22 May

 

Med-Arbs – Practical Considerations for Getting the Best of Both

by David Farmer and Steven Kley

Practitioners continue to disagree about the appropriateness of combined mediation-arbitrations, or med-arbs.  The clear advantage in asking the same dispute resolution professional to preside over a combined process is that there will be no need for an independent arbitrator to get up to speed where mediation has been unsuccessful.  On the other hand, in common law jurisdictions, there are reasons why the usual process is that settlement discussions are conducted separately from any adjudicative process. 

Med-arbs, as a combined process, ensure a final resolution to disputes, usually within a well-defined timeline. The prospect of that binding decision can be very useful in motivating compromise.  Critics of the med-arb process contend that a party may candidly divulge information, in the interest of settlement, that it would not normally disclose to the other side or that may be perceived to impede the arbitrator’s ability to render an impartial decision.

Nonetheless, parties continue to rely upon med-arbs as a means for resolving their commercial disputes.[1]  Impartiality concerns aside, doing one’s best to craft a process that best addresses the nature of the dispute is key to ensuring that the med-arb process truly benefits from the best aspects of both mediation and arbitration.

Jurisdictional Issues

Regardless of the format parties may ultimately choose for their med-arb process, it is important to note that deciding to use a med-arb may have statutory implications.  In Ontario, members of an arbitral tribunal shall not conduct any part of a mediation or other similar process that might compromise or appear to compromise the tribunal’s impartiality, unless this requirement is waived.[2]  In other jurisdictions, an arbitrator may act as mediator if the parties consent, and thereafter resume the role of arbitrator without disqualification.[3] [4]

The integrity of the med-arb process is best protected by expressly indicating, within the mediation-arbitration agreement, that the parties have consented to that particular process.  Noting this consent leaves no room for either party to challenge the process later using an argument about the impartiality of the mediator-arbitrator.

A Truly Single Event?

When the med-arb is a single event, parties may consider providing their written arbitration submissions in advance of the mediation.  In so doing, the relative strengths and weaknesses of each case are made apparent from the outset and provide motivation to find compromise in the mediation phase.  Moreover, the mediator-arbitrator can understand the full circumstances and the parties’ business interests during the mediation phase, allowing options for compromise during the mediation.  Finally, an arbitration can take place, or an arbitral decision can simply be rendered, almost immediately following a failed mediation, providing further motivation to reach a negotiated settlement.

However, in circumstances in which the arbitral decision is expected to be a binary choice between contractual terms, or the dispute has arisen at the end of a contractual relationship, setting out respective positions before the mediation phase may only serve to entrench each side and put a mediated settlement in jeopardy.  While these situations may be more appropriately dealt with by arbitration alone, if the parties nevertheless wish to mediate, information exchanged in advance may best be limited to agreed facts.  Should the mediation fail, the parties can then provide separate arbitral submissions, taking account of any discrete issues for which agreement was reached during the mediation.

Given the concerns regarding impartiality, the mediation-arbitration agreement should be clear about when the mediator/arbitrator’s role shifts from facilitator to decision maker.

Putting Best Feet Forward

Whether the med-arb is undertaken in a single event, or a staged process, the mediation-arbitration agreement should provide for a record of the solutions reached in mediation, in writing, prior to proceeding to the arbitration stage.  Where the process contemplates a single event, parties should also take the opportunity to inform the mediator-arbitrator which submissions are no longer necessary to consider.

However, the advantages gained in the mediation stage need not be limited to the issues – formal offers made during the mediation stage can be carried through to the arbitration as well.  Parties may wish to consider whether the arbitrator should be restricted to selecting from the final, or the best, offers made by each side during the mediation, irrespective of what might otherwise be the arbitral decision on the merits.  If the parties are not willing to lock in a compromise during the mediation, it is a clear signal that little more time need be spent in mediation.  However, when the parties are interested in resolution, locking-in offers provides additional motivation to reach an ultimate compromise and avoid “litigation” risk at the arbitration stage.

Not all of these concerns can be mitigated through the mediation-arbitration agreement.  Indeed, both sides need to approach the med-arb expecting a bit of “tough-love” from the mediator-arbitrator.  Retaining an experienced mediator-arbitrator early on provides an opportunity to receive guidance on the most difficult procedural aspects of the med-arb, in addition to the expertise that the professional will ultimately provide during the med-arb itself.

 


[1] Discussion in this article is limited to domestic disputes.  International commercial arbitration is subject to separate legislative treatment in many provinces.

[2] Arbitration Act, 1991, SO 1991, c 17, sections 3 and 35.  See also Marchese v Marchese, 2007 ONCA 34, 154 AWCS (3d) 275.

[3] Alberta [Arbitration Act, RSA 2000, c A-43, section 35]; Saskatchewan [The Arbitration Act, 1992, SS 1992, c A-24.1, section 36], Manitoba [The Arbitration Act, CCSM c A120, section 35], Nova Scotia [Commercial Arbitration Act, SNS 1999, c 5, section 39] and New Brunswick [Arbitration Act, RSNB 2014, c 100, section 35].

[4] In the remaining jurisdictions, there are generally provisions permitting the removal of an arbitrator for “misconduct”: see Arbitration Act, RSNWT 1988, c A-5, section 9; Arbitration Act, RSY 2002, c 8, section 8; and Arbitration Act, RSNWT (Nu) 1988, c A-5, section 9.


 

David Farmer and Steven Kley are Senior Legal Counsel and Legal Counsel, respectively, Canadian Regulatory Law, Energy at TransCanada.  They provide in-house legal advice to TransCanada’s power businesses with a focus on administrative, regulatory and commercial law.

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