• Arbitration Clauses
  • September 23, 2014 | Authors: Zohar Barzilai; Gregory Hogan; Alexandra Iliopoulos; Alexander Pizale; Andrew Spencer
  • Law Firms: Cassels Brock & Blackwell LLP - Vancouver Office ; Cassels Brock & Blackwell LLP - Toronto Office ; Cassels Brock & Blackwell LLP - Vancouver Office
  • Before automatically including an arbitration clause in a commercial agreement, consider whether you really need one.

    Parties and counsel often assume that arbitration is less costly than litigation and is, therefore, a better way to resolve disputes. It can, however, be even more expensive than litigation, since the arbitrator, hearing room, and court reporter must all be paid for by the parties. By contrast, the courts are free. The flexibility that arbitration offers is rarely utilized in practice.

    That being said, parties typically require an arbitration clause in one (or more) of the following situations:

    1. A dispute will require specialized knowledge on the part of the decision-maker. For example, an arbitrator who specializes in complex commercial real estate disputes will not require the same “education” as even an experienced judge might. Time and money can be saved by stipulating in the contract that any dispute will be resolved by an arbitrator with a high level of relevant experience.

    2. One or more parties require confidentiality. Courts, their proceedings, and the evidence given by the parties are not confidential. However, the contents of and material relating to an arbitration, as well as the final award, can be kept confidential by providing for that in the agreement. If confidentiality is important, an arbitrator is preferable to a court.

    3. Flexibility is required. Arbitrations are creatures of contract. Accordingly, almost everything relating to an arbitration can be stipulated in the agreement, such as the number of arbitrators, the timing for submission to arbitration, the place of the arbitration, and the manner of conducting the hearing. By contrast, court proceedings are governed by the Rules of Civil Procedure, where less flexibility is available.

    If none of these situations is present, carefully consider whether a mandatory arbitration clause is really the best choice. Once you put the clause in the agreement, disputes under the agreement cannot be submitted to the courts unless the other party agrees. Remember, even in the absence of a mandatory arbitration clause, parties are still free to elect arbitration by agreement, even after a dispute arises.