Many commercial agreements contain dispute resolution
mechanisms, such as mandatory mediation or binding arbitration.
These types of provisions appear with increasing frequency as an
alternative to the traditional litigation process for settling
business disputes. While these types of mechanisms can be useful
tools, they can have limitations and there are a number of
implications that should be considered before agreeing to any
alternative dispute mechanism.
The most common type of alternative dispute resolution is
arbitration. This is essentially a private dispute resolution
process where the parties agree to submit their dispute to a
neutral decision-maker. The main advantage that arbitration offers
over the traditional litigation process is speed – disputes
can generally be resolved more quickly as the parties do not need
to work within the court's schedule and there are typically
fewer procedural steps involved.
While arbitration can also be more cost-effective than
traditional litigation, in some cases arbitration can be just as
expensive as traditional litigation, particularly where the parties
have not placed any limits on how the arbitration is to be
conducted in their dispute resolution clause, for example by
limiting or eliminating pre-hearing discoveries. Most dispute
resolution clauses simply default to the rules of the British
Columbia International Commercial Arbitration Centre as the
procedural rules which will govern the arbitration, however these
rules are quite permissive and give the arbitrator considerable
power to determine the appropriate procedure. Parties wishing to
ensure a more streamlined process should give consideration to
placing procedural limitations in the dispute resolution clause
Another consideration is whether the dispute resolution clause
in the agreement makes arbitration mandatory or permissive, as well
as the scope of disputes that can be submitted to arbitration. In
cases where the parties have agreed that they "shall"
submit all disputes relating to or arising out of the agreement or
its performance to binding arbitration, any litigation commenced in
the civil courts may be stayed in favour of litigation. Whether the
litigation will be stayed often depends on how broad the
arbitration clause in the agreement is drafted – if the
dispute can be said to be outside the scope of the arbitration
clause, the Court may decline to stay the action.
Parties seeking to craft an alternative dispute resolution
clause should also give consideration to practical matters such as
the location of any mandatory mediation or arbitration proceedings,
how mediators or arbitrators are to be appointed, the number of
mediators or arbitrators, and whether the mediator or arbitrator
must have some particular qualifications. Occasionally parties to
an alternative dispute resolution clause will agree to a
pre-determined list of acceptable mediators or arbitrators.
Lastly, one of the more important considerations in adopting an
alternative dispute resolution mechanism is rights of appeal.
Parties generally have wide latitude to specify whether the
arbitrator's decision will be final and binding, or whether
there are rights of appeal – and if so, any limitations on
that right and to whom appeals should be made. In general,
the courts will give considerable deference to an arbitrator's
decision on the facts, but less deference to decisions on points of
law. Accordingly, parties should give careful consideration to any
appeal clauses. If appeal rights are to be limited in any way,
parties must be prepared to accept the risk that the arbitrator
will render a decision that they will be unable to challenge.
While alternative dispute resolution clauses can be a useful
tool for resolving business disputes, careful consideration should
be given when drafting them to ensure that they have the intended
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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