Canada: Resolving International Contract Disputes – Five Key Steps For Corporate Counsel

Last Updated: February 12 2008
Article by Gerald Ghikas

Most Read Contributor in Canada, September 2016

Originally published Summer 2007

It is false economy to leave the dispute resolution provisions of complex international agreements to be dealt with by last-minute boilerplate. The time and expense devoted to negotiating and recording rights and obligations is wasted if they cannot effectively be enforced. There are five basic steps to identify and implement an appropriate dispute resolution process for international agreements.

Step One - Identify Your Priorities

The first step is to identify and rank the desired attributes of the dispute resolution process. This is best done through a detailed discussion between counsel and management or operations personnel, to identify the kinds of disputes most likely to arise and their potential operational, financial and economic implications. In the context of an international business relationship, the list of desirable attributes might include some of the following, in some cases mutually exclusive, characteristics:

  • Incentives to reach a negotiated solution, avoiding adversarial proceedings if possible
  • Disincentives for frivolous claims
  • Access to prompt, enforceable, temporary relief to minimize business disruption pending a final resolution
  • The ability to achieve a final result without undue delay
  • The ability to obtain an award or judgment that will be enforceable easily in a particular place (such as the country in which the other party has assets)
  • A process that will not consume undue corporate Resources
  • Limits on the risk of political interference in the process (especially where the other party is a foreign state entity)
  • A neutral forum for dispute resolution, to avoid litigating in the other party’s "home court"
  • A process that will resolve the dispute according to Law
  • A process that will resolve the dispute according to specific business principles or general principles of fairness
  • Procedures to ensure that the dispute is resolved on its merits after a full presentation of all evidence and legal argument
  • Procedures that allow for rougher, but more timely, justice, at lower cost
  • The right to appeal errors of fact
  • The right to appeal errors of law
  • No right to appeal
  • A process that is confidential in all or certain Respects
  • A process that protects against the disclosure of proprietary information to the other party and/or third parties
  • A decision-maker who has particular scientific, business or dispute resolution Experience
  • A decision-maker who is neutral and independent
  • A process in which the cost will be proportionate to the importance of the Dispute
  • A process that allows third-party participation

Step Two – Identify the Process Most Consistent with Your Top Priorities

No single dispute resolution process has all these characteristics. Often the best course will be to identify the process that is most likely to deliver the desired characteristics, and then refine it to achieve other benefits. Usually the main contenders are negotiation, mediation, arbitration and litigation, or some combination of them.

Negotiation and Mediation

It is usually better to resolve disputes through agreement, if agreement can be reached on acceptable terms within an acceptable period of time. Particularly when they still are filled with optimism about the future business relationship, many business people have a high level of confidence that any future disputes will be resolved amicably. The issue for corporate counsel is whether negotiation or mediation should be mandatory.

Neither negotiation nor mediation will in all instances result in the settlement of a dispute. There is a school of thought that commercial parties will settle their differences if it is in their interests to do so, and that agreeing in advance to negotiate or mediate adds little in the way of incentive, and much in the way of risk. Mandatory negotiation and mediation can be a hollow, time-consuming exercise if one party cannot, or will not, settle.

At the very least, "agreements to agree" should never be the sole means of dispute resolution. They should be a precursor, or contemporaneous alternative, to arbitration or litigation.

If a "tiered" dispute resolution process is chosen, corporate counsel should avoid several common pitfalls:

  • If possible, avoid making mediation or arbitration a condition precedent to the right to arbitrate or litigate;
  • If they must be a condition precedent, make sure that there is no room for disagreement about whether the condition has been satisfied. Do not require "good faith" negotiation or allow the process to continue until it is apparent that "no agreement can be reached". Such expressions open the door to preliminary wrangling about whether positions were taken in good faith and whether it is possible not to reach agreement if both parties act in good faith. Instead, require written notice to initiate the negotiation or mediation process, and provide that the pre-condition to the next phase is satisfied if no agreement is reached within a specific period of time for any reason;
  • Deal with the right to obtain interim relief pending the negotiation or mediation. Consider, for example, allowing an arbitration to be started for that purpose and then held in abeyance pending the expiry of the time to reach a negotiated settlement;
  • Deal with whether the documents disclosed and positions taken during negotiation or mediation are admissible or "without prejudice" in subsequent arbitration or litigation;
  • Deal with logistics. Where will the negotiations/mediation take place? Who must attend? Will the parties have counsel? What will be the qualifications of the mediator (if any)? What will happen if there is no agreement on who should be mediator? How long can it continue? What procedural rules will apply?

International Commercial Arbitration v. Foreign Litigation

In international agreements, arbitration is almost always preferable to litigation as the ultimate dispute resolution process. This is because parties to such agreements tend to assign the highest priority to having their disputes finally determined according to law, based on proven facts, under neutral procedural rules, by a neutral decisionmaker, yielding a summarily enforceable result, with minimum opportunity for intervention by the other party’s domestic courts. International commercial arbitration generally fulfills these expectations.

Arbitration agreements can also be refined to achieve other specific benefits. For example, if speed is of the essence one might call for a single arbitrator rather than three, for all evidence to be in writing, to dispense with discovery, or accept an award that is not supported by lengthy written reasons. If the parties want their disputes decided according to considerations of fairness, rather than legal principles, they can expressly confer on the arbitrator the power to decide "ex aequo et bono". One of the benefits of arbitration is that the parties can tailor the process in myriad ways to meet their expectations and achieve their objectives. The benefits do not flow from the mere decision to arbitrate; you have to work for them.

Step Three - Draft an Appropriate Arbitration Agreement

The arbitration agreement should, at a minimum, deal with the following issues:

  • The scope of possible disputes to be arbitrated (generally a broad description is preferable, to avoid having to arbitrate some disputes and litigate others)
  • The fact that arbitration is mandatory, not optional ("shall" not "may")
  • The number of arbitrators (usually one or three; one is faster and cheaper, three is more flexible and reduces the risk of a "wrong" decision)
  • The procedural rules for the arbitration (usually by adopting the rules of a suitable arbitral institution, although they can also be set out in detail in the agreement); special considerations are involved if the arbitration is not to be unadministered by such an institution.
  • A city that will be the "neutral" place of arbitration (the arbitration law of that place will apply and the courts of that place may become involved)
  • The language of the arbitration (because translation costs can be crippling)

Ideally both the place of arbitration and the place where any award is to be enforced will be in countries that are parties to the New York Convention or another treaty that enables summary enforcement of foreign arbitral awards.

It is at this drafting stage that many refinements can be introduced, to reflect other priorities and capture other benefits.

Step Four - Appoint an Appropriate Arbitrator

When it comes to the appointment of a sole arbitrator or the Chair of a tribunal, experience and reputation as an arbitrator should be given priority over specialized technical or industry expertise. Many sad stories of arbitrations gone awry are attributable to the inexperience of the arbitrator. On the other hand, as the most experienced arbitrators are very busy, it is essential to determine before an appointment is made that the arbitrator is available to meet the needs and expectations of the parties.

International commercial arbitrations generally must be conducted in accordance with the law, so knowledge of the law is an asset. They must be based on evidence introduced through a common law adversarial procedure, a civil law inquisitorial procedure or, most often, a blend of the two approaches, so knowledge of evidentiary rules and procedures is essential. As the decision must be based on the evidence, the arbitrator cannot decide based on their own experience or opinion, so too much specific expertise can be an impediment, and may even result in an invalid award.

Step Five - Retain Experienced Arbitration Counsel

Many experienced commercial litigation counsel run arbitrations just as they would conduct major litigation. In doing so, they not only miss tactical opportunities but squander the potential benefits of the arbitral process.

Counsel too often unnecessarily agree to broad discovery of documents and witnesses, when absent such an agreement an experienced tribunal would restrict the scope of discovery to control costs and expedite the process. International arbitrators are likely to be receptive to having evidence presented in writing, and to limiting oral evidence to necessary cross-examination. Such cross-examination as there is may have to be very focused, and tailored to take into account short time- limits, the absence of oral discovery and, sometimes, a particular tribunal’s abhorrence of unduly aggressive adversarial tactics. If counsel is known to the tribunal and able to converse in "arbitration-speak" as opposed to "litigation-speak", that may add credibility to a party’s case.

Borden Ladner Gervais lawyers act as counsel in international arbitrations in many parts of the world, and are trained in advocacy before arbitral tribunals. The mere fact that the place of arbitration is London or New York does not mean that Canadian parties must engage counsel from those jurisdictions. The fees charged by London barristers and New York litigators usually dwarf those charged by counsel from Vancouver. Why not enjoy the familiarity and continuity of engaging your usual trusted advisors, who have the necessary skill and experience in international commercial arbitration, while at the same time lowering legal costs?

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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