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Proposed New “Uniform Arbitration Act” Bears Careful Study

The working group on arbitration legislation of the Uniform Law Conference of Canada (ULCC) has circulated a Discussion Paper on proposed changes to the Uniform Arbitration Act (for domestic arbitrations in Canada). The proposals – and the drafting of the Act – have not yet been reviewed or approved by the ULCC. The goal is the present the proposals to the ULCC at its annual meeting this summer.

This is the second phase of a project that started several years ago to update the ULCC’s Uniform International Commercial Arbitration Act and Uniform Arbitration Act, which have been widely implemented by provincial and territorial legislation. Proposed changes to the International Act were approved by the ULCC in 2014. Now the working group is proposing similar changes to the domestic act.

There is a large number of proposed changes in this draft. Some are intended to make domestic arbitration more consistent with international norms and practices. Some clarify the powers of arbitrators to determine their own jurisdiction and control the conduct of the arbitration. Others address specific drafting issues with the previous Uniform Act.

The proposed changes bear careful study and analysis. They could have a profound impact on domestic arbitration in Canada. The efforts of the working group appear to be very thorough and thoughtful. They have also sought input from the legal and arbitrator community on many of the proposed changes. It will be interesting to see what the ULCC does with this first draft.

Here are a few initial thoughts on some of the proposals in this draft.

The most significant changes aim to clarify – and to the extent possible, limit – the situations in which domestic courts may intervene in arbitration proceedings or set aside arbitral awards. This appears to be in response to conflicting case law in many provinces, which has caused uncertainty and encouraged court challenges.

Section 6 – Court Intervention

There have been efforts to limit court intervention in previous versions of the Uniform Act (and in provincial legislation). Nevertheless, courts still seem to intervene whenever they deem it necessary. In response to this, the ULCC previously added wording enumerating the specific purposes for which a court could intervene: to assist the arbitration process, to ensure the arbitration is in accordance with the parties’ agreement, to prevent unfair or unequal treatment or to enforce awards. Some courts interpreted these provisions as giving more discretion to intervene, which was the opposite of what was intended. So the ULCC has now gone back to a very simple and direct statement:

No court may intervene in matters governed by this Act, except as expressly provided by this Act.

Section 7 – Stay of Court Proceedings

The working group says this is one of the most important provisions in the Uniform Act. It sets out an express requirement to stay court proceedings that a party alleges are the subject of an arbitration agreement, with very limited exceptions. Those exceptions are:

  • The court proceeding is not in respect to any matter that is the subject of an arbitration agreement (emphasis added).
  • A party entered into the arbitration agreement under a legal incapacity.
  • The arbitration agreement does not exist or is null and void or unenforceable.
  • The dispute is not capable of being the subject of arbitration on applicable law.

The proposed provisions also clarify that these are questions that may be left to the arbitration tribunal to determine in the first instance.

The working group says this is consistent with the decision of the Supreme Court of Canada in Dell Computer Corp v Union des consommateurs 2007 SCC 34 that, except in very limited circumstances –where it is possible for the court to decide an issue on the basis of documents and pleadings filed by the parties without having to hear evidence or make findings about its relevance and reliability — a court should refer all issues concerning arbitrator jurisdiction, including issues relating to the validity or applicability of the arbitration agreement, to the arbitral tribunal. The working group says these issues are often complex issues of fact, which ought to be determined in the arbitration, rather than in a summary stay proceeding.

Previously, the Uniform Act allowed a court to grant a partial stay, with respect to matters dealt with in an arbitration agreement, and continue the court proceeding with respect to other matters, if it found it “reasonable” to separate the matters. The concern there was that a court might consider it unreasonable to have to parallel proceedings. Parties might wish to avoid that result as well. However, the working group found a consensus that “the risk of multiple proceedings or conflicting decisions should not outweigh the risk that parties wishing to avoid their commitment to arbitrate, or to delay or disrupt arbitral proceedings, might commence an action which includes claims that are both within and without the scope of the arbitration agreement or unnecessarily names persons who are not parties to the arbitration agreement for tactical reasons.” Therefore, the working group has proposed removing those provisions from the new Uniform Act, leaving the obligation to stay and refer to arbitration all matters that are subject to arbitration.

One of the issues that often arises in applications to stay court proceedings is whether the matter is within the scope of the arbitration agreement or not. This may turn on the drafting of the arbitration clause itself. It would be useful to have some guidance, from the ULCC or some other group, on the drafting of arbitration clauses, to assist parties in drafting clauses that minimize the risk of multiplicity of proceedings.

Section 56 – Appeals

The existing Uniform Act allows appeals on questions of law. It also allows appeals on questions of fact or mixed fact and law, if the arbitration agreement expressly allows such appeals. There is a consensus among the members of the working group that appeals on questions of fact or mixed fact and law should not be allowed. The proposed changes to the Uniform Act would prohibit such appeals, even if the parties have expressly agreed to allow them. This section is one of the few provisions that parties cannot contract out of.

The working group says there is no consensus on whether appeals should be allowed at all, even on questions of law. Some believe that one of the main advantages of arbitration is that decisions are final, with no appeals. Appeals just add to the time and cost. As the working group notes in the commentary:

In Sattva Capital [2014] S.C.J. No 53, the process lasted 5 ½ years and advanced the resolution of the dispute no further than to have the highest court in the province pronounce the award to be “absurd” and the highest court in the country pronounce it to be “not unreasonable.” [I have commented on the decision of the BC Court of Appeal in the Sattva case in an earlier column.]

This raises a number of policy issues, including the basic principle of party autonomy. Why shouldn’t parties have a right of appeal, either to a court or to a second arbitral tribunal, and whether it’s a question of law or one of fact, or both, if that’s what they have agreed? Some parties may be reluctant to agree to arbitration in the first place, if they have no recourse if the arbitrator “gets it wrong”. They may be concerned that an arbitrator may make a decision that flies in the face of the evidence, or that the arbitrator may misinterpret the law. An appeal on questions of law is fine, as far as it goes, but pure questions of law may be relatively rare. (On the other hand, it seems that if a court wants to hear an appeal of an arbitration decision, it can find that almost anything is a question of law.)

The draft also leaves open the question of whether parties should be required to opt in or opt out of the any right of appeal. And what wording is sufficient to opt in or opt out? Some courts have found that wording in an arbitration clause which says the arbitrator’s decision is “final and binding” is sufficient to opt out of any right of appeal.

Section 57 – Setting Aside Awards

The proposed Uniform Act significantly overhauls and clarifies the grounds for setting aside an award.

They are:

(a) legal incapacity;

(b) the arbitration agreement does not exist or is null and void or unenforceable;

(c) the award is beyond the scope of the arbitration agreement;

(d) improper composition of the arbitral tribunal;

(e) the dispute is not capable of being the subject of arbitration under applicable law;

(f) the applicant was not given a reasonable opportunity to present its case or to answer the case presented against it by other parties or was not given proper notice of the arbitration or of the appointment of an arbitrator;

(g) justifiable doubt as to the independence or impartiality of the arbitral tribunal [but it is unclear whether the “justifiable doubt” is subjective or objective];

(h) the award was the result of fraud or corruption by a member of the arbitral tribunal or obtained by fraud of a party or its representatives in the conduct of the arbitration [distinguished from fraud with respect to the original dispute being arbitrated].

The wording in (f) tracks the new wording of the proposed section 22 of the Act, which refers to “reasonable opportunity” rather than parties being treated “equally and fairly”. This is a significant change in the standard for arbitration hearings and is intended to give the arbitral tribunal greater power to control the arbitration process, without fear of the award being set aside. Concerns have been voiced that the current wording could open the door to unsuccessful parties claiming they weren’t given an equal opportunity to present evidence as a result of limitations on document disclosure or discovery, time limits at an oral hearing, or other procedural decisions. Now they will have to show that there was no reasonable opportunity to make their case.

Among the grounds that have been removed from the proposed new Uniform Act is the failure to comply with the procedural requirements of the Act. Parties often waive strict compliance with procedural rules during the course of arbitration simply by their conduct of the arbitration. So an application to set aside may come down to whether the procedural rule was waived or not, which involves questions of fact that a court may have difficulty deciding. In any case, the working group determined that unless the failure amounts to a jurisdictional error or denies a party a reasonable opportunity to make its case — which are already separate grounds for setting aside — it should not be grounds to set the award aside.

The working group also looked at the ground of “public policy” (“public order” in Quebec), which is contained in the United Nations Model Law and concluded that it is not necessary to have such a broad general exception in the Uniform Act. The enumerated list above is enough to deal with matters that are of fundamental concern, it concluded.

Section 61 – Limitation Period

The proposed changes include a ten-year limitation period for applications seeking recognition and enforcement of awards. This is longer than the current legislation in some provinces, and longer than the two-year limitation period under the existing Uniform Arbitration Act. But it is consistent with the limitation period under the ULCC’s new Uniform International Arbitration Act. The working group says it is important to ensure that the limitation periods for recognition and enforcement of domestic arbitral awards are no shorter than those for international awards, to avoid any argument that that Canada is in breach of its obligations under the New York Convention.

There are also interesting new provisions on arbitrator independence and impartiality, majority decisions, whether arbitrators may also act as mediators in the same matter, and assessment of arbitration fees.

Section 15 – Independence and Impartiality

The proposed Uniform Act says arbitrators must be independent and impartial, which is not new or controversial.

But the question arises whether the parties may be permitted to waive independence in certain situations. Arguably, the parties should be able to choose anyone they want, as long as there is full disclosure and the arbitrator acts impartially. In some situations, the arbitrator could be a member of a group or organization (e.g. a member of an industry or professional association) and may not be completely independent.

The working group also asks what the appropriate level of disclosure of prior contacts should be. The proposed Uniform Act says the arbitrator must disclose “any circumstances of which the person is aware.” This applies both before appointment and during the proceeding. There is no positive obligation to make any degree of inquiry (for example within a current or former law firm or other organization). The working group concluded that the appropriate degree of inquiry is fact and case specific and says arbitrators should consult the evolving guidelines published by institutions such as the IBA and the Chartered Institute of Arbitrators.

One area that seems to be missing from the Uniform Act – but is covered by some of the conflict guidelines – is a positive obligation on the parties to disclose any relationship between the arbitrator and the parties, related entities or individuals, their counsel, potential witnesses, etc. Such disclosure would seem to be a matter of common sense, to pre-empt to possibility of a later challenge to the arbitrator and avoid wasting time and cost. Perhaps cost sanctions against a party that fails to disclose, for extra time and cost incurred, is sufficient to discourage such behaviour, but it is an issue that does arise and it may be worth including an express obligation to disclose in the Uniform Act.

Section 34 – Mediation

The proposed Uniform Act permits an arbitrator to act as mediator, conciliator, or in a similar capacity, if all parties and the tribunal agree. The working group notes that there is still a wide range of opinion on such a dual role should be permitted or not, or whether it should be encouraged.

The commentary notes that “med-arb” and similar processes are common in non-commercial cases and occasionally in commercial cases in Canada and concludes that mediation should be permitted “on such terms and conditions as the parties and the arbitral tribunal agree.” This flags, without prescribing, the need for agreement on such things as the admissibility of information disclosed in the mediation, the appropriateness of separate caucusing with the parties during mediation, the discretion of the arbitrator to withdraw if he or she believes that impartiality has been compromised and other issues that may arise.

The draft provides that the arbitrator’s participation in the mediation will not constitute grounds to remove the arbitrator or challenge the award if the arbitration continues after or concurrently with mediation. This is to prevent a party from using the unsuccessful mediation as an excuse to derail the arbitration if it doesn’t seem to be going their way.

The draft doesn’t include an express right for the arbitrator to withdraw if they believe they are no longer impartial as a result of the mediation. The working group concluded that this was not necessary, because the obligation of impartiality is set out elsewhere in the Act. It is a mandatory provision that the parties cannot waive. Nevertheless, an arbitrator who agrees to act as mediator may wish to include the right to withdraw as a condition of agreeing to do so.

My own view, having acted as mediator-arbitrator in a number of commercial disputes, is that the med-arb process is more appropriate for commercial cases than the working group seems to think. While it may be advisable to have separate mediation and arbitration processes in very large commercial disputes, in many cases t can be more cost-effective to have a single neutral act in both roles. But it is also true that the parties and the neutral must have a clear agreement on the ground rules for the mediation in order to avoid compromising the impartiality of the arbitrator and the enforceability of the award if there is no settlement.

Section 44 – Majority Decision

The proposed wording says that if there is more than one arbitrator, the decision shall be made by a majority of the tribunal. However, it has dropped the provision in the current Uniform Act that, if there is no majority, the decision of the chair shall govern.

The commentary says: “the Working Group considers that this is an issue to be addressed by agreement of the parties rather than by way of a default statutory provision… “ However, there may be situations where the parties do not agree. In those cases, there should be some default provision. Decisions with no majority are presumably very rare. Parties would not likely turn their minds to this possibility in advance of the arbitration; it would be difficult or impossible to get any agreement after the fact, if it does happen. The parties may then be left with uncertain award — or no enforceable award at all.

Section 51 – Costs

The ULCC is recommending that the tribunal have the power to award “actual, reasonable” legal fees and disbursements and not be limited to the kind of tariff normally applied by the courts. The tribunal can also award recovery of expert witness fees and arbitration fees and expenses. The provision in the existing Uniform Act allowing arbitrators to refer costs questions to a court taxing officer has been removed. The ULCC believes the tribunal is in a better position to determine whether costs are reasonable and who should pay.

Comments

  1. David Collier-Brown

    That’s all very fine, but the larger public policy question is whether I can appeal if the arbitration is imposed upon me by the vendor? That speaks not just to the legality of such contracts, but also the legitimacy of the arbitration process, and in the end, to whether I can be denied access to justice…

  2. The view of the Uniform Law Conference in 1990 when it adopted the current Uniform Arbitration Act (enacted in Ontario and several other provinces) was that questions of the enforceability of arbitration agreements or their fairness should be left to other law, notably consumer protection law. The Arbitration Act itself would not try to deal with issues of unequal bargaining power, contracts of adhesion and the like.

    I don’t think the working group that has recommended revising the Act has changed the view on that topic.