Show Notes:

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Lecture Slides:

Welcome to YouCounsel.

In today’s lecture, we will talk about arbitration. Most people have heard of arbitrations but they don’t have a clear understanding of what arbitrations are about. How are arbitrations scheduled? Are they even relevant to everyday people? A lot of people have this misunderstanding that arbitrations are something to do with large commercial entities—which is not correct. Today’s lecture is going to provide a fundamental understanding of arbitrations. Then the next lecture, I will explain why arbitrations are hugely important for everyday people with respect to consumer contracts.

Please note, that this lecture is not legal advice. All of the opinions in this lecture are my personal opinions and you don’t need to agree with them. If you have any specific questions, regarding your own issues, you should contact a lawyer or a paralegal or the Law Society of Ontario for a referral.

Today, I will talk about (1) what is an arbitration; (2) what are some of the advantages and disadvantages of arbitration and we’ll talk briefly about (3) different kinds of arbitration agreements.

(1) Arbitration is essentially an alternative dispute resolution process. The courts have very minimal role in arbitration. Alternative dispute resolution, as the name implies, is a process which is alternative to our regular judicial system. Disputes in our system, legal disputes in our country, are usually resolved by courts and tribunals—that is our judicial system. But then there are processes that are alternative to that traditional approach of resolving disputes which is called alternative dispute resolution. Arbitration is one of those processes. Mediation is another process that you can have. It is important to understand that arbitration is not a court process. It is a process that is outside of the court and it is arranged by the parties to a dispute. What parties do is that parties agree to hire a neutral decision maker, which is called an arbitrator.

Most of the arbitrators in Canada are either senior lawyers or retired judges who are hired by parties as arbitrators, to hear their disputes and provide their decision. An arbitrator listens to the case, listens to the evidence and then decides a case. That decision is called an arbitral award, which is like a judgment. That decision is binding on parties. As I mentioned earlier, the courts have a very limited role in arbitration, so arbitral awards are final awards.

Most of the arbitration agreements will indicate that whatever the arbitrator’s decision is, that is final. Parties have no right to appeal. They cannot go to court and appeal that decision. They cannot ask the court to judicially review that decision. In most of the cases that is how arbitration agreements are laid out. Once an arbitrator has issued an award, if a party needs to enforce that award, they can enforce it like a court judgment. They have to file that award with the court and then that becomes a judgment. They can go and enforce it. All of these things of arbitration that happe, are based upon the Arbitration Act which is a legislation in Ontario, that governs how arbitrations are dealt with in Ontario.

(2) Let’s talk about some of the advantages and disadvantages of an arbitration process. The biggest advantage of an arbitration process is the speed with which an arbitration can be conducted. If you go to court i.e., if you start a court action, you have to file your claim, the other party files a defence, then you have to go through examinations for discovery and certain motions and stuff and it may take parties 2 years or longer to get to trial and have their disputes resolved. If they choose to go to arbitration, they could have an arbitration scheduled as quickly as in 2 months time or even faster depending upon the issues that are in dispute. Speed is one of the biggest advantages of an arbitration process—that you can get your issues resolved very, very quickly.

The 2nd advantage is that parties have huge control over the process of arbitration. Arbitration is not run under the Rules of Civil Procedure and so parties can decide—mutually agree—on what process they want to adopt with respect to that arbitration. Also because the arbitration is not bound by the Rules of Civil Procedure, the process of arbitration is quite informal with respect to the acceptance of evidence and hearing of evidence in an arbitration process. Also arbitrations are often times private. Actually, most of the arbitrations are private and confidential. Whatever the dispute is, it is not open to public and the decisions, the awards are not provided to public.

Some people argue that arbitrations have lower cost. I highly doubt it. I believe that is not correct. In my view, in majority of the cases, the arbitration will be more expensive than the court process. Remember, that in arbitration process, the parties are paying the costs of the arbitrator. A decent arbitrator in Ontario may cost you anywhere from $5000 to $10,000 or more per day. What people argue is that, the overall cost of the arbitration is less because you may not need to go through examinations for discovery and you can control the number of days that you have to go for a hearing and whatnot. But, in my personal view, I believe that the majority of the arbitrations will in the end be more expensive, more costly, with respect to a court process.

Disadvantages: In my view, cost is a bigger disadvantage for an arbitration process because you’re not relying on the public resources, the court system to have that dispute resolved. Another disadvantage of arbitration is that there is no right to appeal. In some cases it’s a good thing but in most cases, it takes away the right for a party to have that decision reviewed by a higher court. There is a lack of formal discovery process, which in some cases is a disadvantage. Also there is a bit of a more lack of transparency in arbitration process. The courts, the judges, are required to provide reasons for why they have arrived at certain conclusions. In an arbitrator’s case that is not true in all of the cases. Many of the interim decisions that the arbitrator may make may not be supported with reasons and so there is relatively less transparency in arbitration process. Costs are higher as I’ve said, but the biggest issue with arbitration, in my view, with respect to consumer issues is the access to justice. The lack of access to justice in arbitration, in my view, is a huge problem with respect to consumer issues which we will talk about in the next lecture.

(3) Let’s talk about arbitration agreement. By arbitration agreement what I mean is how parties get to an arbitration. How do parties end up in arbitration as opposed to a court? There are 2 ways that parties end up in an arbitration. I’ve said the 1st option is the “post-dispute arbitration” which essentially means that parties have a dispute, they realize that they have a dispute and now they have a choice to make, whether to go to court or tribunal depending upon the dispute or to hire an arbitrator and go through the arbitration process. Post dispute means, that the decision to go to arbitration is more of a voluntary decision. Parties look at the pros and cons of different options of this dispute solution and then they decide mutually that the best approach for them is to go to an arbitration. They want a speedy resolution, they want to get the decision made quickly in a matter of months, so they can get on with their businesses as usual.

The other one is called the “pre-dispute arbitration” which is a mandatory process. Pre-dispute arbitration essentially is that parties have already agreed to a contract in which they have agreed that if there is going to be a dispute between the parties the only way they are going to resolve that dispute is by going to an arbitration and they cannot go to a court. That is sort of a mandatory agreement to go to arbitration even before any dispute has arisen.

The most problematic example of mandatory arbitration agreements is in consumer contracts. A lot of people don’t realize that in a lot of their consumer contracts, they’re already bound by mandatory arbitration agreements. Which means, that if they have a dispute with that provider on the other side, they cannot go to court. The only option, they have is go to an arbitrator.

For example, home developers in most of the cases, whether you’re buying a house from Mattamy or another developer—when purchasing a new house in the Agreement of Purchase and Sale there is (in 99 percent of the cases that I know) an arbitration agreement clause that basically says that you the buyer, you the purchaser if you have any issues with the developer, you cannot go to court. You have to hire an arbitrator, pay the cost of the arbitrator and have that dispute resolved. If you buy stuff from Amazon—which we all do, if we have a dispute we cannot go to court. In Amazon there are certain circumstances in which you can go to Small Claims Court, but you have to go to the arbitral process. You have to hire an arbitrator and have your disputes resolved. I briefly looked at the Amazon’s arbitration agreement and I believe that in small claims matters you can still go to court and also you don’t need to pay the cost of the arbitrator unless the arbitrator finds that the issues that you have raised was frivolous.

There are certain things good things in that agreement too. Also if you purchase stuff like online games and stuff like that, you will find if you read the fine print of the contract it will say that all of the disputes are subject to arbitration. A lot of employment contracts that I see have this arbitration clause that employees will not be able to go to court and have the matter resolved in a court process. They will have to go through the arbitration process.

Therefore, it is important for everyday people to understand that a lot of consumer deals that they have, may have a mandatory arbitration agreement in it, which takes away the consumer’s rights to go to court and have their matter heard by a judge in the court system. They will have to incur (in most cases) the cost of arbitration which as I mentioned was going to be significant. They will not have the right to commence class action proceedings—join a number of causes together in a class action and have that matter resolved by the courts. Each party will have to go through separate arbitration with respect to their case. There are huge problems in my view with arbitration agreements (mandatory arbitration agreements) and consumer contracts which I will discuss in the next lecture.

Thank-you for watching.