbitration (i.e. the procedure rules that are either selected to apply or apply by default given the jurisdiction where the arbitration is carried on).c) be mindful of public policy considerations (procedural and substantive) that apply in the jurisdiction where you seek to enforce the award. E.g. an arbitrator in QC cannot ignore a mandatory provision that certain contracts cannot be enforced against consumers and enforce one of those contracts in an arbitration; such an award would not be enforceable, due to a violation of a rule of public policy.

INCIDENTAL OBLIGATION: confidentiality

There is some uncertainty as to whether this obligation is inherent in the contract between the parties and the arbitrator, or if it only arises if it is spelled out in the arbitration agreement.

The arbitrators’ RIGHTS:

Basically, it is just fees and reimbursement of expenses.

c. Jurisdictional: The arbitrator as judges

The arbitrator is also a judge, not just a service provider, so the relationship between parties and the arbitrator is more complex than that between parties and a judge.

The Key IDEA: like all judges, arbitrators must be (and remain) IMPARTIAL and enjoy IMMUNITY for acts performed as arbitrators.

d. Impartiality and independence

It is universally accepted that arbitrator must remain impartial, no difficulty to justify this stance. The key to this idea is that adjudicative decisions can only be legitimate if made by persons who are in no way predisposed or biased, because of:

a) past/present relationship between arbitrator and one of the parties, counsel, witnesses, etc. (eg. Laker Airways)b) an interest the arbitrator has in the dispute (e.g. financial interest).c) pre-expressed opinion on a certain issue=prejudice!

There is an emerging consensus on how requirement ought to be articulated: the requirement should be articulated as a general standard, as opposed to detailed list of problematic circumstances. Eg. (UNCITRAL ML): “circumstances […] that give rise to justifiable doubts as to his impartiality or independence” as opposed to “grocery list” of problematic categories: sacrifice certainty for completeness and flexibility.

The requirement also never goes as far as to require proof of actual bias, just reasonable doubts. An appearance of bias is sufficient to prevent parties from trusting the parties and arbitrators and warrant the arbitrators’ removal. Removing some unbiased arbitrators is acceptable collateral damage to protect the integrity of the process

The impartiality requirement generally applies in the same manner to party-appointed arbitration in three-member panel: must be impartial regardless of whether you are a sole arbitrator or part of a three-member panel.

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Extra-judicial Dispute ResolutionProf. Frederic BachandONLY ONE CAVEAT: specific to the US: US accepts the idea of non-neutral party-appointed arbitrator. It is therefore not against public policy in the US to have non-neutral party-appointed arbitrators, with one neutral head of the panel.

In the rest of the world, this is DEFINITELY not allowed (public policy reasons), and have criticized the US for its position, as a result of which the US has slightly revised its position by revising the arbitrators’ code of ethics in 2004: before 2004, the presumption was that party-appointed arbitrators were non-neutral, except if specifically agreed that they would be neutral; now, the presumption is that they are neutral, but are still allowed to agree to non-neutral party-appointed arbitrators.

How is impartiality requirement actually implemented?

BEFORE ARBITRATION: disclosure obligation imposed on arbitrator--disclose at the outset circumstances that may affect impartiality IN THE EYES OF THE PARTIES--a “when in doubt, disclose!” approach tends to prevail: even if in your mind, it does NOT raise a reasonable application of bias, disclosing is better, because to some parties, it may be problematic.

DURING ARBITRATION: Opportunity to challenge/seek recusation of arbitrator during the course of the arbitral proceedings--but how do you recuse an arbitrator? challenge is brought before private appointing authority if arbitration clause so provides, or – alternatively – before the courts of the place of arbitration: this is a secondary remedy to cover for instances when you do not have anything in your agreement about where you go for challenges regarding the constitution of the arbitral tribunal. This is what happens in Laker Airways.--**however, there is an obligation to act promptly in recusing an arbitrator: you must act promptly upon realizing that there is a problem with the arbitrator; this is because the point of arbitration is to reach finality, efficiently and cheaply. Therefore you cannot allow for a party to stall/challenge the award by not acting right away (i.e. cannot wait until award released to see if you like it and if no, use fact that arbitrator not impartial to try to invalidate the award). in the US however, courts do not have this power to intervene in motions challenging the arbitrator’s impartiality: therefore, if you have not provided for a governing authority (ICC, AAA, etc.) in your agreement, you have to wait until the award is RENDERED and then just challenge it on that basis; this of course means that there is no obligation to act promptly.

--from a tactical perspective: it might not ALWAYS be in the client’s interest to make these kinds of challenges unless you are fairly certain you will win, because if you don’t you will be stuck with the arbitrator AND you will have ticked them off by suggesting that they are not impartial.

AFTER ARBITRATION: possibility of award being annulled/refused enforcement based on lack of impartiality of arbitrator; this will only be an option if the party learns about a problem with arbitrator re impartiality AFTER award was rendered.

Two examples:

1) Laker Airways:

Laker Airways Inc v. FLS Aerospace Ltd and Burnton (CB – p. 126) Facts: FLS (the claimant in the arbitration) appointed an arbitrator – Mr. B. At the time of the appt, another lawyer – O’Sullivan had recently moved to the same chambers where Mr B also practices. He had already been instructed in the dispute on Laker’s part. The two lawyers had not met and did not know each other. Laker’s lawyers asked FLS to make a new appt. FLS suggested that this was done just to delay arb. Laker later made an application to the crt to have Mr. B removed. Laker is American Co and FLS is British. Laker’s prez stated that in the US it would be unthinkable for two lawyers from the same firm to assume roles in same matter where there’s conflict of interest. Doesn’t believe that English Chambers much diff in structure. Furthermore there is no organisational structure designed to prevent the accidental leakage of info in Chambers.

Issue: Do circumstances exist that give justifiable doubts as to the arbitrators impartiality? (s. 24 Arbitration Act)

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Held: No.

Analysis: - Test set out at s.24 is an objective one. Ie – 1) The Crt must find that actual circumstances exist, not

merely believed to exist. 2) Those circumstances must justify doubts as to impartiality. - But don’t have to prove actual bias. - Seems that lack of independence unless it gives rise to justifiable doubts as to the impartiality is of no

significance. - It is common that judges in the same Chambers are called upon to act for opposing parties, generally

due to their expertise in a certain area. - Chambers of barristers are characterised by sharing physical premises and support staff w.out

necessarily creating any professional ties. - There would have to be circumstances that through the existence of physical or intellectual ties a

situation as to suggest a definite risk of pre-disposition towards one party. - A conflict of interest only arises as an impediment when the same person (or what is regarded in law as

the same person) undertakes conflicting duties to different clients or btwn his own interests and that of his client.

- It is the essence of the practice of barristers that they are self-employed. - Re – transfer of info the burden is on the applicant to show that there was a breach of confidentiality. - Risk of breach must be real (not fanciful or theoretical) but it need not be substantial. Judge feels that

here the breach is theoretical.

POINT: The circumstances do NOT enough to give rise to justifiable doubts as to the arbitrator’s impartiality. On top of the STRUCTURAL details of how Barristers Chambers actually work, there are certain ethical obligations that will prevent barristers from leaking information.

Class comments:

The key thing here is that the party making the application is American, so they do not understand that Barristers of the same Chamber are NOT like partners in the same firm, but rather absolutely independent. THERE IS NO ISSUE OF CONFLICT OF INTEREST, so there is no

The analysis put forward by Lakers is as follows:--conflict of interest/analogy with law firm partners? NO! Barristers are independent.--risk of transmission of information? Because they practice in the same building, there is a risk of information being leaked, leading to reasonable application of bias.--fact that Burnton and Sullivan practice together must mean that they know eachother: again, risk of transmission of information.

All these arguments were taken down by the STRUCTURE of the Barristers Chambers and the fact that the market gives barristers an incentive NOT to talk to others about their cases, as per their ethical obligations and the threat of disciplinary sanctions that are attached to doing so.

2) Bredin’s La Revelation

J.-D. Bredin, “La révélation – Remarques sur l’indépendance de l’arbitre en droit interne francais”

Class Comments:

A retired judge is appointed as an arbitrator, and is struggling over what he should disclose before arbitration begins, as to his impartiality. These are the things that he is wondering whether he should disclose/whether they affect their impartiality?

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1) ex parte meetings took place between arbitrator/judge and Claimant’s counsel: mostly about conflict of interests, availability of arbitrator, etc. but also merits of case are briefly discussed (this is the tricky part!)

2) arbitrator had dinner 3 times over past 5 years with Claimant’s counsel: is THIS a problem?3) When he was a judge, arbitrator issued prior judgments on some legal issues raised in dispute,

most favorable to Claimant’s position.

The issue here is that he has to hesitate to disclose (wants the fees for a trip with his wife)! This might lead him to hesitation during the decision-making, for reasons such as “if I decide this way, I might not get picked as an arbitrator next time”.

But what about hesitation because the arbitrator KNOWS he can decide impartially, but on the face of it it will look like he is biased.

Bachand’s take on it is that there should be a VERY stringent disclosure requirement: arbitrators should put EVERYTHING on the table that they even SLIGHTLY think a reasonable person is evidence of bias. Even if something will lead to a dilatory motion for recusation, you should put it out there because there should be a procedural system that deals with these swiftly, and there is no other effect.

In this case, prior decisions do not have anything to do with the present case: judges rule on a case-by-case basis!!! Different facts, different context means starting from zero every time! But, since the prior decisions influenced party’s decision to appoint him, it should be put on the table for the other party to approve also.

Disclosing a lot can actually help: it will increase your reputation for integrity on the market.

e. Arbitral immunity

Just like a judge, arbitrator has certain OBLIGATIONS (see above: impartiality, duty to rule swiftly and efficiently, etc.).

Just like a judge, arbitrator also has certain PRIVILEDGES: immunity is necessary for them to do their function properly, exercise their obligations freely.

There are two aspects of immunity, which are accepted as general rules:1) Arbitrators are NOT LIABLE for prejudice caused to party(ies) by acts accomplished while

carrying out their duties as arbitrators.2) Arbitrators CANNOT BE COMPELLED by the parties to testify on proceedings and how award

was made.

Immunity is necessary to protect the freedom of judgment of arbitrator: prospect of being sued for damages as a result of your judgment will likely prevent arbitrators from making the ruling they feel is just/appropriate, therefore skewing the nature of the process.

Should there be exceptions to arbitral immunity?

Even immunity afforded to judges is not absolute, although it IS very hard to sue a judge in damages for rendering wrong decision, but it is possible. While threshold is high, you can seek damages from judge if you show that 1) judge rendered decision without jurisdiction (acted beyond his jurisdiction when rendered decision detrimental to your interest); 2) judge rendered decision in BAD FAITH, maliciously, on purpose (i.e. acted outside of jurisdiction while KNOWING he is doing so).

As such, there have to be limits to arbitral immunity. Should limits to judicial immunity be same as those for arbitral immunity: should we treat judges and arbitrators the same? Or should it be easier or harder to sue an arbitrator than a judge?

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Extra-judicial Dispute ResolutionProf. Frederic BachandMaconnerie Demers Inc. v. Lanthier [2002] R.J.Q. 1998 (Quebec Superior Court)

Facts: Maconnerie Demers was subcontracted by Axor Construction to work on a project for the Marguerite-Bourgeoys school board. When the work was done, the School Board only recognized part of the amount invoiced by MD, and a dispute arose. The three parties (Axor, MD and the School Board) agreed to enter into an arbitration agreement. Lanthier, the defendant in this action, was the arbitrator. He is a construction engineer. Pursuant to the arbitration agreement, Lanthier rendered a decision in favor of the School Board: he did not recognize the extra amount of $ owing for work done, claimed by MD over and above what the School Board recognized.

MD had expected that the arbitrator would simply give an assessment of the proper amount of construction materials necessary for the job MD was contracted for. As such, after the release of the arbitration award, it was not content and started an action for the annulment of the arbitration award in Quebec Superior Court. MD alleged that Lanthier had not acted within his mandate given by the arbitration agreement. Judge Langlois of the QSC agreed, and annulled the arbitration award on the basis that the award was based on a question that was not submitted to arbitration by the arbitration agreement.

As well, MD instituted against Lanthier the present civil action, claiming ~$13,000 in lawyers’ fees stemming from the annulment proceedings, arbitrator’s fees for the annulled arbitration and interest losses on those two amounts. Lanthier, instead of claiming that the civil action is barred by arbitrator’s immunity, submitted a defence to the action as well as a counter-claim for damages in the sum of $50,000.

Issue: Does the arbitrator have immunity from a civil suit in this case, given his behaviour towards the plaintiff? If he does not, and the court CAN review the merits of the plaintiff’s case, can the plaintiff’s claims be upheld?

Held: No. The arbitrator’s behaviour in the present proceedings results in a loss of immunity. As such, the court can consider the merits of the plaintiff’s action and dismisses the defendant’s counter-claim. The plaintiff’s claims are partially upheld.

Reasoning: The Court defines the question at hand as being one of the scope of the arbitrator’s immunity from civil prosecution, and particularly in the context of the case at bar.

The defendant was named as an arbitrator freely and voluntarily by the three parties involved in the dispute. In that capacity, he of course enjoys some sort of immunity, but that immunity is NOT absolute.

Zittrer v. Sport Maska Inc.: QC Court of Appeal considered that, in order to engage the responsibility of the arbitrator, it is necessary to allege and prove that there is a situation that is outside of the scope of his immunity. The Court in that case further stipulated that practically only illegal acts done by the arbitrator, acting in bad faith and abuse equivalent to fraud would invalidate his immunity.

POINT: In accordance to doctrine on the subject, as well as the caselaw as above, an arbitrator will only lose immunity if it is shown and proven on a balance of probabilities that he has either done an illegal act (i.e. he has overstepped the bounds of the powers granted to him), he has acted in bad faith, or he has engaged in abusive behavior equivalent to fraud. Otherwise, he benefits from the same immunity judges benefit from.

In the present case, the plaintiff only alleges that the arbitrator defendant does not have any immunity from civil prosecution because he founded his decision in the case on a question that he was not asked to answer in the arbitration agreement. There are no allegations of bad faith or any conduct equivalent thereto.

The situation here is very different than the normal one described in the jurisprudence: it is actually the arbitrator claiming bad faith on the part of MD in his cross-demand!

The question before the court is whether his doing so does not actually constitute bad faith on his OWN part that cancels his immunity.

THE COURT’S ANSWER:

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The defendant claims to be in good faith, but his declarations are in the very least surprising, derogatory and truly uncalled-for. The issue is to figure out whether by making these declarations, the arbitrator has not proven a bias and a view that has placed him in a situation where his impartiality is put into question, and so he cannot benefit from the immunity he would normally benefit from.

The situation was that while MD brought the action against Lanthier solely for the purpose of recuperating money it spend on a useless arbitration that did not answer the question asked, and NOT as an act of vengeance, Lanthier’s counter-claim was vengeful and full of derogatory attacks on his opponent, as well as full of inconsistencies.

As such, the court could only conclude that, given the manner in which he proceeded with the issuing of a defense to the action and making a counter-claim, Lanthier acted in bad faith, and his actions reflect a pre-existing prejudice against the plaintiff which would prevent his being able to be impartial during the arbitration, and thus mean that he does not have immunity. Had Lanthier only defended based against MD’s claim on an argument of immunity, the court would have decided this case differently.

The defense and the counter-claim of the defendant are abusive and cannot be allowed. The plaintiff’s claim is allowed in part: all moneys claimed EXCEPT for the interest accumulated on the main amounts, because the court argued that this loss was not a direct result of the arbitrator’s actions.

RATIO: Abusive and bad-faith conduct of civil proceedings against a former party to arbitration by an arbitrator can constitute the basis for a finding of a loss of immunity from civil prosecution. Bad faith conduct of the arbitration itself is not necessary for such a finding.

C. THE ARBITRAL PROCEDURE

Once the tribunal has been constituted, which rules apply to the arbitral procedure itself? Examples of what is meant here:

- Written submissions? Extent, page limits, deadlines, etc.?- Will counterclaims be asserted?- How/when will evidence be disclosed to parties?- Will discovery take place?- Whether, and if so, when/where will hearings take place?- What will be the applicable rules of evidence?- How will evidence be presented?- Will witnesses testify in-chief or will written statements be filed?- Will cross-examination take place? If so, who will conduct it? Arbitrators, opposing counsel?- Will experts be resorted to? If so, how and when will they intervene in the process?- How will the costs of arbitration be allocated?

(i) Party autonomy and limits thereto

The basic principle: party autonomy (e.g.: Model Law art. 19(1)); i.e. the parties determine what the rules will be

Justification and consensus on principle

Different ways in which agreement of the parties can occur:

1) In arbitration clause; or2) At the outset of the proceeding, at first meeting with tribunal when broad procedural parameters are set; or3) During the proceeding, as a specific procedural issue arises

Exceptions: mandatory rules of arbitral procedure

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Mandatory Rules of arbitral procedure must be complied with to ensure validity/enforceability of award, notwithstanding contrary agreement of parties.Trend: such rules tend to be rare and limited; and they pretty much all have to do with guaranteeing due process/natural justice, i.e. effective and equal opportunity to present arguments before an impartial tribunal

UNCITRAL Model Law on International Commercial Arbitration: Art. 18, 19, 34(2)(a)iv), 34(2)(b)ii), 36(1)(a)iv) and 36(1)(b)ii); New York Convention, Art. V(1)d) and V(2)b); Code of Civil Procedure (Quebec): Art. 940, 944.1, 946.4(3), 946.4(5) and 946.5; Civil Code (Quebec), art. 2463 UNCITRAL Notes on Organizing Arbitral Proceedings

Read again Desputeaux v. Editions Chouette (1987) Inc., and focus on the court’s discussion regarding the possibility for the parties to agree to exclude testimonial evidence – in other words to agree to what is commonly referred to as a documents-only arbitration

What if the haven’t come to an agreement on rules governing a particular procedural issue?

Default application of rules of arbitral procedure in force at place of arbitration

Power of arbitral tribunal to determine applicable procedure

***Usefulness of instruments such as the UNCITRAL Notes on Organization of Arbitral Proceedings

(ii) Privacy and confidentiality of the arbitral proceedings

Are the concepts of privacy and confidentiality synonymous? If not, to what do they refer exactly? Are privacy and confidentiality inherent features of arbitration or is an arbitration proceeding private and confidential only when the parties have made an express agreement to that effect? Does privacy and confidentiality arise out of the arbitration agreement, the agreement between the arbitrator(s) and the parties or rules of positive law? What is private in an arbitration proceeding? And what is confidential? Any exceptions based on public policy/public order or other considerations?

Ali Shipping Corp. v. Shipyard Trogir

Facts: Ali was made party to a shipbuilding agreement between Liera (buyer) and Trogir (the yard, the builder). The K contained a London arbitration clause and was governed by UK law. The yard failed to complete the boat as agreed. Ali rescinded the K and claimed substantial damages.

This dispute went to arbitration (the 1st arbitration): yard defended itself on the basis that it did not complete the boat because other companies (Lavender, Leeward and Leman: the 3 Ls) with whom it also had shipbuilding Ks had not made their payments as they should; it also defended itself by arguing that the corporate veil should be pierced: it argued that the 3Ls and Ali were all owned by the same beneficial owner and as such, because the failure to complete Ali’s boat was due to the 3Ls failure to pay for their own boats, and all were essentially the same person, the yard should not be held accountable for the damages incurred as a result of its failure to complete Ali’s boat.

Arbitrator did not buy the yard’s argument and rendered an award against it for $4,000,000. The yard did not pay the award and instead reactivated dormant arbitrations against the 3Ls (in which the yard is claiming damages for the 3Ls failure to pay for their boats).

In those arbitrations (the 2nd arbitrations) the arbitrators ordered that both parties indicate what evidence they seek to rely on. The yard shows its intention to produce and rely on documents from the 1st arbitration against Ali, including the arbitrator’s reasons and the testimony of two witnesses.

Ali/3L’s solicitors sought an injunction preventing the yard from producing those documents in the 2nd arbitrations. Longmore J approved the injunction, and then Clarke J reversed that judgment (=said that the yard

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Extra-judicial Dispute ResolutionProf. Frederic BachandSHOULD be allowed to rely on those documents in the 2nd arbitrations). Ali is now appealing THAT ruling, and seeking to enforce Longmore J’s order.

Issue: Do the parties of the 1st arbitration have an obligation of confidentiality? And if so, how is it characterized: is it an implied term of the K based on custom or business efficacy or is it an implied term attaching to the K as a result of the nature of the K itself (a matter of law)? And, depending on how it is characterized, does it apply here?

Held: Yes, there is an obligation of confidentiality. It is a matter of law. None of the exceptions existent in the English law applies here. Therefore, appeal allowed.

Reasoning:

Clarke J established that there is, in English law, an obligation of confidentiality in arbitration. He then characterized whether the obligation of confidentiality, as well as the exceptions to it, are implied in the agreement to arbitrate as depending on whether, in the particular circumstances of each case, doing so is necessary to make the contract work (i.e. the business efficacy characterization).

He judged that in the case at bar, the circumstances were that it was not necessary to imply a duty of confidence in any of the contracts between the yard and either Ali or any of the 3Ls, because Ali and the 3Ls were virtually the same party, being owned by the same entity (Greenwich). Because the buyers (Ali and 3Ls) were owned by the same party, it did not make business sense and it was not necessary to make the contracts work to impose such a duty.

Ali’s position:

Ali’s attorney argued in the House of Lords (the proceedings at issue here) that an implied duty of confidence in relation to the arbitration proceedings attaches to the Ks between Ali and the yard and each of the 3Ls and the yard AS A MATTER OF LAW, rather than as a matter of making the contract work.

As such, he submitted that the Phillips material was material from the first arbitration that this duty of confidence prevented the yard from disclosing outside the confines of THAT arbitration. This material could only be disclosed if certain exceptions to that duty, well acknowledged by law, applied here, which he submits they do not.

The Yard’s position:

1) Acknowledges that in ordinary commercial arbitration, there is indeed a duty of confidentiality. However, argues that the nature of this implied duty of confidentiality is that it is applied as a matter of business efficacy (i.e. only implied when needed to make the contract work).

A duty of confidentiality is a term implied as a matter of law: there is a difference between a term implied to make a PARTICULAR contract work, and a term which is, due to wider considerations, implied by law as a necessary incident of a definable category of contractual relationship.

An arbitration clause is an example of the latter implied term: it is better to have a general rule (i.e. duty of confidentiality is implied by law) with exceptions to that rule (set out in law and discussed below) than to have to reconsider and adapt to every case (i.e. duty of confidentiality is implied depending on whether it is needed to make the contract work).

English law recognizes the following exceptions to the broad rule of confidentiality:a) party with whom material originates consents to its disclosureb) order of the court for disclosure of materials for use in a court actionc) leave of the court to disclosed) disclosure when it is “reasonably necessary” for the protection of the legitimate interests of an

arbitrating party: however, court should not require parties seeking disclosure to prove necessity regardless of difficulty or expense.

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e) Where the public interest requires disclosure: public interest here means “the interests of justice” i.e. disclosure of materials necessary to have a judge render a judicial decision based on accurate information.

2) If the court finds that the duty of confidentiality is a matter of law, the Yard argues that the decision of the judge in the court below is still valid because there is no breach of confidentiality in this case because the parties to whom disclosure is contemplated (3Ls) are not really third party strangers because they are owned by the same beneficial owner as Ali.

The confidentiality rule is founded on the ground that privacy of arbitration proceedings necessarily involves an obligation not to make use of material generated in the course of the arbitration even when required for use in other proceedings (subject to exceptions). Because doctrine of confidentiality is based on assumption that parties have a legitimate interest in privacy, disclosure will be assumed to cause prejudice and will only be allowed if excepting circumstances are established.

It makes no sense to create a further exception to confidentiality rule for situations where the parties to whom disclosure is contemplated are in the same beneficial ownership as the contemplating party: one entity may still legitimately wish to keep details from earlier arbitrations private from the other party.

3) In any event, disclosure of the materials at issue is “reasonably necessary” for the protection or enforcement of the yard’s rights against the 3Ls: as such, the situation falls within one of the exceptions provided by law to the duty of confidentiality.

The yard seeks to have the Phillips materials disclosed because it wants to use them to prove that the issue of the missing payments on the Ks between it and the 3Ls has already been decided by the arbitrator in the first arbitration (thus precluding the arbitration the 3Ls have started against the yard). The House of Lords disagrees that the use of the Phillips material can be justified on this basis.

The yard also seeks to justify disclosure on the basis that the material is needed to demonstrate that the 3L’s defences are without merit: this is basically an argument that “reasonable necessity”=disclosing already rendered evidence so it does not have to be given again in the second arbitration, but the House of Lords disagrees that this can be allowed. Convenience and good sense are not in themselves sufficient reasons to satisfy the test of reasonable necessity. In the event that the evidence is inconsistent, THEN the yard can disclose the information in the first arbitration to challenge the inconsistent evidence.

4) It would be contrary to the public interest to permit Ali to suppress evidence from the first arbitration. This is another of the exceptions to the duty permitted by law.

5) Ali is a single-purpose company owned by the same beneficial owner as the respondents: as such it does not have any legitimate interest in restraining the disclosure of the disputed material and the court should use its discretionary power to deny Ali the injunction.

If it appears that the 3Ls will seek to rely on evidence that is inconsistent with the evidence in the first arbitration, THEN and only then would it be contrary to the interests of justice to allow Ali to seek to suppress the earlier evidence. Until then, Ali DOES have a legitimate interest in restraining the disclosure of the Phillips material.

POINT: Original injunctive order should be restored: Ali is allowed to restrain materials arising from the first arbitration from being used in the second arbitration.

1) A duty of confidentiality is a matter of law, imposed automatically in a certain category of contract. It stands unless the circumstances fit one of a number of exceptions delineated in the law, none of which applies here.

2) An exception to the confidentiality duty based on the fact that the party contemplated for disclosure and the contemplating party are both owned by the same beneficial owner does not make sense: even under the same beneficial ownership, the two parties might have a legitimate interest in keeping proceedings in one arbitration private from each other.

3) To establish the exception to the duty of confidentiality based on “reasonable necessity”, it is not

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enough to say that disclosure will make it easier for a party in the second arbitration to counter the defenses mounted against it.

4) Disclosure SHOULD be allowed if it can be shown that the evidence in the second arbitration conflicts with that in the materials from the first arbitration: then, the materials can be disclosed to challenge the inconsistent evidence, but ONLY then: disclosure cannot be used as a shortcut.

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Extra-judicial Dispute ResolutionProf. Frederic BachandConfidentiality: Is International Arb Losing One of Its Major Benefits? - Steven Kouris

- There was initially an assumption that participants in arb were obliged to maintain the confidentiality of proceedings.

- This changed in the 1990s. Still English crts were willing to imply this ob based either on the inherent private nature of arbs or by op of law.

- This approach hasn’t been universally accepted – Crts in Australia, US and Sweden have declined to recognise a duty of arbitral confidentiality w/ out an express provision.

- Fr is alone in being the only proponent of an absolute ob of confidentiality. - So there is a piecemeal approach to confidentiality, self-regulation has been suggested as a partial

remedy. - Under the present circumstances and w/out meaningful self-regulation the intern’tl business

community can no longer no longer assume / expect confidentiality to continue in internat’l arb as a right.

- Express provisions are a good idea but this too might not coincide w/ the law of the seat or of enforcement.

- May also resort to institutional arb rules that specifically provide for confidentiality.

England- manner in which duty arises in English crts has been the subject of judicial debate. - Recent decision – Ali Shipping recognised a broad rule of confidentiality that prohibits the use of

arbitral materials outside the four walls of arb. - Limited exceptions to this rules by crt order, leave of the crt or disclosure reasonable necessary for

the protection of the legit interests of an arbitrating party and interests of justice. - Subsequent decision – Associated Electric, did not follow Ali Shipping. Concluded that an arbitral

award made in an earlier intern’tl arb could be used in subsequent arb btwn same parties. This despite the parties having a thorough confidentiality agreement but that didn’t expressly cover the award.

- This decision appeared to conclude that confidentiality should be evaluated on its own terms rather than privacy or business efficacy considerations.

Australia- Esso case - no implied duty of confidentiality (absent an express provision) b/c it isn’t an essential

attribute of private arbitration. - But found an implied undertaking of confidentiality- Complete confidentiality can’t be achieved: 1) No ob attaches to witnesses2) An arbitral party may need to disclose docs or info to a crt for enforcement or judicial review of an

arbitral award3) Arbitral party’s disclosure ob may be governed by stat or insurance reqs. - Another judge recognised ob for business efficacy w/ exceptions incl ones listed above, where there

is express or implied consent of producing party, in the public interest. United States

- Panhandle Case – no duty of confidentiality in internt’l arb. Sweden

- no implied duty, but crts may have been prepared to find a duty to maintain the confidence of the arb if the parties had expressly provided for this via their K or availed themselves of arb rules.

France- Aita Case – recognises implied confidentiality, but decision criticized b/c didn’t substantiate why

nature of arb intrinsically calls for confidentiality. - Also didn’t articulate any limits to the extent of the duty of confidentiality.

Singapore- Adopt English approach b/c more in keeping w. parties expectations.

Arbitral Rules of Internt’l Institutions - Most provide specifically for confidentiality, but the provisions lack uniformity. - Also generally a lack of recourse if confidentiality is breached. - ICC – doesn’t explicitly compel parties (or other parties) to maintain confidence

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- LCIA – recognise confidentiality as a “general principle”- AAA – arbitrator not parties is explicitly compelled to maintain confidence of proceedings and

award.

Conclusion - Self regulation is a good starting pt- This might be the impetus for a uniform approach which is the most desirable maybe through

amendments to the Model Law- There is a risk assoc w/ parties expressly bargaining for confidentiality – not usually thought of when

negotiating. So may have to pay a price for it or may undermine the transaction as a whole. - Also necessary to protect parties commercial interests which will be different depending on type of

business. So there should be recognised exceptions

(iii) Court intervention during arbitral proceedings

UNCITRAL Model Law on International Commercial Arbitration: Art. 5; Code of Civil Procedure, Art. 940.3; Arbitration Act, 1996 (U.K.): S. 1(c)

We already know that arbitration is not completely detached from domestic judicial systems:- courts have a role to play re: enforcement of arbitration agreements when court action is brought in breach of arbitration agreement- courts can get involved in constitution of tribunal (appointment, replacement, challenge of arbitrators)- courts can intervene a posteriori in the context of enforcement or annulment proceedings (more on that next week)

Question here is: what else? Specifically, should courts have other roles to play while arbitration proceeding is ongoing?

What is at stake here, fundamentally, is efficiency: to make arbitration work effectively, should courts be given further powers of intervention, and if so, what should those powers be?

Should public policy/public order considerations matter with respect to judicial assistance? How should powers be shared between courts and arbitrators?

There is consensus that some court intervention is needed. The two possible purposes of court intervention:

1) Provide assistance to the arbitral process

2) Control legality of arbitral process

a. Judicial assistance

Focus first on court assistance during the arbitration

– Apparent paradox: isn’t any form of court intervention inconsistent with the parties’ desire to resort to arbitration???

– Answer is no, for two reasons:

• while the parties want to stay out of court as much as possible, they also want the process to be as efficient as possible

• arbitration wouldn’t be sufficiently efficient if courts weren’t given some procedural powers allowing them to intervene during the proceeding

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Extra-judicial Dispute ResolutionProf. Frederic Bachand– why?

» Arbitrators’ orders cannot bind third parties

» Arbitrators’ orders are not self-executing

» Arbitrators cannot make any order before tribunal has been constituted

– Bottom line: court intervention that seeks to address the inherent shortcomings of arbitration is not only legitimate, it is desirable

– Which specific powers should be given to arbitrators?

A. Provisional/conservatory measures

– What they are: orders essentially designed to preserve the tribunal’s ability to resolve the dispute effectively; e.g.:

» Orders aimed at preventing irreparable harm

» Orders relating to security for costs

» Orders aimed at preserving key evidence

» Pre-award attachment of assets

– Carolina Power & Light Co. and the controversy relating to the desirability of court intervention re: provisional /conservatory measures

– Fine-tuning the allocation of powers between courts and arbitrators: compare S. 42ff. of English Arbitration Act and Art. 9 of the Model Law/940.4 of the Qc CCP

Carolina Power & Light Co v. Uranex CB p.44Facts: CPL contracted w/ U (French co) to supply uranium. U was unable to supply at the K price. CPL filed an action against U and also attached an 85 million $ debt owed to U by a 3rd party, which is based in California. This attachment was done so that their was a potential source of $ for CPL to satisfy any judgement that might issue. K btwn CPL and U, stipulated that disputes would be arbitrated in NY. CPL finally agreed to arb, but contends that the crt should stay this present action and maintain the attachment in order to protect any award that CPL might receive through arb. CPL claims that U has no other assets in the US. U had no attachment to Cali.

Issue: Does the Cali court have jurisdiction over Uranex?

Held: Yes.

Analysis: - No jurisdiction in personam. Uranex doesn’t have sufficient presence in Cali to be considered an

ongoing presence. And the claims in this case have no connection to U’s activities in Cali. - Quasi in rem jurisdiction – standard for determining jurisdiction on this basis is the minimum

contacts standard. This standard is not met either- However CPL relies on a case which stated that a wrongdoer shouldn’t be able to avoid payment of

his obs by removing his assets to a place where he is not subject to an in personam suit. - Crt decides to maintain attachment – U has no other assets in US and it is unlikely that they will in

the future. Cali isn’t an exceptional or inconvenient forum for U to litigate disputes re – 85 million. - U also argues that it would be inconsistent w. the Convention on Recognition and Enforcement of

Foreign Arbitral Awards for the crt to maintain the attachment awaiting the arb. - Based on arb clause btwn CPL and U, prejudgement attachment can be considered inconsistent w/

the agreement only if one decides that such attachment is inherently inconsistent w/ any agreement to arb.

- There’s nothing in the Convention that resort to prejudgement attachment was to be precluded.

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B. Orders for the taking of evidence

– Consensus on the necessity to allow courts to compel witnesses to provide evidence when they are not willing to do so voluntarily

– Modern statutes tend, rightly, to allow courts to intervene only when the arbitral tribunal has found such intervention to be necessary/useful

» E.g.: Art. 27 of the Model Law, S. 43 of the English Arbitration Act

» Such approach gives maximum control to the tribunal

UNCITRAL Model Law on International Commercial Arbitration: Art. 9 and 27; Code of Civil Procedure: Art. 940.4, 944.6 and 944.8; Arbitration Act, 1996: S. 42, 43 and 44

a. Judicial control

Focus now on court control during arbitration

We know that, in most jurisdictions, court control of arbitrator’s status is possible during arbitration (independence/impartiality requirements & challenge of arbitrators during the arbitral proceedings)

We also know that courts can, to a certain extent, control indirectly the jurisdiction of the tribunal when they are seized of a motion to refer an action to arbitration (enforcement of the arbitration agreement in its negative effect).

We already know that in most jurisdictions, courts can intervene under some circumstances to control the status of arbitrators.

This is of course unless parties have delegated to private appointing authority the power to deal with challenges.

Question here is this: should other forms of judicial control of arbitration be possible before award is rendered, or should further judicial control be postponed until after award rendered?

Most controversial question here is whether (direct) court control of arbitral jurisdiction ought to be possible during the arbitral proceeding

Concrete example: Air France case

Possible answers to question re: whether direct control of arbitral jurisdiction should be possible

• No direct control before award (e.g.: Dutch law)

• Direct control possible whenever (e.g.: U.S. law)

• A middle-ground approach: direct control of arb. jurisd. before award possible, if allowed by tribunal (e.g.: Model Law, Qc law, emerging consensus)

Compagnie Nationale Air France v. MBaye

UNCITRAL Model Law on International Commercial Arbitration: Art. 16(3); Code of Civil Procedure: art. 943.1 and 943.2; Arbitration Act, 1996, S. 32

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(iv) Applicable rules and amiable composition

UNCITRAL Model Law on International Commercial Arbitration: Art. 28; Code of Civil Procedure: Art. 944.10

J.E.C. Brierly, “Equity and Good Conscience” and Amiable Composition in Canadian Arbitration Law

Canada’s new arbitration legislation based on the UNCITRAL Model Law of 1985 has brought significant changes to arbitration in this country, but mostly so in Common Law Canada.

Firstly, the adoption of UNCITRAL based legislation means that Common Law Canada has embraced the idea that it is appropriate to have a dual vision of arbitration law: one for domestic arbitrations, one for international arbitrations. Quebec however, has maintained a UNITARY regime of arbitration applicable to all arbitration agreements, whether they be characterized as domestic, commercial or international.

The Equity Clause:

With the adoption of the UNCITRAL Model Law, Common Law Canada has introduced a new concept within its understanding of arbitration: having the arbitrator decide a dispute ex aequo et bono (in equity and good conscience). Traditionally (and still the case with regard to DOMESTIC arbitrations), an award is supposed to conform to the positive law. Traditionally, a duty to decide according to the law is implicit in the arbitration agreement, and a special case procedure existed that allows a court to refuse to enforce the award if it does not comply with the positive law.

In Quebec, however, the equity clause is nothing new. The choice as to whether an arbitration would be done according to the positive law or in equity is entirely within the discretion of the contracting parties and exists in all domestic, commercial and international contexts.

Dual Conceptions of Arbitration:

As a result of the implementation of the UNCITRAL Model Law, the gap on the issue of having arbitrators decide in equity rather than in law has been narrowed between Common Law and Civil Law (Quebec), at least in the international context: the idea is now consistently accepted throughout Canada that parties may authorize arbitrators to decide otherwise than by reference to some positive rules of law.

Use of the Notion:

A variety of disparate instances (other than the system of Equity created by the Chancellory courts in England and their successors) can be found in the historical record where notion of adjudicating in equity and good conscience has been enshrined within national law administered by state courts and tribunals.

Contemporary Analyses:

It is curious to observe that in the context of arbitration much contemporary comment about the equity clause leaves the impression that the notion of adjudicating in equity is obscure or imprecise.

This makes sense in the context of Common Law, where it is a relatively new concept. But even in European Continental Civil Law jurisdictions, where adjudicating in equity in arbitration has a long history, there is no agreement on the true scope of how far can an arbitrator empowered to do so disregard the positive law.

It is probably not a good idea to transplant any existing Civil Law ideas about the scope of equity arbitration into Common Law given that the two systems’ arbitration laws function within a generally very different legal framework. Indigenous attitudes about arbitration and its relation to the courts will also affect how equity arbitration is seen in a certain jurisdiction.

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Extra-judicial Dispute ResolutionProf. Frederic BachandPerspective Adopted:

An examination of a variety of different arbitration laws reveals that there is a convergence of ideas about the operation of arbitration to which the Model Law has given a most striking expression.

The Clause and the Contract:

The existence of an equity clause in the arbitration agreement in the Civil Law tradition and in the Model Law does not authorize the arbitrators to abandon the terms of the contract in relation to which the dispute has arisen.

The Clause and Commercial Usage:

Equity clause also does not dispense the arbitrators from duty of taking into account the usages of the trade (if any) that are applicable to the transaction and, therefore, to the dispute. This principle is also stated in Civilian codes and the Model Law.

POINT: Equity clause does not amount either to authority to abandon the contract itself (“the law of the parties”) or to no more than a reference to the applicable custom (“the law of the milieu”).

The Clause and Mediation:

Does the equity clause carry the implication that arbitrators are invested with the function of mediators? Modern Civilian legislations and the Model Law (model for CML legislation) firmly state that arbitrator rendering an award, even ex aequo et bono, is performing a JUDICIAL FUNCTION: mediation and amiable composition are distinct functions!

The Clause and Sanctions and Remedies:

Do different practical consequences relating from the viability of the award itself flow from the distinction between arbitrations in law and arbitrations ex aequo et bono?

1) Model Law contains no means whereby a party may take, or an arbitrator may be required to take, measures to ensure the eventual conformity of the award to positive law. Therefore, the Model Law does not distinguish between an arbitration in law and one ex aequo et bono. This is in conformity with the French view and the new English view.

2) Model Law allows neither an appeal from the award nor any judicial review of the merits of the dispute and the content of the award in order to assess its conformity to positive law.

As such, the role of the court has always been limited to examining whether there are any violations of public order (ordre public, in CVL) contained in the award or in the process leading to it.

French law, in contrast, allows an appeal, even in the case of arbitration by amiable composition, but subjects it to the requirement that the parties have originally reserved the right to lodge such an appeal. The only other recourse against an award in French law is the procedure (which can never be excluded by stipulation by the parties) for declaring the award null on specific grounds, INCLUDING violations of ordre public.

English law has also abolished the jurisdiction of the court to set aside an award for error of law or of fact, appearing on its face. The difficulties arise because English law is silent on specified grounds of annulment, including those relating to public policy. In the Model Law, this is not a problem: exclusive recourses and violations of public policy/ordre public are specified.

The Clause and the Control of Legality of the Award:

In the case of both arbitration in law and arbitration in equity, the Model Law offers the same grounds for

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Extra-judicial Dispute ResolutionProf. Frederic Bachandmoving to annul the award: these are grounds that are so fundamental in character that their violation destroys the integrity of the entire arbitration process:

Incapacity of contracting parties Invalidity of arbitration agreement Denial of fair hearing Lack of jurisdiction/excess of authority by arbitrators Irregularities with regard to the agreed arbitration procedure Inarbitrability of the subject matter (can be raised by the court on its own motion) Violations of public policy/ordre public (can be raised by court on its own motion)

Real significance of the clause:

Public policy/ordre public hold the key to the real significance of the equity clause and to the scope of judicial control to be exercised in regard to the award at the moment of its forced execution.

ANY award must respect public policy/ordre public. As such, amiable compositeur will be forced to think about the positive law regarding public policy/ordre public rules at the seat of arbitration (where judgment could be annulled) and possible place of enforcement. He will also be likely unsure as to WHERE the award might potentially be enforced, and this will constrain him even further: he will have to take into account even MORE law in this regard, to ensure that the award will stand.

The Clause in its CVL and CML contexts:

Civil Law distinguishes between provisions that are imperative or of public order and thus cannot be contracted out of, and that those are merely suppletive in character (can be contracted out of). The equity clause in CVL acts as a device whereby the amiable compositeur is invited to exercise discretion in the selection and application of the rules of positive law: while he WILL have to apply the rules that are mandatory/public order, he will be free to choose which suppletive rules he will apply. A judge is not free to do so: can only disregard suppletive rules if parties contract out of them.

In Common Law, the scope of the authority to decide ex aequo et bono extends beyond the excusing of mere technicalities and strict constructions: the MATERIAL presentation of the award, as opposed to merely the process that leads to it, (its contents as a product of the process) will be crucial in the judicial assessment of its conformity to recognized rules of public policy/order in the respective jurisdiction.

The Clause and Reasoned Awards:

Under the Model Law, it is possible in either arbitration in law or arbitration in equity to have the parties agree that the arbitrator need not give reasons for his award. This means that, when the arbitrator gives no reasons, the opportunity for effective control of the content of an award is excluded. Judicial control is thus restricted to control of the validity of the initial agreement to arbitrate, specifically the arbitrability of the dispute.

Conclusions:

Equity Clause in the context of the Model Law, as in that of the modern franco-civilian tradition, is not a license to the arbitrator to indulge in purely subjective decision-making or to proceed in disregard of any law whatsoever, as its designation might seem to imply.

The real point of the Model Law is not the presence of the equity clause and its potential significance but the adequacy of the techniques in place, and in particular the supervisory role of the court, for assuring an application of law when that is the expressed intention of the parties.

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D. THE ARBITRAL AWARD AND JUDICIAL INTERVENTION RELATING THERETO

**GUEST LECTURE—Genvieve Saumier, April 3, 2007**

Judicial Intervention:

This word describes the relationship between the courts and arbitral tribunals. It is a description of the way the courts interact with arbitral awards.

Intervention (in an award) implies a limited role for the court: they do not make the award, they do not render it BUT they do have a role in ensuring that they are enforced, that the award is translated into practice. The court can do something to alter the natural course of events after the rendering of the award: if the natural order of things (complying with the award) is not followed by the parties, the court can ENFORCE.

In a regular court, if you are condemned to pay X amount, you must appeal or pay. Not paying is NOT an option, since your assets will just be seized. In arbitration, they remove the option to appeal, but the option to not pay still needs to be dealt with: this is where the courts come in, to enforce or recognize the award to therefore force compliance if need be.

But what about the GROUNDS on which courts might intervene? An important argument as to why courts’ intervention should be very limited is the exact notion of autonomy of arbitration: court intervention diminishes that.

Also, we think of arbitration not only in terms of a K but also as an institution.

How does state law constrain court intervention OR how does state law continue to play a role in international arbitration? Two ways of seeing it.

This depends on whether we are looking at the substantive or procedural grounds for intervention.

The New York Convention 1958: outlines the grounds for challenging enforcement, and is a significant victory for arbitration as an institution. It basically circumscribes court intervention in significant ways: it reduces it to a few instances. This shows the NEW trend in the judicial systems in most countries to DEFER to arbitration and the arbitrator as much as possible, except for a few instances that are enumerated in the convention.

Art. II: judicial intervention PRIOR to arbitration. If someone tries to circumvent the fact that they have an arbitration agreement, and try to challenge it, the court will rule on its validity and if found valid, will refer the parties to arbitration.

The US situation: Parsons v. Whittemore

The US FAA is federal law, and preempts state law, so US has unified arbitration law, while Canada does not theoretically, although in practice it is uniform because Canada adopted the UNCITRAL Model Law which includes a guarantee that it must be adopted in all provinces.

In the US however, FAA applies to domestic arbitration, but conflicts with law for international arbitrations (the Model Law, NYCC), because they are not the same!! Courts are used to dealing with the FAA, so SCOTUS tried to take a strong stance to balance out their more conservative, anti-arbitration stance (i.e. Mitsubishi, where SCOTUS recognized that courts have a much more limited role in interfering with arbitration).

This pro-arbitration stance is also visible in the Canadian SC, despite the fact that our law context is very different than the US. So why did the SCC need to make such strong pronouncements, when courts at lower levels in Canada usually tow the same line? The SCC did this in Desputeaux.

Main objections to enforcement:

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Extra-judicial Dispute ResolutionProf. Frederic BachandCCP section on homologation of arbitration award/enforcement-recognition-confirmation of the award: 946ff

CCP section on annulment/setting aside: the difference between this and recognition is that annulment will take place where award was rendered/in the state of the law under which arbitration took place; recognition can take place anywhere.

But arbitration enforcement is very unreliable. Most emphasis is placed on the place of recognition, because that will be the important place since it will be the place where the assets are.

In terms of judicial intervention in different jurisdictions, they are bound by comity but do not necessarily have to follow what the first jurisdiction said, especially since the NYCC provides for review of arbitration before, during and after!

Chromalloy is interesting here. Egyptian courts cancel arbitration (annuls award), and US recognizes it by raising FAA and the fact that NYCC says that annulment MAY be a basis for refusal to recognize (V1e), but does not mandate that it is.

The basis of the US decision was that Egypt, in annulling the award, did not follow the spirit of the NYCC, so other states were not barred from recognizing it by this annulment. This cements the view that the seat of arbitration’s decision does not have as much weight as that of a recognizing state (i.e. state where there are assets, etc.): this is the issue of whether annulment at the seat of arbitration bars recognition in other places.

The other bases for refusal to recognize are even more open-ended.

Desputeaux: most important arbitration case in Canada. Not international, but commercial. Supports the pro-arbitration position of the SCOTUS, and shows that SCC has the same view: wherever parties agree to submit a certain dispute to arbitration, there should be deferral to their agreement. They do this by interpreting the public policy exception in V2b). Courts have seldom given it any effect, because it is SO broad. It however gives the court an opportunity to give the subject matter a look. It overlaps with the question of arbitrability of subject matter. To Saumier public policy exception and arbitrability argument are two sides of the same coin. (V2a)

Arbitrability is not a basis for refusal to recognize under FAA!

(i) The notion of “arbitral award” and distinction with other decisions made by arbitral tribunals (procedural orders, jurisdictional decisions, etc.)

The proper characterization of a decision made by the arbitral tribunal can be crucial in practice, mostly because some remedies – such as annulment/setting aside and recognition and enforcement, which are dealt with in the following sections – can only be obtained in connection with decisions which can properly be said to constitute arbitral awards. So how is one to distinguish between “true” awards and “other” decisions made by the tribunal? Of course, a decision which deals in a final and binding manner with the substance of the totality of the claim asserted by the Plaintiff is an award. But what about a decision dealing with interim measures of protection? What about a decision ordering discovery of certain documents? What about a decision whereby the tribunal rules on its own jurisdiction? What about a decision dealing in a final and binding manner with only part of the claim asserted by the Plaintiff? Most arbitration statutes contain no definition of an arbitral award and commentators tend to disagree on this point. How should the arbitral award be defined? In thinking about this question, think about the desirability of allowing courts to intervene in order to annul/set aside or recognize and enforce the decisions that arbitral tribunals may be called upon to make; in other words, the proper definition of an arbitral award ultimately depends, to an important extent, on one’s views as to the appropriate level of judicial intervention relating to arbitration proceedings.

UNCITRAL Model Law on International Commercial Arbitration: Art. 16(3), 30(2), 31, 34 and 36; Code of Civil Procedure (Quebec): Art. 943.1, 945ff., 946ff., 947ff.; Arbitration Act, 1996 (U.K.): S. 39, 46-58, 66-71; Federal Arbitration Act (U.S.): S. 9 and 10

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(ii) Procedural aspects of judicial intervention relating to the arbitral award

Court intervention relating to the award can occur in two ways: either the losing party attacks the award – by asking that it be annulled or set aside –, or the winning party seeks to have the award recognized and enforced. Given the private nature of arbitration and the fact that the tribunal’s jurisdiction arises out of a contract, awards made by arbitral tribunals are not self-enforcing; it is thus easy to understand why the latter form of judicial intervention is necessary. But are there any compelling reasons why annulment/setting aside proceedings should also be made available to the losing party? Why? Under which conditions? Whose interests – the State’s or the losing party’s – are primarily served by annulment/setting aside proceedings? Should parties be allowed to contract out of the possibility of launching annulment/setting aside proceedings?

a. Annulment/setting aside proceedings

Read again the provisions of the Model Law, the C.C.P. and the Arbitration Act and focus on the procedural conditions under which annulment/setting aside proceedings can be commenced

b. Recognition and enforcement proceedings

Read again the provisions of the Model Law, the C.C.P. and the Arbitration Act and focus on the procedural conditions under which recognition and enforcement proceedings can be launched

(iii) Substantive aspects of judicial intervention relating to the arbitral award: grounds upon which awards can be annulled/set aside or refused recognition and enforcement

Parsons & Whittemore Overseas Co. v. Societe Generale de l’Industrie du Papier (RATKA)

Facts: Parsons (American company) entered into a K with RATKA (Egyptian company) to construct, start up and manage for one year a paper mill in Alexandria Egypt. The K included an arbitration clause (providing means to settle differences arising in the course of performance) and a force majeure clause (which excused delay in performance due to causes beyond the parties’ reasonable control).

The 1967 Arab-Israeli War caused the majority of the Parsons workers to leave Egypt, and thus stop work on the plant. Parsons notified RATKA of the stoppage, and that it regarded the postponement as excused by the force majeure clause. RATKA disagreed and sought damages for breach of K, and went to arbitration when Parsons refused to settle. A preliminary, then a final award in favor of RATKA was rendered on the basis that Parsons had made no more than a perfunctory effort to secure special visas for its workers, which was possible. As well, notification of funding cuts from the American International Development agency that was sponsoring the project was not sufficient justification for Parsons’ decision to abandon the project.

Parsons is appealing a US district court summary judgment confirming the foreign arbitration award against it. RATKA is appealing the same court’s concurring summary judgment denying RATKA’s entitlement to recover the amount owed to it under the arbitration award from a letter of credit issued in RATKA’s favor by the Bank of America, at Parsons’ request.

Issue: Is there any justification to refuse enforcement of the award against Parsons in the New York Convention? (The Court refused to rule on RATKA’s appeal issue)

Held: No. There is no basis in the New York Convention (NYCC) or implicit in it to prevent the enforcement of the award.

Reasoning:

Geneva Convention (precursor to NYCC) placed burden of proof on the party seeking enforcement and did not limit the range of available defenses to those enumerated in the convention. (reflects traditional anti-arbitration bias)

The NYCC clearly shifted the burden of proof to the party defending against enforcement and limited his

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Extra-judicial Dispute ResolutionProf. Frederic Bachanddefenses to those listed in the convention. (reflects new pro-arbitration stance)

Parsons argued five bases on which enforcement should be denied:

1) Enforcement of the award would violate the public policy of the US (NYCC Art. V2b)

While Art. V2b allows the court in which enforcement is sought to refuse enforcement (on the defendant’s motion or of its own motion) if enforcement would be contrary to public policy, the scope of the public policy exception has been established to be narrow. The general pro-enforcement bias of the NYCC indicates that the public policy defence must be narrowly read. Also, considerations of reciprocity play a role: courts will invoke the defense sparingly, lest foreign courts frequently accept it to deny enforcement of awards rendered in the US.

As such, enforcement of foreign awards may be denied on the basis of public policy ONLY when enforcement would violate the forum state’s most basic notions of morality and justice. Here, it cannot be applied because we must distinguish between “public policy” and “political/national policy” (i.e. the political decisions that led to the withdrawal of funds, and people from the project).

2) The award is the result of an arbitration of matters not suitable for aritration: non-arbitrability (NYCC Art. V2a):

Again, due to the pro-arbitration bias of the NYCC, it must be deemed that fewer things are not arbitrable in the international context than in the domestic context. The mere fact that an issue of national interest may incidentally figure into the resolution of a breach of K does not make the dispute not arbitrable. Certain CATEGORIES of claims may be not arbitrable because of the special national interest vested in their resolution, but this is not a case by case analysis. There is no special national interest at stake in the CATEGORY of disputes applicable here: breach of contract.

3) arbitral tribunal did not provide adequate opportunity to present defense (NYCC Art. V1b)

This provision essentially sanctions the application of the forum state’s standards of due process. In the case at hand, there was no breach of due process as a result of the tribunal’s failure to accommodate one of the Parsons’ witnesses’ speaking schedule so that he could come and testify. He had submitted the majority of the points he wanted to make in his affidavit, and was free to submit more had he needed to. In view of the fact that arbitration is supposed to be fast and efficient, waiting around to have him testify in person is not a reasonable expectation.

4) The arbitrators ruled on issued that the arbitration agreement giving them jurisdiction did not cover: i.e. they acted outside their jurisdiction (NYCC Art. V1c):

The FAA also predicates that an award on issues outside the arbitrators’ jurisdiction should be set aside. However, this provision and its FAA equivalent should be construed narrowly: the pro-arbitration bias of the NYCC dictates that there is a powerful presumption that the arbitrators acted within their powers which must be overcome in order to successfully raise this defence to enforcement.

5) The award is in manifest disregard of law (this defence indirectly flows from the NYCC):

The legislative history of Art. V NYCC and the statute enacting the US’s accession to the NYCC strongly point to an interpretation that the bases for refusal of enforcement are exclusively those outlined in the NYCC. In the US domestic context, the FAA has been read to include an implied defense to enforcement where the award is in manifest disregard of the law (Wilko v. Swan). But there is no indication that this defense applies in the international arbitration context. In this case, even if such a defense applied, the Court states that it would have no difficulty in rejecting it: Parsons is basically asking the court to review the award for errors of fact or law. This would defeat the finality of the arbitration thus defeating its purpose.

POINT: This case is important because it outlines the scope of the defences to enforcement available under the NYCC, as well as setting in context the NYCC. It also expresses and emphasizes the importance of the pro-arbitration bias that the NYCC represents and that is now the standard in most

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Extra-judicial Dispute ResolutionProf. Frederic Bachandjurisdictions.

Read Parsons & Whittemore Overseas Co., Inc. v. Societe generale de l’industrie du papier (RATKA), 508 F.2d 969 (2d. Cir. 1974), a classic U.S. decision which illustrates the pro-arbitration approach courts nowadays tend to adopt when asked to review arbitral awards.

The grounds upon which awards may be reviewed can be grouped in three basic categories: jurisdiction (i.e. existence of a valid arbitration agreement which is applicable to the dispute), procedure (i.e. whether applicable procedural rules were complied with) and merits (i.e. whether the dispute was correctly decided by the arbitral tribunal)

a. Jurisdiction

UNCITRAL Model Law on International Commercial Arbitration: Art. 34(2)a)(i) and (iii), 34(2)b)(i), 36(1)a)(i) and (iii), 36(1)b)(i); Code of Civil Procedure (Quebec): Art. 946.4(1), (2), (4), 946.5 and 947.2; Arbitration Act, 1996 (U.K.): S. 66(3) and 67; Federal Arbitration Act (U.S.): S. 10(a)(4)

b. Procedure

UNCITRAL Model Law on International Commercial Arbitration: Art. 34(2)a)(ii) and (iv), 34(2)b)(ii), 36(1)a)(ii) and (iv), 36(1)b)(ii); Code of Civil Procedure (Quebec): Art. 946.4(3) and (5), 946.5 and 947.2; Arbitration Act, 1996 (U.K.): S. 68; Federal Arbitration Act (U.S.): S. 10(a)(1)-(3)

c. Merits

UNCITRAL Model Law on International Commercial Arbitration: Art. 34(2)b)(ii); Code of Civil Procedure (Quebec): Art. 946.2 and 946.5; Arbitration Act, 1996 (U.K.): S. 69.

Notice how the English Act provides for appeals on questions of law. As this appeal is not mandatory – it is possible unless the parties have agreed otherwise: S. 69(1) –, we see that English law assumes that it will more often than not be in the parties’ interests to allow courts to review the merits of legal conclusions drawn by arbitrators. Is this really convincing? Why would the parties want to have the possibility of asking courts to review the merits of arbitral awards? How should this possibility affect the drafting of arbitration agreements? Wouldn’t it make more sense for the law to allow for merits review only where the parties have expressly agreed to that possibility (i.e.: appeals possible if expressly provided for in the arbitration agreement instead of appeals possible unless parties have agreed otherwise)?

French law also provides for non-mandatory appeals from arbitral awards, but only in domestic cases: see Art. 1482 of the N.C.P.C.

Under U.S. law, some merits review is possible. While the Federal Arbitration Act does not expressly provide for merits review, Courts have affirmed that awards could nevertheless be set aside for “manifest disregard of the law”. Furthermore, some U.S. cases stand for the proposition that courts ought to give effect to a provision in the arbitration agreement intended to give courts the power to fully review the merits of arbitral awards.

Under Québec law and in the Model Law, merits review of arbitral awards is not possible. However, some merits-review can indirectly occur through the public policy exception.

Read again Desputeaux v. Editions Chouette (1987) Inc., and focus on the court’s analysis of the substantive aspects of the public policy exception We thus see that legal systems disagree on the extent to which courts ought to be able to review the merits of arbitral awards.

The problem boils down to striking a proper balance between the parties’ interests (do they want merits review, and if so under which circumstances should it be made available to them?) and those of the State (two issues to keep in mind: a. If the parties want some sort of merits review, should the State devote judicial

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resources to such review? b. Does the State have an independent interest justifying some forms of merits review [arguably yes: result of the award must always comply with applicable substantive rules which are mandatory, i.e. based on public order/public policy considerations]). What, in your opinion, is the ideal system?

This summary was graciously provided by Oana Dolea and Martin Doe. Please show your gratitude by making your own summaries (or modifications of this one) available on PUBDOCS.

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