Canada: Why Americans Should Arbitrate In Canada

The Challenge

Choosing where to arbitrate international commercial disputes can be even more important than the choice of arbitrator. The place of arbitration has significant legal and practical implications. Fortunately for American corporate counsel and their clients, an ideal place lies close at hand, just north of the 49^th parallel. There are many reasons why Canada should be the preferred place of arbitration for U.S.- based organizations involved in international commercial disputes.

International arbitration allows for dispute resolution in a neutral forum by an arbitrator of neutral nationality, denying either party any "home court" advantage. Generally, because of international conventions, international arbitration awards can be enforced abroad more easily than judgments of domestic courts. Choosing an appropriate place of arbitration is the key to realizing these benefits.

The Legal Importance of the "Seat of Arbitration"

The choice of the "seat of arbitration" has significant legal implications for the parties. It can affect not only their procedural rights but also, indirectly, their substantive rights. When dealing with sophisticated foreign parties, U.S. corporate counsel will often not be able to secure an agreement to arbitrate in the United States. When looking for an alternative, none is better than Canada.

The object of arbitration for most disputants is to avoid a lengthy and expensive court case. But merely agreeing to arbitrate will not necessarily keep the parties out of court. A disputant may seek to delay or frustrate arbitration by beginning court proceedings to pursue a matter that ought to be arbitrated, or may seek to have an arbitration award reviewed or set aside. In such eventualities, judicial assistance may be required to appoint or challenge the appointment of an arbitrator, or to gather evidence, or to preserve assets or obtain other interim relief.

Regardless of the law governing the substantive rights of the parties, the laws of the place, or "seat of arbitration" will apply. Those laws, commonly called the "lex arbitri," will address such fundamental matters as the permissible scope of judicial intervention and the rights of review or appeal. The arbitration laws of the place of arbitration must be consistent with the expectations of the parties as to the nature and scope of judicial intervention as well as any other matters they may address.

Any judicial intervention, wanted or unwanted, will almost certainly involve the courts of the place of arbitration. The parties must share confidence that the courts of the place of arbitration will understand and respect their agreement to arbitrate and will treat the parties even-handedly. They will prefer a judicial system that employs familiar procedures, espouses shared values and operates with reasonable predictability.

As detailed below, Canadian arbitration legislation is based on the Model Arbitration Law of the United Nations Commission on International Trade Law (UNCITRAL). The Model Law narrowly limits judicial intervention. Canadian courts consistently defer to the authority of international arbitral tribunals.

Parties to international agreements also want to be sure that any arbitration award they may obtain will be recognized and enforced. The place of enforcement often will be the award-debtor’s home jurisdiction, as that is usually where significant corporate assets will reside. Thus, at the enforcement stage, recourse to the home courts of the other party may be required. Under the New York Convention, to which most trading nations in the world, including Canada and the United States, have subscribed, a domestic court has limited grounds to refuse to recognize and enforce an international commercial arbitration award.

However, under the Convention, the award-debtor can resist recognition and enforcement if a competent authority in the place of arbitration has set the award aside. Enforcement of an award may also be delayed if protracted proceedings to do set it aside are pending at the place of arbitration. This means that the arbitration law and the courts of the place of arbitration can indirectly determine the enforceability of the award abroad. In Canada, the grounds for setting aside an award are the mirror image of the very narrow defences to enforcement. Canadian courts also deal summarily with applications to set aside awards made in Canada. This protects the integrity of awards made in Canada and expedites their enforcement elsewhere.

Many parties will choose a sole arbitrator or tribunal chair who is a lawyer with suitable arbitration experience. Depending on the nature of the dispute, it may be important for the arbitrator to be trained in the substantive law governing the rights and obligations of the parties under their agreements. In other cases, training and familiarity with the lex arbitri, the arbitration law of the place of arbitration, may be more important. For example, if the contract is governed by New York State law, but the place of arbitration is Geneva, the parties may have to choose between a sole or presiding arbitrator knowledgeable in New York commercial law and one knowledgeable in Swiss arbitration law. Although there are a few well-known international arbitrators who might credibly lay claim to expertise in both, that talent pool is small. When choosing a place of arbitration, the similarities and differences between the substantive laws of the place of arbitration and the governing law of the contract, along with the availability of experienced international arbitrators, are important considerations.

Canada’s business laws are very similar to those of the United States. However, as Canadians practice both common law and a civil law, parties and counsel from either tradition can feel at home in Canada.

In modern international arbitrations, it is common for procedural and evidentiary hearings, as well as oral argument, to take place somewhere other than the legally designated place of arbitration. The locale may be driven by very practical considerations such as the availability of witnesses or the travel schedules of the arbitrators, counsel and executive participants. Many procedural matters are often dealt with in writing or by conference telephone call. However, there are still many cases when hearings are physically conducted at the place of arbitration, particularly when the presiding arbitrator wishes to stay close to home, or the parties cannot agree on some other locale.

For these reasons, when selecting the place of arbitration, it is relevant to consider matters such as distance from home base, ease of travel to and from the place of arbitration, time-zone differences, the availability and costs of hearing facilities, the availability and cost of competent local counsel if recourse to local courts or advice on the lex arbitri is required, and the availability of creature comforts such as decent hotels and restaurants. From the perspective of American parties and their counsel, all of these factors militate heavily in favour of Canada as a place of arbitration.

1. Neutrality – Sophisticated parties demand a neutral seat of arbitration. Despite the fact that the two nations share the same continent and many of the same values, Canada is a sovereign, independent nation with a long and respected history as a neutral.
2. The UNCITRAL Model Law – Canada’s Parliament and provincial legislatures have all adopted, with modest variations, the UNCITRAL Model Arbitration Law . Canada’s arbitration laws relating to international arbitrations seated in Canada are well understood and widely respected. The Model Law restricts the basis on which Canadian courts could set aside international arbitration awards made in Canada.
3. The New York Convention – Canada, like the United States, is a party to the New York Convention on the recognition and enforcement of international commercial arbitration awards.
4. The Common Law and Civil Law – Both the common law and civil law, are practiced in Canada. Quebec is a civil law jurisdiction, while the rest of Canada uses the common law. The Supreme Court of Canada decides cases based on both common law and civil law principles. This dual legal tradition can be attractive when the parties come from different legal traditions.
5. A Mature and Sophisticated Judicial System – Canadian courts have an excellent track record of resisting untoward intervention in international arbitrations and in respecting and enforcing the integrity of the process. Judges are appointed, respected internationally and operate independently of government.
6. A Compatible Business and Legal Culture – The Canadian economy is both a complement to and a microcosm of the U.S. economy. Business is conducted in familiar ways, but Canada is somewhat less litigious than the United States. There are few jury trials. Punitive damages rarely are awarded by Canadian courts, and when they are, the amounts are dramatically lower than in the United States.
7. A Large Pool of Experienced International Arbitrators and Capable Local Counsel – There are many trained, highly skilled and experienced international arbitrators in Canada. Their range of experience reflects the diversity of the Canadian economy. Their subject-matter expertise matches up well with the interests of American business. (A useful roster of some of Canada’s leading arbitrators can be found at the website of the body that serves as the Canadian National Committee of the International Chamber of Commerce International Court of Arbitration– www.chamber.ca). There are also substantial law firms in Canada with experience in arbitration matters to assist as local counsel if necessary.
8. Established International Arbitral Institutions – All of the world’s established international arbitration institutions, including the ICC, LCIA and AAA, administer arbitrations seated in Canada.
9. Accessibility – Canada is connected to the world in every respect, and is physically convenient and easily accessible to Americans.
10. Vancouver, Montreal, Toronto and Calgary – Once you have settled on Canada as the place of arbitration, there is a range of options as to where within Canada the arbitration should be seated, each with unique attributes and attractions, and all capable of providing desirable creature comforts and logistical support.

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