The role of in-house counsel in arbitration

The judicial system, through no fault of its own, is having a difficult time responding to the volume of cases that are before it. So why aren’t more in-house departments considering arbitration as a means to resolution?

The release of R. v. Jordan by the Supreme Court has diverted judicial resources to criminal cases to meet the strict time requirements that have been imposed on the courts. Litigants have to adjust to this new reality and are increasingly turning to arbitration as an alternative to the courts. However, while the solution to the issues that face the judicial system is within reach with arbitration, in-house counsel at corporations have an important role to play in ensuring that the arbitration functions in an optimal way.         

Canada has had one of the lowest usage rates of arbitration as a form of dispute resolution in the commonwealth — far less than what we see in the United Kingdom, Australia and New Zealand. The legal culture in this country, influenced by our neighbours to the south, is such that the perception by many litigants and their counsel is still that justice is best pursued before the courts. Anything else is seen as an inferior form of dispute resolution and gets lumped under the heading “ADR.” 

The legal education system that trains our lawyers reinforces the current legal culture by offering little to no information on arbitration as a form of dispute resolution. In the face of the crisis that we see before the courts, much of the legal market is not well equipped to practise arbitration and lacks even a basic understanding of its mechanics. When provided with an opportunity to arbitrate, the first thing many litigators do is adopt the Rules of Civil Procedure, squandering an opportunity to tailor a process that can best respond to the needs of a case.

Arbitration is not ADR and should not be lumped with it. Arbitration is a consensual form of dispute resolution that dates back to Roman times and that stands in parallel to the courts. In some respects, such as the enforcement of an award across trans-boundaries, it is superior to the courts in that it benefits from the New York Convention that makes an award enforceable in more than 150 countries.

The American Bar Association has conducted studies that confirm that the cost of an arbitration is about half of that of a civil trial. The highest cost factor in litigation before the courts is in document discovery, which can be abridged in arbitration. The one-size-fits-all concept under the Rules of Civil Procedure imposes document production obligations that can be disproportionate to the needs of a case and which is costly. The length of time to obtain a resolution in arbitration is about 16 months, compared to the five years or more before the courts.  

A contingent liability over the head of a corporation clutters the balance sheet and is not good for business. Case management, which is standard practice and conducted by the arbitral tribunal that will eventually hear the merits of the case, leads to much efficiency and less gamesmanship by lawyers.  

Lastly and most importantly, the parties maintain control over the appointment of the decision-maker, which can include retired judges or experienced commercial counsel with a depth of knowledge in commercial matters. All of these advantages, when weighed against the judicial system, is driving many litigants to arbitration.   

Arbitration in Canada is on the rise. About 80 per cent of the decided cases in the courts that deal with arbitration have been decided in the last five years. This is a good litmus test to assess the use of arbitration. 

However, despite the obvious benefits of arbitration and its recent increased use to resolve disputes, much work needs to be done to elevate the practice of arbitration and make it an integral part of the legal landscape. What is required is a multi-faceted approach from a number of stakeholders, including governments, educational institutions, the judiciary and the legal profession. Requiring lawyers to acquire a greater understanding of arbitration and imposing procedural requirements in the Rules of Civil Procedure to permit the court to offer arbitration as an escape route from years of litigation would be a good start. 

In-house counsel have an important role to play. The days where a single clause could be included in a commercial contract with little to no thought about what could be tailored to meet the needs of the potential dispute are over. In-house charged with directing commercial paper for the corporation must acquire a greater understanding of what can be inserted into a clause should a dispute arise in the future. In-house counsel must acquire a greater understanding of the arbitration process so that they can direct the litigator and make decisions relating to process that are beneficial to the corporation.

While arbitration is not a complete answer to the delays in the court system, the expanded use of arbitration can help. For parties not willing or able to endure the delays inherent in the courts, arbitration is the way to go. In-house counsel have an obligation to make the arbitration option known to their clients and become full participants in the arbitration process, both as it relates to the drafting of arbitration clauses and in directing the arbitrators as it proceeds. There are many experienced arbitration counsel in large firms and small that can give useful guidance.  

Alexander Gay is litigation counsel at the Department of Justice. He maintains a broad civil litigation practice, with an emphasis on commercial and trade disputes.

Earl A. Cherniak is a senior partner at Lerners LLP. He is a member of the arbitration practice at 3 Verulam Buildings chambers in London, U.K., and a member of Arbitration Place, Toronto.