Canada: Agreeing (How) To Disagree: Dispute Resolution Clauses In Impact Benefit Agreements With First Nations

First Nations and resource companies commonly enter into impact benefit agreements (IBAs) and other related economic benefit agreements when a resource development project may potentially impact First Nations' rights. While the avoidance of disputes is often the impetus behind IBAs, one often overlooked element of the IBA is how any future disputes under the IBA itself will be addressed.

The essential bargain in an IBA is that the First Nation provides its consent or support for a project and in return, the company generally provides certain benefits to the First Nation. These benefits will depend on the project and typically the potential impact to the First Nation and its members. Typical benefits include:

  • direct financial compensation;
  • potential equity interest in the project;
  • profit sharing;
  • employment opportunities for First Nation members;
  • preferential contracting arrangements for First Nation businesses;
  • education and training programs for First Nation members; and
  • promises to mitigate the impacts of the project and First Nation participation in ongoing environmental management.

IBAs survive for the duration of a project and in many resource industries they are long-term arrangements. Accordingly, care must be taken into drafting the provisions of any IBA, with a view to ensuring the long-term viability and stability of the relationship and the resource projects themselves.

Given the long-term nature of these agreements, it is essential to have a carefully drafted dispute resolution mechanism to address the resolution of future disputes. Such a clause is intended to ensure that any disputes that may arise in the course of the project are addressed relatively quickly, reliably and efficiently with a minimal amount of disruption to the project and to the ongoing relationship. However, a loosely worded arbitration clause can result in the parties disputing the alternative dispute resolution process in court and defeat any advantages in time and money by choosing arbitration as their method of dispute resolution. In addition, an arbitration clause should also take into account the specific context of an IBA and the needs of the parties to such agreements.

ARBITRATION OF DISPUTES

The first question that the parties should ask themselves is whether they wish to use alternative dispute resolution provisions at all.

Arbitration can have a number of benefits over conventional litigation and most commercial parties prefer arbitration to court in their commercial agreements. Arbitration can be faster and often cheaper than the court system, if only for the reason that an arbitration hearing date can be obtained relatively quickly. In the courts, trial dates are sometimes set two to three years in advance. On the other hand, arbitration proceeds only as fast as the parties allow it; there can be delays in selecting the arbitrator(s) and delays brought about by the parties and their counsel. A poorly drafted dispute resolution clause can also contribute to the delays, particularly where it leads to intervention by the court.

If arbitration is chosen as the final means of resolving any dispute, there remain important considerations in drafting the dispute resolution clause. There can be a tendency for lawyers to reinvent the wheel and detail procedural rules in the agreement itself, sometimes in lengthy appendices. However, the best practice to avoid delays and unintended gaps is to adopt the rules of an arbitral institution such as the British Columbia International Commercial Arbitration Centre (BCICAC), the International Chamber of Commerce, the International Centre for Dispute Resolution or the ADR Institute of Canada. These rules provide significant flexibility for the arbitrator and the parties to craft procedures that best fit any dispute that may arise.

If certain issues are to be excluded from arbitration, the parties need to be clear about what types of disputes or, preferably, what sections of the agreement are excluded.

The number of arbitrators on the panel is another important consideration. One or three member(s) is the norm. Panels of three can add some incremental additional expense together with potential delays in coordinating two additional members. On the other hand, panels of three have the benefit of allowing a measure of diverse experience to the decision-making process, which can be particularly important in resolving disputes under an IBA. A panel of three allows each of the First Nation and the company to choose one arbitrator each who may best reflect the experience that each party views as most important for resolution of the dispute. Finding one arbitrator acceptable to both the First Nation and the resource company may lead to greater delays in commencing the arbitration. Furthermore, if the dispute under the IBA is especially significant and complex, a panel of three may be the preferred method, particularly considering the somewhat limited rights of appeal from an arbitration award.

The parties should also consider what arbitration legislation is applicable to their arbitration clause. In British Columbia, the Arbitration Act will apply for most IBAs. However, if the project proponent has its place of business outside of Canada, the International Commercial Arbitration Act may be applicable. In certain circumstances involving federal Crown entities, the federal Commercial Arbitration Act may also apply. The applicable legislation has an impact on the potential for intervention by the courts, appeals and the applicable procedural rules. There are two key differences between the acts. First, if express arbitration rules are not contained in the IBA and it is governed by the domestic act, the BCICAC's domestic arbitration rules will automatically apply to the arbitration. There are no default rules under the international or federal act. More significantly, under the British Columbia domestic act, appeals from an arbitration award can be brought with leave on a question of law. Under the international act and the federal act there are no rights of appeal.

Even if the parties agree to an arbitration clause as part of their IBA or other agreement, it is important to note that the court retains jurisdiction for urgent and other interim relief. Accordingly, if there are actions taken that are inconsistent with the IBA by either the resource company or the First Nation, injunctive relief to preserve rights will generally still be directly available from the courts. This may be particularly important in cases requiring immediate relief such as allegations of a breach of a covenant to support the project.

NEGOTIATE THEN MEDIATE THEN ARBITRATE?

A tiered dispute resolute clause requires parties to follow a progression of dispute resolution methods before proceeding to arbitration. Generally these clauses require parties to spend a certain period of time first negotiating a resolution and if that is unsuccessful then mediating a resolution. In IBAs it is not uncommon to require the negotiation stage to be conducted by senior officers of the resource company and the chief or senior decision-maker of the First Nation. The goal is to ensure that both parties have considered the implications of a dispute at the highest levels before more formal mechanisms of mediation and arbitration are resorted to by the parties.

In tiered dispute resolution clauses, only if the parties are unsuccessful in the negotiation or mediation will the contract permit adjudication of the dispute through arbitration. These tiered dispute resolution provisions can be attractive as they hold out the promise of resolving matters without resorting to a third party to impose a decision on both parties. This consideration is an important one, particularly in the context of a long-term relationship between a project proponent and a First Nation.

There are potential downsides to these tiered dispute resolution provisions. For example, forced mediation and negotiation may end up delaying resolution of the matter by adding required steps prior to a final resolution. Further, many of these provisions may potentially raise challenges to the arbitrator's jurisdiction. For example, tiered dispute resolution provisions are often drafted in a way making the arbitrator's jurisdiction contingent on subjective "good faith" negotiations or "good faith" mediation having first taken place between the parties leading to potential disputes as to whether indeed the negotiations and mediations have been conducted in good faith.

Tiered dispute resolution provisions can be of assistance in encouraging reluctant parties to engage in negotiation and mediation without the fear that suggesting these forms of dispute resolution is a sign of weakness of a party's legal position. However, even absent contract provisions requiring negotiation of disputes, parties almost always attempt to negotiate a resolution to the dispute before resorting to arbitration or court. An early mediation can also be hampered where the parties may not yet have refined the issues in dispute and may not have the full evidentiary record in hand. Often a successful mediation and negotiation follows once the arbitration process has commenced and the parties have been required to define the issues in dispute and identify the important evidence. Dispute resolution clauses are sometimes drafted to expressly recognize that negotiation and mediation should continue even if arbitration has already commenced.

Despite some of the potential downsides, parties to IBAs often remain attracted to tiered dispute resolution clauses. If they are included in an IBA they must be drafted carefully to limit both the potential impact of delay and potential impacts on the jurisdiction of the arbitrator.

EXPERT DETERMINATION PROVISIONS

Parties should also consider whether certain potential disputes should be resolved by means of expert determination rather than arbitration. Expert determination clauses are found in many agreements and are generally meant to provide a relatively simple way of resolving discrete technical, accounting or scientific matters. Expert determination can be an efficient means of resolving certain discrete technical issues by an independent decision-maker without the procedural steps necessary in any full arbitration of a dispute.

In IBAs, expert determination provisions may be used to deal with a number of discrete issues but they may be most useful in disputes regarding any agreement for profit sharing. The case of Haisla Nation v. Bear Creek Contracting Ltd. provides an example in the First Nations context of the use of an expert determination clause. In that case, the agreement was not in an IBA but in a joint venture agreement between a First Nation and a resource company. The joint venture contained a provision that certain accountants would make a final determination of the calculation and distribution of profit from a joint venture. The court rejected the company's assertion that the provision was an arbitration provision and permitted the First Nation to continue its court action for the amounts found owing by the accountants under the joint venture agreement.

The case is a good reminder that if expert determination provisions are to be used in an IBA, they should be clearly limited in their scope and expressly excluded from any arbitration provision.

CHOICE OF COUNSEL, ARBITRATORS AND MEDIATORS

A well drafted dispute resolution clause is necessary; however, it is also important to ensure that when it comes time to rely on that clause that arbitrators, mediators and counsel are chosen who not only are familiar with the perspective of First Nations and resource companies, but that are dedicated to advancing dispute resolution goals of efficiency, fairness and finality.

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.

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