September 29, 2023 | By Iffat Ritter
Arbitration is an alternate dispute resolution process where a third party assists two or more parties in resolving their dispute. This third party is called an arbitrator and has the authority to make a decision on how the dispute will be resolved.
An arbitrator must be a neutral and impartial third party. In most cases, the arbitrator is appointed by agreement of the opposing parties to settle disputes between them using this process outside of the court system. Usually only one person is appointed to be the arbitrator but in some cases a panel of more than one can be used.
In some areas of disputes an arbitrator is appointed by the courts or government agencies. For example, for family law disputes a Family Arbitrator must either be chosen by the parties or the court from a list of qualified Family Law Arbitrators kept by the Ministry of Justice. In many labour and employment matters an arbitrator may be agreed to be used. In Saskatchewan cases, the director of Labour Relations and Mediation acts on behalf of the minister when the parties request an arbitrator and will provide a list of approved arbitrators for the parties to choose from. More information on this process can be found here:
Qualities and function of an arbitrator
Parties will choose an arbitrator based on the factors set out in their arbitration agreement, collective agreement, or under governing legislation. This includes the number of arbitrators, their qualifications to deal with the specific issues to be decided, and other rules agreed to by the parties, prescribed in their contracts, or under legislation.
Most legislation and agreements require the arbitrator to be independent of the parties who choose them, disclose any information that may give rise to a reasonable apprehension of bias, and conduct themselves in an impartial manner.
The arbitrator will listen to both sides of the argument, consider evidence and arguments provided by each side, and then render a decision as to how the dispute will be resolved. An arbitration decision is legally binding on both parties to the dispute and is enforceable in court unless both parties have agreed the decision will not be binding on them.
Advantages of arbitration vs litigation
There are many similarities between arbitration and litigation. Both defer to a neutral third party who will make a decision based on the facts, evidence, and arguments of each party. In each case, the decisions are final but may be appealable in some circumstances.
There are also many differences between the two processes. One difference is that arbitration often provides the parties with more control over the proceedings in a manner they would not have in the court process. For example:
- Arbitrations are private and confidential. Courts are open to the public.
- Parties to arbitration get to choose the person who makes the decision. In court you cannot choose which judge hears your case.
- The document discovery process is limited in arbitration and much more expansive in litigation.
- Parties cooperate in setting timelines for the process and have much more flexibility and control over how and when things happen. In litigation, the court rules mandate timelines and the court’s schedule often ends up causing delays given the number of cases to be heard.
- Even if an arbiter’s decision is appealed, the process is limited, and resolutions are more expedient than litigation. An arbiter’s decision can only be appealed on a question of law, narrowing the grounds of a challenge. A court decision can be appealed on law, fact, or mixed law and fact to an Appeals Court, which can take many months to be heard, and then can be further appealed to the Supreme Court of Canada which can sometimes take years to be heard.
Arbitration agreements and appealing agreements to arbitrate
Arbitration can be used in almost any kind of dispute; some examples include, commercial contract disputes; international transactions; construction disputes; consumer and employment matters; and family law issues. Many contemporary contracts contain clauses requiring disputes to be determined through the arbitration process rather than through the court system. This is standard practice in Canadian commercial contracts including in areas of engineering, construction, procurement, technology, intellectual property licensing, project development, among other.
If the arbitration process agreed to in a contract is for non-binding arbitration, parties can take the matter to the courts if the arbitration process fails to resolve the matter, but they cannot do so until they have reasonably participated, in good faith, in the arbitration process. However, there have been some cases in which the Courts have set aside an agreement to arbitrate if the arbitration process could potentially prejudice a party. Some examples include:
- Peace River Hydro Partners v. Petrowest Corp, 2022 Carswell BC 3142 (BC. S.C.C.). The Supreme Court of Canada decided the arbitration process could undermine the efficient resolution of the insolvency process and, therefore, let the parties out of the binding arbitration process they had contractually agreed to utilize.
- TELUS Communications v. Wellman, 2019 CarswellOnt 4913 (Ont. S.C.C.). The court decided the arbitration clause in a consumer contract was unenforceable as it denied the consumer the right to go to court contrary to consumer legislation that was designed to protect the rights of vulnerable persons.
- Uber Technologies Inc v. Heller, 2020 CarswellOnt 8828 (Ont. S.C.C.). The court concluded arbitration agreements in employment contracts could be unenforceable if there is an inequality of bargaining power between the employer and employee or other reasons that might make the obligation so onerous as to render it unconscionable. For example, if the cost of arbitration is prohibitive to one party.
These decisions place an expectation of reasonableness into the terms of the arbitration agreement inside the contract, so even if there is agreement between two parties to a contract, in order for the courts to find it binding, it must be crafted with reasonableness and balance.
Appealing an arbitration decision
In binding arbitration, the decision may be able to be appealed; however, in most cases the courts will defer to the decision of the arbitrator unless there has been a substantive error made by the arbitrator such as a decision that conflicts with the law.
There are two methods of appeal.
- If the arbitration agreement does not set out an automatic right of appeal process (where leave of the court is not required), then one can apply to the court if there is a question of law that is being challenged. If the court allows the appeal, then their decision is based on a standard of reasonableness. Questions challenging facts or mixed facts and law, are not usually appealable.
- If the arbitration agreement sets out a specific process of appeal, then the parties must use that process. In most jurisdictions, legislation covering arbitration does not allow parties to expand on or agree to exclude the scope of appeal or challenge.
Generally, courts in Canada are hesitant to interfere with decisions of arbitrators unless there is an egregious error in the decision. Even though reasonableness is the standard by which appeals are adjudicated, in some recent cases the courts have used other standards, such as the standard of correctness, to set aside an arbitral award(see Lululemon athletica Canada Inc. v. Industrial Color Productions Inc, 2021 Carswell BC 3570 (B.C.C.A.). Courts have also recently utilized other standards of review based on grounds relating to the validity of the arbitration agreement, the tribunal’s jurisdiction and concerns around fairness.
This publication is provided as an information service and may include items reported from other sources. We do not warrant its accuracy. This information is not meant as legal opinion or advice. Contact Procido LLP (www.procido.com) if you require legal advice on the topic discussed in this article.