HOW TO STAY A LAWSUIT PENDING ARBITRATION – WITHOUT AGREEING TO ARBITRATE!
By Sarah Hudson
What happens where some, but not all, parties to a lawsuit have agreed to arbitrate the dispute between them? In complex, multi-party disputes, this is not uncommon. In two recent decisions in such cases, the British Columbia Supreme Court has ordered a stay of lawsuits against all defendants in favour of arbitration.
Canadian courts encourage the use of arbitration as a method of resolving disputes. If a party sues another party over something they have agreed to arbitrate, then any party to the lawsuit may apply to the court for a "stay" of the lawsuit, suspending it in favour of arbitration. So long as certain requirements are met – including that the party applying for the stay does so before taking any step in the lawsuit - then the court must stay the lawsuit.
This is straightforward where all the parties to the lawsuit are also parties to the arbitration agreement. But what happens where that is not so, for example where one defendant in the lawsuit is party to an arbitration agreement with the plaintiff, but another is not? In 2003, the BC Court of Appeal confirmed that in those circumstances the defendant who is not a party to the arbitration agreement can apply for a stay of the lawsuit. However, the crucial question remained whether the court nevertheless retained a discretion to refuse to grant the stay in those circumstances. Could a defendant actually obtain a stay of a lawsuit in favour of arbitration, despite not being a party to the arbitration agreement?
This precise issue has come before the Supreme Court of British Columbia twice in recent months. In both cases, the Court did stay the lawsuit against all defendants, despite the fact that not all were parties to an arbitration agreement with the plaintiff.
In both cases, the plaintiff sued several defendants, both corporations and individuals. The individuals were shareholders or directors of the corporations. In both cases, the plaintiff had an arbitration agreement with the corporations, but not the individuals. All defendants applied for stays, because they were parties to lawsuits by parties to arbitration agreements against other parties to those agreements. In both cases, the Court granted the stays.
To overcome the hurdle of not being parties to the arbitration agreements, the individual defendants emphasized that if the lawsuits were stayed only against the corporations, there would be arbitrations with the corporations and lawsuits with the individuals. This would be a waste of the Court's and the parties' resources, and could result in inconsistent findings of fact and legal conclusions. (The individuals also said they would agree to resolve the plaintiffs' claims against them in the arbitrations with the corporations.)
If some, but not all, defendants in a lawsuit have an arbitration agreement with the plaintiff, the option of a stay may still be available to all the defendants, depending on the applicable arbitration legislation. All defendants should consider the effect of any arbitration agreement to which any of them are parties.
THE NEW BRITISH COLUMBIA RULES OF COURT: ONE YEAR LATER
By Krista Johanson
The new British Columbia Supreme Court Civil Rules have been in effect since July 2010. Although they were designed to reduce the complexity, cost and delay of litigation, our experience has, for the most part, been business as usual. In this article, we identify a few strategic opportunities posed by the new rules, and some pitfalls to avoid.
Case Planning Orders
Agreeing to a case plan early in the process creates a litigation roadmap that must be adhered to, even if cooperation later breaks down. If parties cannot agree on a case plan, a 30-minute Case Planning Conference (or CPC) brings the parties (or their lawyers) before a case planning judge, who makes orders about how the case will be conducted. A Case Planning Order, which the parties may also file by consent, customizes deadlines, scope of document production, examinations for discovery and expert evidence requirements.
A CPC is mandatory if one party requests it. The ideal time to schedule it is well in advance of trial, but long enough after proceedings have begun for counsel to assess current and future problems.
Under the old rules, if the other party did not respond to discovery requests, it was necessary to make an expensive and time-consuming court application. Now a party can use a CPC to request the orders necessary to smooth the way to trial. Examples include orders amending pleadings or requiring disclosure of further documents.
More importantly, the CPC process can demonstrate to the other party, in a concrete way, that there will be consequences for their failures to comply with reasonable requests. Requesting a CPC can be a cost-effective way to regain control over a proceeding where a self-represented litigant is derailing the process.
Tip: a case planning judge cannot make an order that requires affidavit evidence. The court may grant counsel some leeway to "inform the court" of matters within their knowledge, but acceptance of this type of "evidence" is usually limited to purely procedural or uncontested issues.
A case planning judge can order the parties to use, and pay for, a joint expert, despite one party's objection. In a recent case, the plaintiff sought an order appointing a joint expert to give evidence of the market value of shares he argued the defendants should have to buy from him. The defendants objected, arguing that they should not have to pay for expert evidence which would help the plaintiff and which would not be necessary unless he was correct that they must buy his shares.
The new rules require proceedings to be conducted in ways proportionate to the amounts involved, and the importance and complexity of the issues. In this case the court decided that proportionality required a joint report. It might even encourage the parties to settle. On the other hand, if each party obtained its own expert report, costs would be duplicated.
A joint expert can significantly benefit a plaintiff who needs expert, but straightforward, evidence to prove its case. Not only will the defendant have to share the cost, but the parties will avoid wasting resources attacking each other's experts.
New Rules, New Delays
The Supreme Court Registry has changed how it schedules long court applications under the new rules. The new system is more predictable, but has significantly longer lead time. As of August 2011, the earliest available date for a two-hour application in Vancouver was January 2012 (two weeks later than the earliest available date for a two-day trial).
So, unless your application is urgent, it may be months before you can have it heard. Strategies to avoid this include:
- Plan well in advance!
- Be careful to comply with deadlines or seek extensions from other parties, to avoid the necessity for applications.
- If an application is necessary, consider whether you can make it at a CPC or Pre-Trial Conference. Remember that judges at these conferences cannot hear applications for which affidavit evidence is required.
- Seek agreement from other parties about the facts, or some of the issues, to shorten your application.
Consent: Can It Get You Into Court In A Hurry?
The new rules provide that parties may consent to extend the time for serving, filing or amending a document. But only the Court has the discretion to shorten a time period. The rules appear not to provide for parties to appear in court, by consent, on short notice.
It is possible to simply to serve an application on the other party two days before the hearing, rather than the required eight days in advance. If the other party doesn't object, that should not matter to the court. This would be consistent with proportionality.
However, Registry staff have suggested that an application for permission to have an application heard on short notice is necessary before the main application can be so heard, even if the other party doesn't object. So the safer approach may be to apply for that permission, and make the main application itself, at the same time.
Tip: We have seen some creative – and inconsistent – interpretations of the new rules by Registry staff. We have had some success in avoiding the Registry rejecting documents by filing them in person instead of using a filing agent, so we can explain our rationale for the procedure we have chosen. If this has not convinced the Registry staff we are right, it has at least lead them to file the documents and pass the problem along to a judge.
Discovery Of Documents: Still Broad In Complex Cases
The new rules attempt to limit the scope of document disclosure, in response to concerns that it had become too onerous and expensive. The initial disclosure requirements are more limited, but the scope of disclosure seems to widen if a party requests further disclosure.
The advantage of the new rules is that the parties may be able to agree on the appropriate scope of disclosure, thus avoiding both expensive court applications and automatic "produce-everything" document dumps. If the parties cannot agree, the requesting party can still apply to the court for an order requiring further disclosure.
That being said, where the issues are complex or important, or large sums of money are involved, and a party has applied to the court for such an order, the court has invoked proportionality to support wide-ranging document disclosure orders. As a result, the types of cases that saw lengthy and expensive document disclosure under the old rules are likely to see much the same under the new ones.
CLOUD COMPUTING – OPPORTUNITIES AND RISKS
By Bradley J. Freedman
Cloud computing is widely recognized as one of the most important new strategic technology opportunities for business. Cloud computing enables a business to outsource its information technology requirements to a specialist service provider, to provide required services in a better and more efficient and cost effective manner. Cloud computing allows a business to focus on its core competence and leave the "IT stuff" to the experts. Cloud computing can provide significant benefits, but it can also present substantial business and legal risks.
Cloud computing is a business/technology/service model that treats IT resources (including networks, servers, data storage and software applications) and related services (including hardware and software maintenance and technical support) as a utility or consumption-based service. The term "cloud" is a metaphor for the Internet and an abstraction for the ill-defined underlying technologies used by a cloud service provider to provide the service.
There are various kinds of cloud computing services, but they generally have the following characteristics:
- Pooled resources: The cloud service infrastructure is owned/licensed and managed by the service provider (not the business), and is used by the provider to efficiently serve many businesses.
- Broad access: The cloud services are accessible using standard, Internet-enabled devices.
- Elastic/Scalable: The cloud services are flexible, and can be rapidly increased and decreased to meet the business' changing requirements.
- On-demand self-service: The business can provision the cloud services as needed and without human interaction with the service provider.
- Measured service/fees: Fees for cloud services are based on usage, which is monitored, controlled and reported to the business using appropriate metrics.
Service And Deployment Models
Cloud computing services can be provided using various service and deployment models. The basic service models are:
- Infrastructure as a Service (IaaS): The service provider procures and manages the IT infrastructure (networks, servers, data storage) and the business provides the rest (operating system, software applications and related services). Examples are Amazon Elastic Compute Cloud (EC2), and IBM Smart Business Development and Test.
- Platform as a Service (PaaS): The service provider procures and manages everything except the software applications and related services. Examples are Microsoft Azure, Google App Engine and Amazon Simple Storage Solution (S3).
- Software as a Service (SaaS): The service provider procures and manages everything, including the software applications and related services. Examples are Facebook, LinkedIn, Google Docs, Gmail, Microsoft Sharepoint, WebEx, Salesforce.com and Postini.
The basic deployment models are:
- Public Cloud: The cloud service infrastructure is used by all businesses served by that service provider.
- Community Cloud: The cloud service infrastructure is used by several related businesses, who have shared requirements or other common interests.
- Private Cloud: The cloud service infrastructure is used by a single business.
- Hybrid Cloud: The cloud service infrastructure is a combination of different kinds of clouds that exchange data and applications.
Why It Works
Cloud computing works because of new technologies (grid and cluster computing, virtualization and super-high speed Internet) and economies of scale. Cloud computing services often use geographically distributed data centres that house powerful and flexible IT platforms, which are used to maximum efficiency to process and store tremendous amounts of data for many businesses. The data centres might be owned and operated by the service provider itself or they might be owned by a third party (such as Google, Amazon, Oracle, IBM and Cisco) and used by several providers.
Cloud computing is similar to the way in which most businesses obtain electricity. Instead of having their own small power plant (which is like the traditional IT model), most businesses buy electricity from the local electric company, which operates several large power plants and distributes electricity to businesses that pay based on consumption. The businesses don't have to buy their own power plant or hire skilled workers to maintain it. But the analogy is imperfect, because electrical utilities are regulated, and generally do not have custody of the business's sensitive business information and data (including data collected from third parties).
Benefits And Risks
The benefits and risks of cloud computing will depend on the particular circumstances, including the service and deployment model, the importance of the service to the business, the source and sensitivity of the data created, processed or stored using the service, the character, quality and experience of the service provider, the nature of the business, the applicable legal/regulatory rules and requirements, and the availability and practicability of alternative services.
The benefits offered by many cloud computing services are:
- Lower Cost/Financial Risk: Cloud services usually use a pay-as-you-go/pay-as-you-grow pricing model. The business pays for the services it needs when it needs them, subject to contractual usage commitments. The business is not required to make any up-front capital investment to acquire or maintain IT infrastructure or related resources (including personnel). Costs are operating expenses rather than capital expenses, and those expenses are better aligned with returns. There is less financial risk and better cash flow, and greater return on the IT spend.
- Elasticity/Scalability: Cloud services are usually flexible, and the business can expand or reduce them as needed for organizational changes, market demands and cyclical business models, and to respond to unexpected opportunities/challenges.
- Agility: Cloud services can lower IT barriers to innovation, enable the business to engage in rapid and low cost experimentation and change, and speed up time-to-market and time-to-value. The business does not have to procure an IT infrastructure and related resources for new or uncertain initiatives. Cloud services provide easy, quick and low-cost access to new technologies.
- Improved Service Quality and Business Productivity: Cloud services are provided by a specialist service provider, which should improve the quality of the core service as well as ancillary services (e.g. security, data backups, software updates and disaster/business continuity preparedness). Cloud services usually permit the business to remotely access the IT service from any location without specific hardware or software, which should save costs and enhance productivity. Cloud services allow the business to focus on its core operations, and enable its IT personnel (if any) to focus on supporting its initiatives.
The basic characteristics of cloud computing that provide tremendous benefits can also present significant risks. Cloud computing can enable a business to outsource the procurement and management of IT services, but the business remains responsible and liable for regulatory compliance and performance of its legal obligations to investors, employees, customers and business partners. In addition, the business is often dependent and vulnerable, because the service provider usually has complete control over the quality and availability of the service and custody of the business's sensitive business data (including third parties' data).
Those circumstances can present potentially significant business and legal risks:
- Business Continuity: The business must rely on the service provider's willingness and ability to provide the cloud service in a manner that meets the business's needs, and to comply with the provider's contractual and legal obligations. If a cloud service is mission critical for business operations, deficient service may result in significant business disruption and financial loss. The business might not be able to easily or quickly implement a substitute service.
- Confidentiality: Cloud services often store the business's confidential business information in geographically distributed data centres operated by the service provider or its subcontractors. The business must rely on the provider to maintain the security of the information and protect it against unauthorized access, use and disclosure. In addition, information stored in foreign data centres may be subject to search and seizure by foreign governments and law enforcement, and disclosure in foreign legal proceedings.
- Regulatory/Privacy Compliance: Deficient cloud services may expose the business and its directors/officers to penalties for failure to comply with applicable laws. A significant concern for many businesses is compliance with statutory information security and privacy obligations (including laws regarding personally identifiable information, and personal health and financial information). In some circumstances, the use of a cloud service that stores data outside Canada can be a breach of applicable law. In addition, the business may require the service provider's assistance to comply with other statutory or legal obligations, such as litigation document preservation and disclosure obligations, regulatory audits and responding to security breaches.
- Liability/Reputation: Deficient cloud computing services may expose the business, and its directors/officers, to claims by and liabilities to its investors, employees, customers and business partners, and may tarnish its reputation.
The Procurement Challenge
Cloud computing is a form of outsourcing, but the procurement process is usually significantly different from traditional outsourcing. Outsourcing usually involves a formal procurement process and extensive negotiations over technical, business and legal issues and risk allocation. In contrast, for a variety of reasons (including the high volume, low value transactions business model typical of many cloud services), cloud service providers are often exceedingly reluctant to accept significant risk, and typically use standard form, take-it-or-leave-it, contracts that are one-sided and do not reasonably address the business's most important business needs and legal requirements. The challenge for business is to procure cloud computing services in a way that facilitates a reasonable assessment of the potential benefits and countervailing risks, and allows the business to effectively manage those risks. In some circumstances, the potential benefits of cloud computing service will not justify the risks.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.