DISPUTE MANAGEMENT, RESOLUTION & AGREEMENT- REACHING MECHANISMS
In an article published in a Canadian entertainment newspaper, I examined the principal advantages and disadvantages of using traditional private commercial arbitration as an alternate method (that is, rather than court litigation) of dispute resolution in the Canadian entertainment industry, in which: the timeliness of decisions, transactions and payments; the limited resources for protracted litigation; the intolerance of the cost, delays and risks of litigation, especially in a foreign jurisdiction and/or governed by a foreign law; the possibility of an appeal; the paucity of jurisprudence; the judiciary’s lack of industry expertise; the loss of privacy and confidentiality; and the protection of relationships and reputations are constant key considerations.
These considerations apply to many industries and disputes in Canada.
In addition to arbitration, there are various traditional and hybrid methods of managing and resolving disputes. This article will examine some of these hybrid methods, in increasing order of intensity of complexity, contestation and cost, as well as suggesting how these methods also assist the parties to overcome negotiation hurdles so that they can conclude new agreements and potentially establish new relationships.
Also called conciliation, mediation is both a dispute and risk - management mechanism as well as a dispute resolution mechanism, whereby a neutral person, the mediator, is engaged to facilitate the negotiation and communication among the parties, but he/she makes no determinative decision.
The mediator leads and structures the negotiations, and helps the parties brainstorm so that they themselves might create what they believe is a fair solution to their particular dispute. While the mediator's chargeable time is a function of the complexity of the issue and the number of sessions agreed upon by the parties, his/her hourly rate is typically shared by the parties.
In facilitative mediation, the mediator helps the parties and their counsel negotiate and work with each other in a manner that induces them to devise solutions to their own dispute, but does not give his/her own opinion or suggestions. In evaluative mediation, the parties and their counsel do not work together to find a solution, but rather argue their cases to the mediator who evaluates them, questions the parties and counsel as to the strengths and weaknesses of their arguments so that they do reality checks of their positions, then the mediator tries to persuade them of his/her own non-binding solution, possibly giving them his/her opinion as to the amount that should be paid or other appropriate settlement.
Mediation is well-suited to help the parties reach agreement as to: the disputed grant of rights or assets sold, royalty and net profits payments, whether consent was unreasonably withheld, and what is, or is not, a standard or customary industry practice; disputes concerning the termination of key creative or executive personnel, with or without just cause; disputes among co-venturers or shareholders concerning their rights, obligations, services, contributions and termination of the co-venture. A mediator can aid cantankerous and quite differentially positioned and oriented parties to reach single transaction or multi-stage agreements, transforming stalled or terminated deal negotiations into signature of an agreement. The one-time cost of the neutral is thus rendered minimal.
In order to avoid a claim being made, or to help settle one after it is made, a neutral person is engaged who hears the parties’ positions in private caucus and/or together. The “neutral” then proposes non-binding solutions, verbally or in writing, and/or advises as to the probable court judgment. Through neutral evaluation, the parties might then be able to reach agreement on a grant of rights, the payment of amounts claimed, the interpretation or breach of contract dispute. If the parties agree, the written proposal constitutes a binding, enforceable award.
Mediation takes place for a fixed period or until the parties or the mediator determine its futility, followed by arbitration conducted by the former mediator or by a new neutral, but only of the issues not solved by the mediation. This method particularly suits disputes where larger amounts are at issue, whether continued relationships are desired or not. Agreement is facilitated during mediation because the parties and counsel should become more realistic and reasonable when faced with the prospect of an arbitrator’s final decision.
After conducting the arbitration hearing, the arbitrator signs and seals his/her award, but does not deliver it. The arbitrator, or another neutral, then acts as mediator. If mediation succeeds, this award is not delivered, whereas if mediation fails, this award is delivered and constitutes their agreement. Agreement is similarly facilitated because after experiencing a full hearing, paying its cost and knowing that the sword of Damocles, the sealed award, awaits them, the parties and counsel are infinitely more focused on the reality of their positions and the risks of not reaching an agreement.
“DOCUMENTS ONLY” ARBITRATION
When the only issue is the interpretation of the contract and no witnesses need to be heard, an arbitrator may be engaged to render an award based solely upon his/her study of documentation submitted by the parties, with or without written and/or legal argument by counsel. This method is particularly cost and time-effective for disputes about waterfall payments pursuant to a pay-out agreement, deductibility of expenses, delivery issues, completion bond and insurance coverage issues, and ranking of security pursuant to an inter-creditor agreement.
If the arbitrator is either expressly appointed as an “amiable compositor” or authorized to decide “ex aequo bono”, he/she is thereby empowered not to apply the strict letter of the law or to strictly interpret the contract, but must, of course, hold a hearing and apply the rules of natural justice. The arbitrator may then render an award based upon the principles of fairness as well as upon the spirit of the contract.
The parties’ continuing relationship may well be enhanced as a result of this process and its award. An amiable compositor may also be authorized to prospectively amend the contract, thus changing the parties’ rights and obligations on a going-forward basis. This method lends itself to such disputes as those concerning “droit moral”/moral rights, landlord-tenant and neighbour situations, and personal representation relationships. An equitable arbitrator can fix the commissions payable to agents and managers for transactions concluded after termination of an agreement in situations where the services were rendered prior to termination, but the contract is silent on the issue.
Time, cost and win-lose risks are reduced.
“BASEBALL”/ “LAST BEST OFFER” ARBITRATION
This method, also called “last best offer” or “final offer” arbitration, derives its name from use in baseball disputes. After the arbitration hearing, the arbitrator must choose one of the last/best amounts offered by one of the parties. Thus, the arbitrator’s jurisdiction to award an amount is even more precisely defined by the parties than it might be in the case of a wider “bracketed” approach discussed below. Like “Bracketed Arbitration”, mediation is sometimes tried first in order to settle the dispute or at least to attempt to narrow the gap between the amounts. “A quick decision is a valuable feature of the classic version of baseball arbitration. The arbitrator must pick one figure or the other and is encouraged to render his or her decision within twenty-four hours. …Also, the arbitrator may give no explanation for the decision.” (*1) In an hybrid “bracketed” version, the arbitrator is not advised of the amounts offered, in which event the award is delivered for the amount offered which is closest to the amount chosen by the arbitrator. This method can expeditiously determine the purchase price of assets or shares pursuant to voluntary dissolution or a “shotgun” clause, the amount of recoupable distribution expenses, or any monetary claim.
“BRACKETED” or “HIGH – LOW” ARBITRATION
The parties, often after mediation, fix the minimum and maximum amount which the arbitrator may award, but the arbitrator is not told such amounts. Thus, the parties fix and limit their exposure before the arbitration is conducted. This method is also called “Bracketed Arbitration”, because these amounts create the low and high ends of the bracket; the arbitrator’s jurisdiction to award an amount is thus limited to an amount which falls within the bracket. If the amount of the award does so fall within the bracket, then the award is rendered for that amount. If the amount of the award exceeds the high/maximum end of the bracket, then the award is rendered for the agreed high amount. If the amount of the award is less than its low/minimum end, then the award is rendered for the agreed low amount.
This process works to determine the purchase price for shares, classes or packages of assets, the amount of damages for breach of contract, loss of profits or a licensing royalty, where the parties’ offers and independent evaluations are divergent. It generally does not occur to parties and/or counsel who are unable to agree during conference room negotiations, or after exchanging multiple drafts of an agreement, that a neutral resource person could assist them in concluding an agreement. Once the arbitrator helps the parties to establish the brackets, the parties are often set to further agree upon an amount within the bracket, or agree upon several amounts, one or more of which would be applicable in the future in accordance with stated conditions.
Given the increasingly international nature of commercial transactions and disputes, as well as the increasing complexity of domestic transactions, disputes and relationships, the parties can, with the help of a neutral and using these models, creatively structure their own resolution process that is appropriate to the exigencies of that case, whether to help the parties reach an agreement or to settle a dispute.
(*1) The Mediator’s Handbook – John W. Cooley, 2000, page 250.
Getting To Yes – Roger Fisher and William Ury, 1991; The Arbitration Practice Handbook, Arbitration and Mediation Institute of Canada Inc.,1996; Alternative Dispute Resolution Practice Manual – Allan J. Stitt, 2003; Mediating Commercial Disputes – Allan J. Stitt, 2003; Nelson on ADR – Robert M. Nelson, 2003; Commercial Arbitration in Canada – J. Kenneth McEwan & Ludmila B. Herbst, 2004; The Arbitrator’s Handbook – John W. Cooley, 2005; La Médiation: préparer, représenter, participer – Serge Roy, Avi Schneebalg, Eric Galton, 2005; Program Book, Arbitration Training Institute, Section of Dispute Resolution, The American Bar Association, 2005; Rule 32(b) JAMS –www.jamsadr.com.
This article contains general comments only. It is not intended to be exhaustive and should not be considered as advice in any particular situation.
Sander H. Gibson is a commercial attorney specializing in entertainment law with Gascon & Associates LLP in Montreal, and acts as an arbitrator and mediator in entertainment and commercial matters in Canada. Sander is a Chartered Arbitrator, an Independent Film and Television Association (Los Angeles) panel arbitrator, and is a member of the ADR Institute of Canada, Inc. and the Dispute Resolution Section of The American Bar Association.