Litigation and Dispute Resolution Bulletin

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1 Litigation and Dispute Resolution Bulletin May 2008 Fasken Martineau DuMoulin LLP Alternative Dispute Resolution Vancouver Calgary Toronto Ottawa Montréal Québec City London Johannesburg This latest bulletin in our series introduces a concept that not that long ago would have been considered by some to be a topic that did not necessarily relate to civil litigation: Alternative Dispute Resolution, or ADR. ADR has become increasingly important to the civil litigation process in the past ten years and in some parts of Ontario, has become a mandatory part of that process. The term ADR broadly describes various methods of resolving disputes without resort to traditional litigation. It also describes alternative approaches to resolving disputes where traditional litigation has been commenced, but parties wish to resolve the dispute prior to a court determination on the merits. ADR encompasses a broad range of processes that have been described as falling along a continuum with less formal processes on one end and more formal on the other. At one end is direct negotiation between the parties, and at the other end is arbitration, a process that can resemble traditional court proceedings. Along the continuum are various other processes that vary in the formality of procedure, including mediation and hybrid processes such as mediation/arbitration (also called med-arb ). ADR can be explored voluntarily by the parties to a dispute prior to the commencement of formal legal proceedings, or, as is the case in certain parts of Ontario, parties can be required to formally explore the prospect of resolving their dispute in advance of a trial. In most cases, this requirement is met by participating in mediation, which is an informal process in which the parties meet to negotiate settlement with the assistance of a mediator, who is often a lawyer with special training in dispute resolution. Because mediation is a mandatory part of the civil litigation process in some parts of Ontario, the primary focus of this bulletin will be mediation. However, we will also describe other ADR methods and will also discuss arbitration, which is the other most common form of ADR, in some detail. We have also included two charts of the pros and cons of mediation and arbitration for easy reference. Litigants, as well as those responsible for the administration of justice, have long recognized that there is a growing need to efficiently resolve disputes in alternate ways to traditional litigation. A typical civil action can take a number of years to wind its way through the courts, and can be an expensive, time-consuming, and risky process. Litigation can cause disruption to business and can be costly both economically and in other less tangible ways. Litigation is not a private process and may lead to adverse publicity,

2 Fasken Martineau DuMoulin LLP Litigation and Dispute Resolution Bulletin 2 and parties may be unable to control the outcome. The increased use of ADR can be attributed to, among other things, the certainty, cost-effectiveness and flexibility it can provide to parties to a dispute. Good Faith Negotiation Negotiation is the most informal ADR process. When negotiating, parties typically exchange proposals directly with a view to bringing about a mutually agreeable compromise to their dispute. Negotiations generally take place on a voluntary basis, and third party facilitators or evaluators are not typically introduced into the process. Because negotiation is generally informal, it can be expeditious and inexpensive compared to other forms of dispute resolution. Negotiation may be used effectively in situations where the parties are in ongoing business relationships and need to resolve a dispute quickly without interfering with the overall relationship. Mediation In mediation, a neutral third party selected by the parties facilitates communication in order to assist the parties in reaching a mutually agreeable resolution to the dispute. The two most common mediation styles are facilitative and evaluative mediation. Both of these styles share common features, including the voluntary non-binding nature of the process and the confidentiality of the process. In facilitative mediation, the mediator provides neutral assistance to the parties so that they may arrive at their own resolution to the dispute. In evaluative mediation, the mediator takes a more active role in assessing and evaluating the strengths and weaknesses of the parties legal positions, and suggests possible resolutions to the dispute. Many mediators use both of these styles during mediation. Whether one style or another is most effective will depend on many factors, including the nature of the dispute and less objective factors such as the personalities involved in the dispute. For example, if the dispute is highly technical, and it would be beneficial to hear the opinion of a knowledgeable, technical person, an evaluative mediation may be more effective. Evaluative mediation may also be more effective where the dispute is purely a legal one. Facilitative mediation may be more effective where it is important that both parties have buy in to the solution to the problem, for example, where the parties would like an ongoing relationship between them to continue after the mediation. Facilitative mediation may also be more effective where the parties feel personally invested in the dispute, or where the solution may involve not only a payment of money but also some other intangible solution, such as an apology. An important aspect of mediation is that it is voluntary and non-binding, which means that the decision-making rests with the parties. Parties may terminate the mediation if it is no longer productive, and need not accept any proposed resolution unless they are agreeable to it. The benefits of mediation include the flexibility it affords in comparison to litigation. Mediation allows the parties to craft a result tailored to the interests of the parties involved, rather than proceeding to court to obtain what is, in most cases, an all or nothing result. Further, the informal, party-driven and consensus-building nature of the mediation process can allow parties, in some situations, to preserve an existing business relationship. Major benefits of mediation, when successful, include potential costs savings, and the avoidance of business disruption by reason of the litigation process. Is Mediation Appropriate? Mediation can be beneficial in many different types of cases, including where:

3 Fasken Martineau DuMoulin LLP Litigation and Dispute Resolution Bulletin 3 there is an ongoing or important relationship between the parties; communication between the parties had a role in the dispute; the costs of litigating the matter are too high; a resolution through litigation will take an unacceptable amount of time to be reached; or the weaknesses in a party s case create an appreciable risk in proceeding with litigation. Alternatively, mediation may not be the most appropriate way to proceed in cases where: there is a significant public policy interest; a party is not acting in good faith; or the amounts at issue are not significant enough to seek third party involvement. Mandatory Mediation Mediation is mandatory for any civil action commenced in the Toronto region after December 31, The court requires parties to conduct mediation at the earliest stage in civil proceedings when it is likely to be effective, and in any event, no later than 90 days after the action is set down for trial. In wrongful dismissal cases, and in actions commenced under the Simplified Procedure regime (where the amount claimed is $50,000 or less), the mediation must occur within 150 days after the close of pleadings. Certain civil actions, such as family law cases, are excluded from mandatory mediation. However, parties may choose to participate in mediation at any time in any type of dispute. It is also important to note that the rules governing mandatory mediation differ slightly from jurisdiction to jurisdiction within Ontario. It is considered by some to be a contradiction that mediation can be mandatory in some jurisdictions, because the mediation process is intended to involve voluntary participation. It is important to note, however, that although the process is sometimes mandatory in some jurisdictions, no one, including the court, may force a settlement between the parties. By its very definition, a settlement is a voluntary compromise made by the parties. Any solution to a dispute that is imposed on the parties by the court is an order rather than a settlement. Mediation Procedure Each party to mediation is usually required to prepare a mediation brief to be served on the other party and filed with the mediator. A mediation brief contains a statement of issues which sets out the factual and legal issues in dispute as well as the position and interests of the party preparing the brief. Parties often include documents which the party considers to be of critical importance to the dispute in their mediation brief. If appropriate, a party can also include relevant case law as part of the mediation brief. To encourage settlement, the mediation briefs, as with all communications during the course of mediation, are confidential or without prejudice, meaning that they cannot be used against the respective parties. If the action continues after the mediation (because it did not settle), nothing the parties said at the mediation or wrote in their mediation brief can be used against them. The parties and their counsel are required to attend the mediation session in person. It is best practice to ensure that a decision maker with authority to settle the dispute attends the mediation or is readily available by phone during the course of the mediation. Mediation sessions usually are scheduled for a half or full day; however, it is not uncommon for mediations involving significant amounts of money, complex issues, or numerous parties to occur over the course of a number of days.

4 Fasken Martineau DuMoulin LLP Litigation and Dispute Resolution Bulletin 4 The form that mediation takes will vary depending on the mediator, the issues at stake, and the relationship between the parties. It is common for parties and their counsel to meet at the outset of the mediation with the mediator in order to discuss the matters at issue face-to-face, or at a minimum, to discuss how the mediation will proceed in terms of process. It is also very common for the mediator to caucus with one party at a time throughout the mediation and conduct a form of shuttle diplomacy. Full and frank discussions between the parties are promoted during mediation by the requirement that all communications be kept confidential. Arbitration Arbitration is a quasi-judicial method of dispute resolution which takes place before one or more independent and impartial adjudicators chosen by the parties. The adjudicators, called arbitrators, hear and consider the merits of the dispute and deliver a binding decision called an award. Although in many respects similar to civil litigation, arbitration is a less formal process than court proceedings and it usually affords parties greater control in resolving their dispute. The Pros and Cons of Arbitration Unlike the courts, arbitration hearings and awards are for the most part private and confidential. This feature can provide an important benefit in cases where the parties are interested in minimizing publicity and any negative effect that involvement in the dispute may have on their reputations. Arbitration also provides the parties with flexibility, because arbitration procedure is usually decided by the parties in consultation with the arbitrator or arbitrators. The process can be tailored to the specific dispute at issue. Flexible rules of procedure in arbitration replace rigid court rules. Another potential advantage to arbitration is that the parties can agree to choose an arbitrator who is an expert in the parties industry or in the area of law at issue, rather than having the dispute heard in court by a generalist judge. Losing parties can sometimes be more accepting of decisions made by an arbitrator who they view as an expert than they are of decisions made by a person who they perceive did not properly understand the issues or technical facts. Because in many situations the arbitrator has experience and knowledge that relates to the matters in dispute, the decision making process also can be less expensive and a decision may be arrived at more expeditiously. However, arbitrations may not necessarily be less expensive, as it is the parties who must jointly bear the costs of the arbitrator (or arbitrators) and the venue of the arbitration. Additionally, some predictability may be lost in arbitrations, because arbitrators are not bound by prior arbitration and court decisions in the way that courts must adhere to or abide by certain prior court decisions (a principle known as stare decisis). Paths to Arbitration Parties can submit their disputes to arbitration in a number of ways. Certain industry associations mandate that their members submit disputes to arbitration. Certain statutes require parties to arbitrate certain types of disputes. Parties may also be bound by agreements to submit certain disputes to arbitration. It is common for contracts to contain arbitration clauses that require parties to arbitrate disputes arising from that contract. Arbitration clauses may also dictate the procedural rules that parties must follow for arbitration, the location where the arbitration must take place, and the way in which arbitrators will be selected. These clauses are negotiated by the parties when their contract is negotiated, and before the parties are involved in a dispute.

5 Fasken Martineau DuMoulin LLP Litigation and Dispute Resolution Bulletin 5 Once parties agree to arbitrate in Ontario, all nonlabour arbitrations (unless excluded by law or the International Commercial Arbitration Act) are governed by the Arbitration Act, The Arbitration Act, 1991 governs to what extent courts may intervene in matters governed by it, the composition of the arbitral tribunal, their jurisdiction, certain procedural requirements, the remedies that may be awarded by an arbitrator and the power of the court to enforce or review a tribunal s direction or award. The Act also permits parties to contract out of its provisions, with a few exceptions. Arbitration Procedure To what extent should the arbitration include disclosure and production of documents or examinations for discovery? How many arbitrators should be appointed? Will expert evidence be required? Should there be a timetable for delivery of written arguments? Should the arbitrator be required to deliver reasons? These are just some of the many questions that need to be considered and agreed upon before submitting a dispute to arbitration. Various private organizations offer arbitration services and detailed arbitral rules by which the parties can agree to be bound as part of their arbitration agreement. An arbitration hearing commonly approximates the adversarial procedures used in civil litigation at trial. Parties often agree to have opening statements, oral examination and cross-examination of witnesses, expert evidence, and closing statements. However, arbitration procedure is largely limited only by the parties creativity (assuming that no prior agreement or statute binds the parties to specific procedure). The arbitration process is meant to be a flexible one. Following any hearing, the arbitrator delivers an award which typically includes reasons for decision. The Arbitration Act, 1991 provides that an award is binding unless varied or set aside, which can usually be done only in exceptional circumstances. If a party determines that there was an error on a question of law, that party may appeal the arbitrator s award to the courts. Hybrid Processes The flexibility of ADR allows parties to merge different aspects of the various ADR processes. Mediation-Arbitration, or med-arb, combines the finality and adjudicative nature of arbitration with the informality and consensual nature of mediation. In med-arb, a neutral third party typically will attempt to mediate a dispute, but if the parties do not reach a resolution, the same neutral third party commences an arbitration proceeding and delivers a binding decision. Like mediation and arbitration, the hybrid med-arb process can give the parties greater control over the resolution of their dispute, because they can create a process that best suits each of their interests. In med-arb, parties can also be certain that the dispute will be resolved, either during the mediation stage or as part of the binding award delivered by the neutral third party. One concern about med-arb is that candid communication between the parties and the mediator can be somewhat hindered because the parties know that the same person may become their arbitrator if the mediation fails. It is almost always beneficial for parties to consider ADR at the early stages of a dispute. Early dispute resolution saves money and effort on the part of all parties. Parties should therefore seek the input of their counsel, either at the onset of a dispute or early in the litigation process, as to the various ADR options that may be available to them, and which, if any, of these might best serve their interests. A party should also be aware that while it may be worth exploring alternative dispute resolution methods, in some instances, proceeding with traditional civil litigation is best for a variety of reasons. It is only by analyzing the nature of the

6 Fasken Martineau DuMoulin LLP Litigation and Dispute Resolution Bulletin 6 dispute, and the relationship between the parties, that counsel can provide advice on the best method of dispute resolution. For more information on the subject of this bulletin, please contact the authors: Christine P. Tabbert David Halasz For more information on Fasken Martineau s Litigation and Dispute Resolution Practice Group, please visit our website: This publication is intended to provide information to clients on recent developments in provincial, national and international law. Articles in this bulletin are not legal opinions and readers should not act on the basis of these articles without first consulting a lawyer who will provide analysis and advice on a specific matter. Fasken Martineau DuMoulin LLP is a limited liability partnership and includes law corporations Fasken Martineau DuMoulin LLP Vancouver Calgary Toronto Ottawa Montréal Québec City London 44 (0) Johannesburg

7 Fasken Martineau DuMoulin LLP Litigation and Dispute Resolution Bulletin 7 Mediation Definition: Mediation is a negotiation assisted by a neutral third party who has no decision-making power Pros: Procedural flexibility Saves costs and time Informal Party involvement Broader range of solutions Able to preserve relationships More predictability less risk Look to the future, not the past Private & confidential Cons: Added costs if mediation fails Extra time used if mediation fails Absence of regulation and possible misuse of information by the other side Disclosure of information to other side

8 Fasken Martineau DuMoulin LLP Litigation and Dispute Resolution Bulletin 8 Arbitration Definition: Arbitration is a less formal, quasi-judicial method of dispute resolution before an independent and impartial adjudicator(s) chosen by the parties Pros: Flexible and adaptable in regards to both scheduling and rules Can be more informal Parties choose arbitrator(s), which can provide significant advantage over generalist judges in court system Speed the experience of arbitrator can result in faster resolution and less expense for the parties Greater range of possible outcomes Private & confidential Has potential to preserve harmony between parties Ability to sever off particular issues to be arbitrated Cons: Not necessarily less expensive as parties bear costs Complex matters can be lengthy Not bound by legal precedent therefore result can be hard to predict Arbitrators who lack judicial training may not be able to adequately assess credibility of witnesses

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