Arbitration - An Exercise in Private Judging

Arbitration is the resolution of a dispute between parties by a neutral and unbiased third party decision maker who after considering the evidence presented by the parties to the dispute renders a binding decision to finalize the outcome of that dispute. 

Arbitration is an alternative to the Court process and is sometimes called "private judging" because, unlike in mediation, the parties to an arbitration have no choice but to accept the arbitrator's decision. Once they start the arbitration process the parties cannot withdraw their participation except for defined reasons and unless they both agree to terminate the arbitration. An arbitration decision (called an award) is enforceable in the same way as a Court Judgement once it is registered with the Courts.  

Most Arbitrations in Alberta are governed by the provisions of the Arbitration Act RSA 2000 Chapter A-43 as amended. Within the 56 sections of this Act are the rules and guidelines that parties use to dictate the process to be used in conducting an arbitration. Section 3 of the Arbitration Act lists types of disputes that have a different procedure and should be consulted before the arbitration begins to make sure that the correct process and rules are used. There are certain types of disputes that cannot be resolved by arbitration. Examples are Criminal and Immigration matters where the legislatures and Parliament have given the Courts the sole jurisdiction (exclusive right or monopoly) to hear and resolve these matters. 

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The first step 

The parties must first determine that there is a dispute that needs to be resolved They must them agree to resolve the dispute by Arbitration. In some contracts and agreements arbitration is specified as the way any dispute will be decided. In theory therefore these matters should not be heard by our Courts. Unfortunately, the Court Justices have held that they will allow disputes to proceed through the Civil Court system, even if the contract between the parties specifies Arbitration, if both parties have filed pleadings (litigation documents) in the court action.  

A matter can be sent for arbitration in three ways: 

• The parties to the dispute can agree that they will resolve their dispute by Arbitration;

• The contract or agreement between the parties states that arbitration and not litigation will used in the case of a dispute or disagreement. Examples of these can be found in commercial agreements that frequently contain an arbitration clause, such as Franchise agreements;

• Legislation requires that the dispute be decided by an arbitrator.

One advantage of arbitration is that it is a private process. In the litigation system anyone can sit in the Court room and listen to the testimony and legal argument. In the process, many facts that could otherwise remain confidential are revealed to the public at large. Arbitration avoids this, as the parties control who listens to the testimony and legal argument, thereby avoiding potentially embarrassing and damaging information being released.  

Another advantage of arbitration is that the parties choose how formal or informal the procedure will be. One complaint many people have of the litigation process is that it is subject to many complicated and convoluted rules that govern how, when and by whom evidence will be presented to the judge. Subject to the rules of natural justice (the analysis of which has filled many library shelves) and appeals, section 3 of the Arbitration Act allows the parties to make their own rules and procedures for an arbitration. 

This allows the parties to present the evidence themselves, without using a lawyer, to the arbitrator, waive the strict application of the rules of evidence that have evolved over hundreds of years and design their process to fit their notion of what would be a fair and acceptable proceeding.¹ Great care should be taken in deciding how to streamline and simplify the arbitration. It may well be advisable to call upon the expertise of a lawyer or the arbitrator before deciding on the rules of the arbitration.  

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Choosing an Arbitrator  

Some contracts specify who the arbitrator will be. However, in most cases the arbitrator will be appointed by the parties themselves. The arbitrator must not have a bias or interest in the outcome of the case. The arbitrator must also not have a conflict with either party to the arbitration. 

An extreme example of bias would be for the Prime Minister to appoint a person to preside as an ethics commissioner whose duty is to examine and evaluate the propriety of the Prime Minister's actions and decisions, and whose continued employment as ethics commissioner depends upon the Prime Minister's good will and support. An example of a conflict would be for that person to be appointed by the Prime Minister, and then report to the Prime Minister with his or her conclusions. 

The test question you could ask is "would a reasonable person with knowledge of all the facts conclude that the arbitrator is impartial to the outcome of the decision?" 

An arbitrator does not have to be a lawyer nor are they required to have a legal background. However, part of the arbitrator's role will be to identify and decide on legal and procedural issues that arise during an arbitration. The acceptance or rejection of evidence may be pivotal to the legitimacy of the arbitrator's award. 

And what happens if you need to appeal the arbitrator's award based on an evidentiary dispute? It is surely better to get it right first time around. 

Lawyers are not the only people who can understand the rules of procedural fairness and evidence. After all, a degree in medicine is not the only way to understand disease and infection. And mechanics are not the only people who understand how engines work. But would you trust repair of your critical business vehicles to your doctor? Your answer to this question will tell you a lot about whether you should get an arbitrator with a background and extensive training in legal principles and procedures.  

Another touted advantage of choosing your arbitrator is that you can choose someone with knowledge in the industry or area of the dispute. Interestingly, the ideal judge is described as someone whose characteristics include no preconceived notions or beliefs about the subject matter of the dispute, and whose conclusions will be drawn solely from the evidence and discussion presented by the parties. 

Many people believe that by getting an arbitrator with extensive knowledge in a particular area or subject matter, they will shorten the arbitration as they will not need to explain basic concepts and industry norms to the arbitrator. To an extent that is true, however, if you want the decision maker to hear what you have to say and apply these standards as you feel they should, why would you appoint someone who already has a preconceived view of the application of those concepts and ideas?  

Another useful skill set to look for in an arbitrator is mediation skills. Section 35 of the Arbitration Act allows the Arbitrator, with the parties permission, to put aside his or her Arbitrator's hat and attempt to mediate a solution. If this mediation is successful, the agreements are documented and become the award. If unsuccessful, in whole or part, the process returns to the arbitration to resolve the dispute. 

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Define the boundaries of the Arbitration 

The legal term for this is jurisdiction. Every arbitration must have one or more defined questions that need to be answered. Failure to answer all the proper questions may lead to a visit to the Courts to explain what happened. Answering questions not put before the Arbitrator will have the same result. The arbitrator's jurisdiction may be defined by one or more of the following: 

• Statute:  Some disputes are taken to arbitration because that is what is specified by the legislature or Parliament. An example is Labour Relations Boards who have a statutory jurisdiction to hear Management - Union grievances and disputes under collective bargaining agreements. The Condominium Property Act is an example of a statute that specifically allows disputes to be mediated or arbitrated rather than going to Court. 

• Contract:  Some contracts and agreements stipulate that any disagreements about the meaning and application of the contract terms will be sent to Arbitration. Franchise agreements are an example of a commercial contract that frequently contains an Arbitration Clause.  

• Agreement of the Parties: Parties to a contract or disagreement are free to choose their dispute resolution forum. Even if there is no written agreement, if the parties agree to mediate or arbitrate then they are free to do so. There are certain types of disputes that cannot be mediated or arbitrated, examples being Criminal acts, immigration matters the granting of Divorces. 

Once the questions have been defined, it is time to deal with procedural matters. 

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Arbitration procedure 

In litigation, the Alberta Rules of Court define the time lines and procedure to be followed. In an arbitration using the Arbitration Act there are frequently no such guidelines, and it falls to the arbitrator and the parties themselves to define the rules and timetable to be followed. The timing for exchange of documents, submissions to the arbitrator and setting the time, place and duration of the arbitration is something the parties need to decide. 

Arbitrators are frequently asked to decide what records a party must allow the other side to see, when they can see those records and what will happen if a party refuses to obey the arbitrators decision. The arbitrator may also have to decide how many witnesses will be heard as each party must be given sufficient opportunity to present all aspects of their case without overly prolonging the arbitration. 

One or both parties may want the arbitrator to visit the site of an accident or some other event connected with the subject matter of the Arbitration. Decisions must be made about the timing and necessity of such visits. Once the procedural questions have been decided it is time for the arbitration to begin. 

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Opening the Arbitration 

The Arbitration will usually start with one party (usually the party that started the process) giving an overview summary of the facts and evidence that will be heard. Then the opposing party makes its opening statement. There is not opportunity for the parties to examination or question each other at this stage. Having made their opening statements the parties now present their evidence. 

Evidence can be presented in a variety of ways: 

• The parties can show the Arbitrator business documents and records that prove some or all of the facts they want the arbitrator to consider.  

• The parties can give evidence about facts that are in their personal and first hand knowledge. 

• The parties can have other people tell the arbitrator of facts in their first hand knowledge. 

• The parties can ask an expert to comment upon certain facts or findings and give their opinion of how to interpret or understand what the information represents. 

The other party will usually be allowed to challenge or question the evidence in order to understand its accuracy and reliability. In the case of witnesses who give evidence, this questioning is called cross examination and can be a very useful tool to determine for the Arbitrator to how far to rely on the evidence when making a decision. 

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¹ If there is a fair and reliable procedure that would allow parties to a dispute to present reliable evidence to a decision maker, other than using the rules of evidence as they have evolved, then the Courts too should adopt that procedure. If one or more of the rules of evidence do not address a natural justice principle then that/those evidentiary rules and principles should be examined and may be unnecessary.