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Strategies at the time the arbitration clause is negotiated

Perhaps the most important stage of the process to try to ensure the efficiency and cost effectiveness of an arbitration occurs when an arbitration clause is negotiated. Too often one sees an arbitration clause that merely refers the matter to arbitration in accordance with Commercial Arbitration Act [in B.C. now called the Arbitration Act]. That may lead to a convoluted process of negotiation between counsel as to how to best navigate the dispute. In B.C. the Domestic Arbitration Rules, which by virtue of Section 22 of the Arbitration Act are incorporated in every arbitration governed by that Act, provides most significantly that the Rules apply, except where the parties otherwise agree. This provides a baseline, at least, for the process. I have seen arbitration clauses that specifically exclude the Domestic Arbitration Rules. My view is that would be a mistake as it gives the parties the ability to try to take strategic advantage of one another, which will undoubtedly increase the cost and protract the time required to have the Arbitration heard.

There are a number of considerations that a party should reflect upon as to the wording of the arbitration clause, besides the nature of the process, that, depending on the nature of the underlying transaction, may advance the process and thereby reduce the cost and avoid delay. In this article I will take the opportunity to mention two that, in my experience, should always be part of the calculation. They are the following:

  1. Should the parties be required to go to mediation before they can resort to arbitration?
  2. The number of arbitrators

There is value, as I have indicated in the past, to giving serious consideration to requiring the parties to first seek a mediated resolution. As then noted, there is no mechanism, apart from agreement, to force the parties to mediate, as there is in under the Mediation Regulation accompanying an Action in the Supreme Court of British Columbia. My experience has indicated that mediation in advance of resorting to arbitration may be a useful tool, particularly in matters such as rent renewals under a commercial lease, where there is generally objective evidence to resolve matters and all that may be needed is the presence of an experienced mediator to get the parties to bridge the gap.

The selection of the number of arbitrators is also a key to conducting a cost effective and expeditious arbitration. I believe that the “default position” should be a single arbitrator. By that I mean there must be a cogent reason present before a three person panel is justified. Consideration could also be given to limiting the number of arbitrators based upon the amount of the claim; as an example, if one were dealing with an arbitration clause in connection with a dispute arising out of a sale of a business or a valuation issue. In this way, claims that are genuinely valued above a certain threshold (as spelled out in the Agreement itself) could, if insisted upon by one of the parties, result in a three person arbitration panel; and those below that value would be determined by a single arbitrator.

See also: Arbitration: Strategies at the time a dispute arises, and Arbitrations: Can they be more efficient and cost effective than the courts?

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