06 Dec

Binding Mediation: an Oxymoron?

By Harvey J. Kirsh

Binding Mediation” is a term dreamed up by a marketing maven.  It is med-arb, although some may consider it a wolf in sheep’s clothing.”  Daniel Yamshon, FCIArb

The nature of mediation is typically expressed as being consensual, non-binding and without prejudice.  So is there room in the spectrum of ADR processes for what some have called “binding mediation”?

The Saskatchewan Queen’s Bench decision in The Government of Saskatchewan v. Capitol Steel Corporation (2017 SKQB 302) arose out of a dispute between the provincial government and Capitol Steel Corporation, a structural steel fabricator, relating to the construction of a bridge over the South Saskatchewan River.  The contract between the parties provided that Capitol was to supply, fabricate and deliver four sets of girders for the bridge, in two phases, for erection by a specified date, and contained a provision for the payment of liquidated damages in the event of delay in delivery.

As a result of Capitol’s delays, other portions of the project were also significantly delayed, and the government incurred losses and brought this claim.  The ensuing negotiations between the parties resulted in their entering into a “Mediation/Arbitration Agreement”, which set out the terms of reference for the resolution of the various claims for delay, liquidated damages, deficiencies and sales tax, which were to be resolved by “binding mediation or arbitration”.  It also designated a retired Queen’s Bench judge “as a mediator and if the Parties do not reach a settlement at mediation, as the sole arbitrator to hear and make final determination of the matters set out in this Agreement”.

In its written submissions, the government asserted its claims for damages for delay and deficient work and for the payment of provincial sales tax.  Capitol, in its responding submissions, blamed the delays on its supplier, and alleged that the government’s refusal to negotiate a time extension amounted to a breach of an implied term of the contract, resulting in a release of any obligation to pay liquidated damages.

Upon consideration of the argument made by Capitol, the government filed an objection to the arbitrator’s jurisdiction to determine the matter.  Capitol had initially stipulated in the Agreement that the liquidated damages provisions in the construction contract were valid and should be used to determine the government’s damages.  However, according to the government, Capitol, in its submission to the arbitrator, repudiated the Agreement by arguing that the liquidated damages provisions were not applicable.  The government then argued that it was accepting Capitol’s alleged repudiation, and that accordingly the Agreement was terminated and the arbitrator no longer had jurisdiction to conduct the arbitration.

The arbitrator, though, deferred his decision on the jurisdiction issue, stating that it was “too complex to be dealt with on a preliminary basis, particularly when it may require a review of evidence”, and directed the parties to proceed with the mediation, stating that the government’s motion “should be adjourned and dealt with at the Arbitration if the matter is not settled by Mediation”.

The parties then proceeded with the mediation, which did not lead to a settlement, whereupon the government renewed its motion to challenge the arbitrator’s jurisdiction to proceed further.  On the motion, the arbitrator ordered that, despite the fact that his jurisdiction, qua arbitrator, was being challenged, the parties should nevertheless proceed through the stages of production and discovery, that a date be scheduled for the arbitration hearing, and that the jurisdiction issue would not be decided until immediately prior to the commencement of the hearing.

No doubt this order did not sit well with either of the parties.  Production and discovery are typically the most time consuming and expensive components of most litigation or arbitration proceedings.  Imagine the frustration of the parties if they were obliged to participate in the onerous and costly process ordered by the arbitrator, only to find out, at the opening of the hearing, that his decision regarding jurisdiction might have rendered the output of time and expense unnecessary.

To no one’s surprise, the arbitrator’s ruling was the subject of an appeal by the government to the Court of Queen’s Bench for Saskatchewan.

On the appeal, Mr. Justice Kalmakoff stated that “once the parties have entered into an arbitration agreement, the arbitrator has full authority to determine the matters in dispute, in the fashion set out in the agreement, and that the courts should intervene only in limited circumstances, as set out in the [Arbitration] Act”.  The judge also observed that, “(w)here a party raises an objection to the jurisdiction of the arbitrator, . . . the Act sets out the arbitrator’s authority to rule on the objection, and also makes provision for review of such a ruling by the court”.

In the end result, though, the judge held that the right of a court to review an arbitrator’s ruling on an objection is only triggered when the arbitrator actually decides the question of jurisdiction, which in this case had not occurred but rather had been adjourned by the arbitrator to the tentative opening of the hearing.  Judicial review of the arbitrator’s ruling is not available until after such a ruling has been made.  The government’s appeal was therefore dismissed.

If it should ultimately be determined, by the arbitrator or the court, that the arbitrator had no jurisdiction, and since there was no consensual settlement at the mediation, the parties, after considerable delay and expense, would appear to be back at square one.

Harvey J. Kirsh, B.A. (Tor.), LL.B. (Osg.), LL.M. (Harv.), C. Arb., C.S., is an Arbitrator, Mediator, Adjudicator and Referee with Kirsh Construction ADR Services Ltd.  His biographical information and contact coordinates may be accessed at http://kirshadr.com/

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