Sports fans often hear in the media that a pro athlete has “gone to arbitration” with the owner of his or her team to settle what their compensation package. Often, corporations become involved in arbitration over contract disputes with other corporations. Labour unions sometimes agree to “go to arbitration” to settle contract disputes as was done in 2023 with the teacher’s union here in Ontario. The average person might wonder how these kinds of disputes end up in arbitration.
Arbitration is an alternative to having to go to court to resolve any kind of dispute. For example, it is very common to see a requirement to use arbitration as a means of resolving disputes in a contract involving corporations especially corporations which operate worldwide. A company in the United States may have a contract with a Canadian company to purchase parts or services at a specified price which can be changed due to market conditions. The companies may fall into a dispute about a price change. If their contract says that any dispute which they cannot settle themselves must go to arbitration, then both companies are bound to use arbitration to solve the problem. The law governing arbitrations universally provides that if a contract says the parties must arbitrate any dispute, then the parties cannot go to court with respect to that dispute. Ontario legislation provides that the court only has authority to govern the arbitration process and then only to ensure that the arbitration itself complies with the legislation. The parties must have an arbitrator decide their case for them.
The reason why people put “arbitration clauses” in their agreements is primarily to ensure that a dispute can be quickly resolved. Going to court can take years. Corporations often do not have time to take matters to court.
Anyone who wants to use arbitration also wants to be able to select an expert in the field so that a good decision is made for them. If they go to court, they have no right to select the judge. In arbitration, the pro athlete and his professional team can select as an arbitrator a person who has knowledge and experience with pro contracts and how athletes are compensated in their particular sport. Similarly, in construction contract disputes, the construction companies can select a person with experience, knowledge and skill in the construction industry to make the decision for them.
The important take away from the above is that arbitration can only take place if the disputing parties have agreed that they will resort to arbitration if they cannot settle the dispute themselves. Often, such an agreement will stipulate that they must try to resolve the dispute themselves or through mediation before they can resort arbitration.
Except for a family arbitration agreement which must be in writing, an agreement to arbitrate does not have to be in writing. It is however best to ensure that the arbitration agreement is in writing and in plain language so the process to be adapted is clearly understood. Arbitrations can of course be complex and lengthy or simple and straightforward depending upon the nature of the potential problem which the parties wish to address.
Various not for profit arbitration organizations have created standard rules for the conduct of arbitrations. However, the parties may agree that, instead of following these rules, the arbitrator has the authority to make the rules as to how their particular arbitration will be conducted.
There are many options available to the parties and to the arbitrator as to how the arbitration will be conducted. The chosen option should be designed to make sure that the arbitration is cost-effective while at the same time being fair to all parties.
In most cases, to ensure fairness, the arbitrator should hold what is called a pre-arbitration conference with the parties or their lawyers or both to discuss and gain consensus on what rules they will apply to the arbitration, to fix the dates for the arbitration and to deal with any pre-arbitration disputes such as the production of documents, which witnesses will be called at the arbitration and what information needs to be exchanged between the parties before the arbitration can take place.
Here are some of the options for the conduct of arbitrations which is not at all an exhaustive list:
- Conducting a full hearing in the same manner as a trial in court with oral evidence from witnesses and with all the rules of evidence applying. This can be very expensive as the arbitrator is usually paid for the time spent in preparing for and conducting the hearing.
- Submitting documents only and then asking the arbitrator to make a decision based upon these documents and the written submissions coming from the parties. This is often done for cases involving the interpretation of contracts or for cases where the facts are not highly contested.
- Giving the arbitrator the authority to choose between the position of one party and the position of the other party. This is often done with respect to contract disputes between professional athletes and his or her team. The athlete will ask for a fixed amount of money while the pro team will offer a lower amount. The arbitrator has to choose between one or the other. Sometimes the arbitrator will be given the option of choosing a different figure entirely.
- Combining 1 and 2 above by having the parties submit documents such as affidavits for purposes of providing evidence and then allowing the other party to cross-examine the party who submits the documents or affidavits as evidence. Often, when this option is chosen, time limits are imposed on the cross-examinations.
There are a number of other creative ways to conduct an arbitration particularly if the parties are in agreement. The arbitrator will often try (in that pre-arbitration conference referred to above) to encourage a consensus as to how the arbitration should proceed as it is very important that the arbitrator be fair to both parties. Under Ontario arbitration law, there is a legal requirement that the arbitrator must conduct a hearing if one of the parties requests that. There is no legal definition of “hearing” so there is still some flexibility in how the arbitrator can set up the process.
The decision of the arbitrator is legally binding on the parties. “Arbitration award” is the legal term for an arbitrator’s decision. The award is subject to appeal and is also subject to review by a court to ensure that the arbitrator has followed due process. If it is not obeyed, it can be enforced by a court. The arbitrator must also include in their decision their reasons for making their award. Often, the arbitrator does not make a decision immediately after the hearing in complex cases. He or she often takes some time to consider the evidence and write their decision. In such a case, the arbitrator is obliged to release their award at the same time to both parties. These days, that often takes place by way of email to the parties. After the arbitration award, if the arbitration agreement so stipulates, either party may submit a claim for “costs” in which they ask the arbitrator to decide who won the case and if the losing party ought to pay the winner all or a portion of their legal fees and arbitration fees for forcing them to come to arbitration to get what they deserved. The arbitrator will then make another award to deal with that request.
There are of course many other aspects of arbitration not addressed above. But I hope this short summary helps you understand why it’s a popular resource, how it works and how it might work for you if you have any kind of dispute with someone which needs to be dealt with in a quick and effective manner. As government resources such as our court system suffer under a heavy case load, arbitration is a resource many people and corporations are choosing more and more every day. Its popularity will only continue to grow and technological advances such as artificial intelligence will only make it more efficient as time goes on.
– Tom Dart, Mediator & Arbitrator
