ADR Chambers

This article originally appeared in the December 2012, Vol 21, No. 2, edition of the Canadian Arbitration and Mediation Journal.

Written by Barry Leon, Andrew McDougall & John Siwiec [2]

I. Introduction

The large majority of investor-state disputes arise within the context of Bilateral Investment Treaties (BITs) – known as Foreign Investment Promotion and Protection Agreements (FIPAs) in Canada. BITs provide standards of protection for investors of the contracting state and their investments in the host state. They also provide procedural mechanisms for the settlement of disputes through arbitration directly between the investor and the host state. Canada is currently a party to twenty-four FIPAs and four Free Trade Agreements (FTAs) [3] that provide for investor-state arbitration, most notably Chapter Eleven of the North American Free Trade Agreement (NAFTA) [4] between Canada, the United States and Mexico. For ease of reference, both FIPAs and FTAs that include investor-state arbitration will be referred to as Investment Treaty Agreements (ITAs).

This article addresses two issues of particular interest regarding Canada’s experience with investor-state arbitration as a federal state. The first issue relates to the fact that Canada has not ratified the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (the ICSID Convention or Washington Convention) [5] and is therefore not a member of the International Centre for Settlement of Investment Disputes (ICSID). The second issue concerns the debate about which level of government should ultimately be responsible to pay the financial compensation awarded through investor-state arbitration where the claim arises from measures taken by a province or territory. The debate arises out of Canada’s federal structure and the fact that the Canadian federal government has increasingly been called upon to pay compensation for measures taken by its provinces and territories. The article concludes that, Canada faces some prominent issues related to investment treaty arbitration because of its federal system which it needs to address.

II. Canada and the ICSID Convention

ITAs contain the host state’s consent to arbitrate and provide the means by which a disputing investor can submit a claim. As investor-state arbitration has evolved, the ICSID Convention has established a widely accepted method for the adjudication of investor-state disputes. The ICSID Convention was formulated by the World Bank in the 1960s, and has risen to prominence as 148 states have ratified the Convention, while an additional 11 – including Canada – have signed but not yet ratified it.[6]

As is made clear in its preamble, the ICSID Convention focuses on “the need for international cooperation for economic development, and the role of private international investment” and “the possibility that from time to time disputes may arise in connection with such investment between” a foreign investor and the state in which the foreign investor has invested.[7] The ICSID Convention provides a system for investor-state dispute settlement by offering standard clauses, detailed rules of procedure and institutional support, which extends to the selection of arbitrators and to the conduct of arbitration proceedings. Article 25(1) of the ICSID Convention states that “[t]he jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre.”[8]

Perhaps the most distinguishing feature of ICSID is that it provides a binding agreement that Convention members will comply with an arbitral award rendered in a dispute.[9] Each Contracting State to the ICSID Convention is required to recognize an ICSID award as binding and equivalent to a judgment of the highest court in their country.[10] Moreover, ICSID awards are not open to appeal and are subject to limited review only by a second ICSID tribunal, known as an ICSID annulment committee, rather than by any country’s courts.[11]

ICSID also adopted Additional Facility Rules that authorize the ICSID Secretariat to administer certain categories of proceedings between states and nationals of other states that fall outside the scope of the ICSID Convention.[12] In particular, the Additional Facility Rules cover arbitration proceedings for investment disputes where only one of the parties is a Contracting State to the ICSID Convention or a national of a Contracting State. A glaring difference, and disadvantage in the eyes of foreign investors, between the ICSID Convention and the Additional Facility Rules is that an award rendered under the Additional Facility Rules can be subject to review by national courts at the place of enforcement whereas an ICSID tribunal award cannot.[13]

Given that the ICSID Convention has achieved such wide acceptance, one would expect that Canada – a G8 and G20 country with the desire to attract foreign investment and with so many businesses and individuals that invest internationally and engage in international projects – would be a party to it. ICSID membership would benefit Canada’s international investors and enhance Canada’s reputation as a foreign investor-friendly country by giving foreign investors in Canada access to the protections and benefits of ICSID arbitration.

Canada’s Investment Treaty Practice

Canada’s ITAs generally provide that an investor can submit a claim to arbitration under four sets of rules: (i) the ICSID Arbitration Rules; (ii) the ICSID Additional Facility Rules; (iii) the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules; or, (iv) another body of rules such as the London Court of International Arbitration (LCIA) Arbitration Rules.[14]

Although ICSID arbitration is specified in Canada’s ITAs as a potential dispute resolution mechanism, Canada has not ratified the ICSID Convention. As a result, both Canadian investors investing abroad and foreign investors in Canada cannot invoke the ICSID Convention to govern their arbitration. Canada’s reference to the ICSID Convention in its ITAs suggests that Canada intends to one day become a member. However, the fact remains that the ICSID Convention has been open for signature since 1965 and Canada has yet to ratify the treaty.

This is not to say that there has not been any movement by Canada. On December 15, 2006, Canada signed the ICSID Convention, and Canada’s federal government passed implementing legislation to ratify the Convention in March 2008.[15] However, the Canadian federal government has yet to issue an order that would implement it. This delay can largely be attributed to the fact that only four of ten provinces (British Columbia, Newfoundland and Labrador, Ontario and Saskatchewan) and two of three territories (Nunavut and Northwest Territories) have passed legislation to implement the Convention.[16]

Of the provinces yet to adopt supporting legislation, Alberta and Quebec stand out. The benefits of ICSID membership to these provinces could be significant given the nature of their economies and the international involvement of their companies. Both provinces have vast natural resources including oil and gas, hydro-electric power and forestry. They also have companies in these sectors and in others, such as aerospace and engineering, which are active around the world. As discussed below, Alberta and Quebec have never indicated that they oppose the substance of the Convention, leading some to believe that they have been using their resistance to adopt supporting legislation as a means to seek concessions in other areas of federal-provincial relations.

Canada’s Federal Structure

Before ratifying the ICSID Convention, it appears that Canada would prefer to have the support of all of its provinces and territories. As in most federal states, powers are allocated by Canada’s constitution between its federal government and its ten provinces and three territories.

Canada’s constitution allocates treaty-making authority at the federal level.[17] However, when the subject matter of a treaty is in a field in which Canada’s provinces and territories have authority, they have the power to implement the treaty.[18]

Whether constitutionally, by practice, or as a matter of political pragmatism, the federal government seeks provincial and territorial support when the subject matter of a treaty includes areas that fall within their jurisdiction. Because the ICSID Convention relates to areas of provincial and territorial jurisdiction, including “the administration of justice” and “property and civil rights”, provincial and territorial implementing legislation is needed or at least desirable before Canada’s ratification.[19]

This is not the first time Canada has been slow to ratify a treaty relating to international arbitration. Canada took almost 30 years to ratify the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).[20] The New York Convention entered into force in June 1959 and provides common legislative and judicial standards for the recognition of arbitration agreements and the recognition and enforcement of foreign arbitral awards. However, unlike with the ICSID Convention, once Canada’s federal government decided to sign the New York Convention, it quickly received provincial and territorial support,[21] and was ratified in August 1986.[22]

Given the apparent desire for consensus in ratifying the ICSID Convention, the possibility exists that some provinces are using the implementing legislation as a bargaining chip in federal-provincial negotiations with regard to other issues. It is also possible that since legislative agendas are crowded, seeking consensus to put forward ratification legislation for an international treaty is simply not a political priority. Unfortunately, Canadian corporations that invest internationally have done little to press for ratification. Moreover, it may be an unfortunate political reality that treaty ratification is not a “vote-getting” issue.

Regardless of the reasons for the delay, it has never been suggested that concerns about the merits of ICSID are any part of the problem. When Canada’s House of Commons considered ratification legislation, Members of Parliament from all parties and regions generally agreed that ratification is in Canada’s interest.[23] Indeed, in the many years since ICSID came into existence, irrespective of the governing political party at any point in time, Canada’s federal government has been trying to get the provincial and territorial governments to not only commit to act, but to actually act.[24]

Moving without full support?

There are signs indicating that Canada’s federal government might move to ratify the Convention despite the lack of all provinces and territories having passed implementing legislation. One indication came during parliamentary debates and hearings when Parliament was considering federal implementing legislation.[25] Parliamentarians and officials stated that Canada could designate the provinces and territories that wish to be party to ICSID as “constituent subdivisions” in accordance with the Convention’s “federal clause.” Article 70 of the ICSID Convention would allow Canada to identify, by written notice, the provinces and territories to which the treaty would not apply. Using this approach, Canada could designate which provinces and territories the treaty would not apply to, and these provinces and territories could join subsequent to passing the proper implementing legislation.[26]

This “constituent subdivision” approach, however, is not without dissent. Some opposition members in the federal Parliament maintained that it would violate Canada’s constitutional division of powers and would constitute a “wrongful abrogation” of the federal government’s control over international relations.[27] A definitive constitutional position on the part of the Federal government, if it has one, has not been made public.

Another argument is that moving forward with the ratification process without full provincial and territorial concurrency could be seen as a deviation from Canada’s ordinary treaty implementation practice, which could have political implications in Canada. Few would disagree that unanimous provincial and territorial ratification is preferable in Canada’s federal state environment. Moreover, partial applicability of ICSID in Canada could complicate investment transactions and distort economic relations among provinces and territories.

In the absence of unanimity after an unduly prolonged time and considerable effort, using the “constituent subdivision” approach to ratify the Convention may be the best achievable option and may “put feet to the fire” in the foot-dragging provinces and territories. Given the history described above, and the benefits that would likely flow from ICSID membership, proceeding by this approach would seem to many to be in the best interests of the Canadian economy and Canadian businesses that invest internationally.

Examples Where Access to ICSID Arbitration Might be Relevant

Four gold mining companies with operations in Venezuela represent apt examples of Canadian foreign investors that could benefit from Canada’s ratification of the ICSID Convention. Before President Hugo Chavez nationalized all gold mines in Venezuela in August 2011,[28] three Canadian companies, Vanessa Ventures Ltd. (now Infinito Gold Ltd.), Gold Reserve Inc., and Crystallex International Corporation, had outstanding claims against the country.[29] A fourth company, Rusoro Mining Ltd., launched a claim on July 17, 2012.[30] Although Canada has a FIPA with Venezuela,[31] all four cases are proceeding by way of the ICSID Additional Facility Rules. Under these rules, any award in favor of an investor that the investor attempts to enforce in Venezuela would be subject to review by Venezuelan courts.

Next Steps

Canadian international arbitration and trade law practitioners have long attempted to persuade senior Canadian federal and provincial government officials that it is in Canada’s interest to join ICSID. Canada’s ratification of the ICSID Convention is now regularly raised by Canadian international arbitration and trade law organizations, including through the Canadian Chamber of Commerce and the Canadian Bar Association.[32] The availability of binding ICSID arbitration would increase investor confidence in Canada because it would reduce investor risk and make Canada an even more attractive location for foreign investment. Moreover, Canadians investing in foreign countries would similarly enjoy reduced risks and reduced costs in their foreign investment activities. The majority of countries in which Canadian companies invest most frequently and most heavily are ICSID members (excluding Mexico, India, and Brazil).

Until the necessary implementing legislation is brought into force throughout the country, or Canada’s federal government decides to proceed with ratification without all of the provinces and territories on board, the ICSID Convention does not protect Canadian international investors or foreign investors investing in Canada. Until such time, Canada is risking significant economic benefits. As one of the two G-8 countries[33] and one of the three OECD members[34] that have not ratified the ICSID Convention, Canada seems long overdue to provide foreign investors and Canadians investing internationally with the full protections and benefits that come with ICSID membership.[35]

III. ITAs and Canadian Federalism: Who’s Left Holding the Bill?

Another issue that arises due to Canada’s federal structure is who should be liable for the damages awarded against Canada in an ITA arbitration when the actions of a constituent subdivision (a sub-federal entity) amounted to the breach of the treaty obligation. This issue is illustrated by Canada’s recent settlement with AbitibiBowater. In April 2009, AbitibiBowater, a forestry company incorporated in the United States, initiated NAFTA Chapter Eleven arbitration for CDN $500 million claiming that Canada had breached its obligations as a result of Newfoundland and Labrador’s Bill 75, entitled An Act to Return to the Crown Certain Rights Relating to Timber and Water use Vested in Abitibi-Consolidated and to Expropriate Assets and Lands Associated with the Generation of Electricity Enabled by Those Water Use Rights (Act).[36] In effect, the Act expropriated most of AbitibiBowater’s investments in the province, including its timber and water rights. As with all ITAs, only a state party to NAFTA (Canada, United States, or Mexico) can be liable to compensate an investor from another NAFTA party for a breach of Chapter Eleven. One of the key investment protection provisions of Chapter Eleven is Article 1110 which prevents a NAFTA party from expropriating the investments of an investor from another NAFTA party without fair compensation.[37]

Canada settled the claim for CDN $130 million in August 2010, leading to a consent award in December 2010.[38] The settlement was not without controversy as some commentators questioned whether Canada should have settled, and the amount for which it settled.[39] The federal government could have continued the arbitration, covered all related costs, and ultimately tried to distance itself from an unfavorable award. Instead, the settlement demonstrates that the investment treaty protection system under NAFTA works and that Canada recognizes its importance and, in appropriate circumstances, the need to voluntarily honor its investor protection commitments.

The settlement highlights a particular challenge posed by ITAs, such as NAFTA, in federal states. The claim arose from the actions of a Canadian provincial government rather than those of the federal government. However, in accordance with NAFTA, the claim was brought against the federal state which had to defend and ultimately settle the claim, vividly demonstrating how a state can be financially responsible for its constituent subdivisions and left to pay for actions that it did not take but had no constitutional or practical authority to prevent.

Following the settlement, Canadian Prime Minister Stephen Harper stated that the federal government did not intend to seek reimbursement from Newfoundland and Labrador, but that in the future, “should provincial actions cause significant legal obligations for the government of Canada, the government of Canada will create a mechanism so that it can reclaim monies lost through international trade processes.”[40] There has been no clarification of what that mechanism would be or whether it would be imposed unilaterally. Nonetheless, financial arrangements between the federal government and provinces and territories are most often established by cooperative negotiation.[41]

Whatever the arrangement, the federal government may have to move quickly because NAFTA Chapter Eleven complaints continue to be brought as a result of provincial and territorial actions.[42] Many aspects of environmental, human health and property regulation fall under provincial and territorial constitutional jurisdiction and are likely to continue to be a source of future claims.

A recent NAFTA award has further demonstrated the urgency of this issue. In May 2012, a NAFTA panel ruled in favour of Mobil Investments Inc. and Murphy Oil Corp. against Canada based on measures taken by Newfoundland and Labrador. The panel found Canada responsible for breaching its performance obligations under Article 1106.[43] The exact figure of the quantum of damages to be awarded has yet to be determined, but the outcome of the case is similar to AbitibiBowater in that the federal government will once again be responsible for paying damages as a result a provincial measure violating the NAFTA.

Recent NAFTA Cases Relating to Provincial Measures

Canada had two new NAFTA notices filed against it in 2011 arising from Ontario’s environment regulations and one new notice filed in 2012 based on regulations of the British Columbia government. First, St. Mary’s Cement, a United States corporation, filed a Notice of Intent on May 11, 2011 alleging that the denial of a quarry permit by the Ontario government was discriminatory and motivated by political concerns in breach of NAFTA Chapter Eleven’s fair and equitable treatment obligations.[44] Second, Mesa Power served its Notice of Intent on July 6, 2011, complaining that Ontario’s Green Energy Act[45] resulted in denials of access to the feed-in-tariff (FIT) program for a number of wind power projects in southwestern Ontario owned by the United States corporation.[46] Mesa Power Group asserts that changes in regulations for granting access to the electricity grid and awarding wind power contracts led to a decline in the value of its projects under the FIT program and contravened Canada’s NAFTA obligations.[47] Lastly, Mercer International Inc. filed a Notice of Intent on January 26, 2012 alleging that provincial energy regulations in British Columbia have discriminated against it and are unfairly restricting it from selling self-generated power.[48]

It appears that the issue of constituent subdivision responsibility for actions giving rise to ITA claims will need to be dealt with in Canada sooner rather than later. In response to Canada’s settlement with AbitibiBowater, one lead editorial in Canada’s principal mainstream newspaper has already called for a solution:

The federal government should not simply wait for the next problem of this kind to come up. It should diplomatically, but firmly, make clear to the provinces that it is thinking about specific options. The taxpayers of Canada need some concrete assurance that they will not have to pick up another such tab.[49]

Following the recent ruling in Mobil and Murphy Oil, the same editorial echoed similar sentiments once again:

The federal government cannot simply be a guarantor for the consequences of the provinces’ actions. A compromise is needed; it would be unfortunate if Ottawa had to threaten the provinces with making deductions from its payments to the provinces – from health and social transfers or equalization.[50]

Until the federal government establishes an arrangement with its provinces and territories respecting the costs of ITA claims based on the actions of a constituent subdivision, it is left in the position of defending these claims without any assurance that its sub-federal entities will cooperate and help cover the associated financial costs. Canada’s NAFTA partners, the United States and Mexico, both of which are federal states, may also need to consider developing comprehensive solutions to this issue.[51]

V. Conclusion

Canada has been, and likely will continue to be a dynamic participant in international investment arbitration. While Canadian foreign investors are increasingly active internationally and Canada continues to be an attractive venue for foreign investment, Canada’s ratification of the ICSID Convention would only further complement both fronts. There are some encouraging signs as Canada’s business and legal communities are drawing greater attention to Canada’s failure to ratify the ICSID Convention.

Canada’s federal structure plays an important part in its situation respecting ICSID, just as it plays an important part in its inability to hold its constituent subdivisions accountable for their breaches of Canada’s ITA obligations. However, the knife cuts both ways. Critics argue that Canada’s federal government should not use its treaty-making power to impose broad foreign investor rights that constrain the ability of provincial and territorial governments to legislate and regulate on behalf of their citizens in areas of exclusive provincial and territorial jurisdiction.[52] One commentator has gone so far as to say that “[w]e are witnessing a constitutional train wreck in slow motion.”[53] Whether this train wreck will ever happen remains to be seen. In moving forward, Canada can remain confident that the dispute settlement mechanisms in its investment treaties can and do work. One thing is clear, however. Canada faces some prominent issues related to investment treaty arbitration because of its federal system that it needs to address.

[1] The original article, “Canada and Investment Treaty Arbitration: Three Prominent Issues – ICSID Ratification, Constituent Subdivisions, and Health and Environmental Regulation”, authored by Barry Leon, Andrew McDougall & John Siwiec appeared previously in the South Carolina Journal of International Law & Business, Vol. 8, Fall 2011.
[2] Barry Leon (bleon@perlaw.ca) is a Partner and Head of the International Arbitration Group, Andrew McDougall (amcdougall@perlaw.ca) is Special Counsel and John Siwiec (jsiwiec@perlaw.ca) is an Associate in the International Arbitration Group at Perley-Robertson, Hill & McDougall LLP/s.r.l., www.perlaw.ca.
[3] Listing of Canada’s FIPAs and FTAs, FOREIGN AFFAIRS AND INTERNATIONAL TRADE CANADA, available at http://www.international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/index.aspx?view=d (last modified Sept. 26, 2011).
[4] North American Free Trade Agreement, Dec. 17, U.S.-Can-Mex., 1992, 32 I.L.M. 605, 639-49 (1993) [hereinafter NAFTA].
[5] Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, Mar. 18 1965, 17 U.S.T. 1270 [hereinafter ICSID], available at http://treaties.un.org/doc/Publication/UNTS/Volume%20575/volume-575-I-8359-English.pdf.
[6] ICSID, List of Contracting States and Other Signatories of the Convention, available at http://icsid.worldbank.org/ICSID/FrontServlet?requestType=ICSIDDocRH&actionVal=ShowDocument&language=English.
[7] ICSID, supra note 5, preamble.
[8] ICSID, supra note 5, art. 25(1).
[9] ICSID, supra note 5, art. 53(1).
[10] Id.
[11] See ICSID, supra note 5, arts. 50-55.
[12] ICSID, Rules Governing the Additional Facility for the Administration of Proceedings by the Secretariat of the International Centre for the Settlement of Investment Disputes, [hereinafter Additional Facility Rules], available at http://icsid.worldbank.org/ICSID/StaticFiles/facility/AFR_English-final.pdf.
[13] Compare Additional Facility Rules, supra note 12, arts. 52-57, with ICSID, supra note 5, arts 50-55.
[14] See NAFTA, supra note 4, art. 1137; Agreement for the Promotion and Protection of Investments, Can.-Thai., art. 13, Sept. 28, 1998, available at http://www.international.gc.ca/trade-agreements-accords-commerciaux/assets/pdfs/THAILAND-E.PDF, Agreement for the Promotion and Protection of Investments. Can.-Jordan, art. 27, June 28 2009, http://www.international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/fipa-apie/jordan-agreement-jordanie-accord.aspx?lang=eng&view=d.
[15] Settlement of International Investment Disputes Act, S.C. 2008, c. 8.
[16] See Settlement of International Investment Disputes Act, S.B.C. 2006, c. 16 (Can. B.C.); Settlement of International Investment Disputes Act, S.N.L. 2006, c S-13.3 (Can. N.L.); Settlement of International Disputes Act, S.O. 1999, c. 12, Schedule D (Can. Ont.); Settlement of International Investment Disputes Act, S.S. 2006, c. S-47.2 (Can. Sask.); Settlement of International Investment Disputes Act, S.Nu. 2006, c. 13 (Can. Nun.); Settlement of International Investment Disputes Act, S.N.W.T. 2009, c. 15 (Can. N.W.T.)
[17] The federal government’s treaty-making authority is not explicitly conferred under any constitutional provision though is a power that is recognized to have devolved upon it. This stems from Canada’s British tradition, where international relations are a prerogative of the Crown, which is exercised by the federal executive branch of the government as the Crown’s representative. See LAURA BARNETT, LEGAL LEGIS. AFFAIRS DIV., CANADA’S APPROACH TO THE TREATY MAKING PROCESS (2008), http://www.parl.gc.ca/Content/LOP/ResearchPublications/prb0845-e.htm.; see also Capital Cities Commc’ns Inc. v. Canadian Radio-Television Comm’n, [1978] 2 S.C.R. 141 (Can.).
[18] See Canada (Att’y Gen.) v. Ontario (Att’y Gen.), (1937) 1 D.L.R. 673 (Can.) (Labour Conventions Case); see also PETER W. HOGG, Q.C. CONSTITUTIONAL LAW OF CANADA, 11.5 (b), (Carswell, 5th ed. Supp. 2007).
[19] ICSID, supra note 5 (The ICSID Convention addresses issues of arbitral procedure and the recognition and enforcement of arbitral awards, both of which fall within provincial jurisdiction over the administration of justice (ss. 92(14) of the Constitution Act, 1867) and property and civil rights (ss. 92(13))).
[20] Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 330 U.N.T.S. 38, (1968) 7 I.L.M. 1046, available at http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention.html
[21] Edward C. Chiasson, Canada No Man’s Land No More, 3 J. INT’L ARB. 67 (1986).
[22] E.g. Edward C. Chiasson & Marc Lalonde, Recent Canadian Legislation on Arbitration 2 ARB. INT’L 370 (1986); Chiasson, supra note 20.
[23] Canada, Parliament, House of Commons, Debates, 39th Parliament, 1st Session, vol. 141, issue 154, May 15, 2007, available at http://www.parl.gc.ca/HousePublications/Publication.aspx?DocId=2945948&Language=E&Mode=1&Parl=39&Ses=1.
[24] Id.
[25] Id.
[26] Canada, Parliament, House of Commons, Standing Committee on Foreign Affairs and International Development, Evidence. (November 22, 2007), 39th Parliament, 2nd Session, available at http://www.parl.gc.ca/HousePublications/Publication.aspx?DocId=3133571&Mode=1&Parl=39&Ses=2&Language=E#Int-2214104.
[27] See generally comments of Mrs. Vivian Barbot, MP, supra note 22.
[28] Hugo Chavez Officially Nationalizes Venezuela’s Gold Industry, HUFFINGTON POST, Aug. 23, 2011, http://www.huffingtonpost.com/2011/08/24/venezuela-gold-industry-huge-chavez_n_934968.html.
[29] See ICSID, List of Pending Cases, supra note 49, (listing Vanessa Ventures Ltd. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/04/6, Filed (Oct. 28, 2004); Gold Reserve Inc. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/09/1, Filed (Nov. 9, 2009); Crystallex Int’l Corp. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/11/2, Filed (Mar. 9, 2011)).
[30] Alison Ross, Rusoro in time to file ICSID claim against Venezuela, GLOBAL ARBITRATION REVIEW, (July 23, 2012), http://www.globalarbitrationreview.com/news/article/30710/rusoro-time-file-icsid-claim-against-venezuela/.
[31] Agreement between the Government of Canada and the Government of the Republic of Venezuela for the Promotion and Protection of Investments, Can.-Venez., Jul. 1, 1996, 2221 UNTS 7, available at http://treaties.un.org/doc/Publication/UNTS/Volume%202221/v2221.pdf.
[32] Andrew McDougall & Barry Leon, Upcoming G20 Meeting in Canada Presents an Opportunity for Canada to Join ICSID, N. AM. FREE TRADE & INV, REPORT, March 31, 2010, http://www.perlaw.ca/media/Lawyer_Articles_PDF/Published_BLeon_and_AMcDougall_Upcoming_G20_Meeting_in_Canada_Presents_an_Opportunity_for_Canada_to_Join_ICSID_Article_Only.pdf.
[33] Russia has yet to ratify the Convention though also signed the treaty in 1992.
[34] Mexico and Poland have not signed the Convention.
[35] See Barry Leon &Andrew de Lotbinière McDougall, Why has Canada Not Ratified the ICSID Convention?, KLUWER ARB. BLOG (August 24, 2010, 9:15 PM), http://kluwerarbitrationblog.com/blog/2010/08/24/why-has-canada-not-ratified-the-icsid-convention/.
[36] Abitibi-Consolidated Rights and Assets Act, R.S.N.L. 2008, c. A-1.01.
[37] Id. at art.1110(1).
[38] AbitibiBowater Inc. v. The Gov’t of Canada, (ICSID) Consent Award, Dec. 15, 2010, http://www.international.gc.ca/trade-agreements-accordscommerciaux/assets/pdfs/Abitibi_Consent_Award_Dec_15_2010.pdf.
[39] Scott Sinclair, $130Million NAFTA Payout Sets Troubling Precedent, CANADIAN Ctr. FOR POLICY ALT. (March 22, 2011), http://www.policyalternatives.ca/publications/commentary/130-million-nafta-payout-sets-troubling-precedent.
[40] Bertrand Marotte & John Ibbitson, Provinces on Hook for Future Trade Disputes: Harper, THE GLOBE & MAIL (August 26, 2010), http://www.theglobeandmail.com/report-on-business/abitibi-deal-best-available-harper/article1686431/?cmpid=rss1.
[41] See HOGG, supra note 17, at ¶ 6.9.
[42] Clayton/Bilcon (U.S.) v. Gov’t of Canada, Statement of the Claim (Jan. 30, 2009); St. Marys VCNA, LLC (U.S.) v. Gov’t of Canada, Notice of Intent (May 13, 2011); Mesa Power Group LLC (U.S.) v. Gov’t of Canada, Notice of Intent (July 6, 2011), and Mercer International Inc. v. Gov’t of Canada, Notice of Intent (January 26, 2012). See Foreign Affairs and International Trade Canada, Cases Filed Against the Government of Canada, http://www.international.gc.ca/trade-agreements-accords-commerciaux/disp-diff/gov.aspx?lang=en&view=d
[43] Jarrod Hepburn, Canada Loses NAFTA Claim; Provincial R&D Obligations Imposed on US Oil Companies Held to Constitute Prohibited Performance Requirements, INVESTMENT ARBITRATION REPORTER (June 1, 2012), http://www.iareporter.com/articles/20120601.
[44] See St. Marys VCNA, LLC v. Gov’t of Canada, Notice of Intent (filed May 13, 2011) available at http://www.international.gc.ca/trade-agreements-accords-commerciaux/disp-diff/st_marys_vcna.aspx?lang=eng&view=d.
[45] Green Energy Act, S.O. 2009, c. 12, Sch. A (Can.).
[46] Mesa Power Group LLC v. Gov’t of Canada, Notice of Intent (filed July 6, 2011) available at http://www.international.gc.ca/trade-agreements-accords-commerciaux/disp-diff/mesa.aspx?lang=eng&view=d.
[47] Id.
[48] Mercer International Inc. v. Gov’t of Canada, Notice of Intent (filed January 26, 2012) available at http://www.international.gc.ca/trade-agreements-accords-commerciaux/disp-diff/mercer.aspx?view=d.
[49] Editorial, How Ottawa could avoid getting stuck with the provinces’ bills, GLOBE & MAIL, Aug. 29, 2010, http://www.theglobeandmail.com/news/opinions/editorials/how-ottawa-could-avoid-getting-stuck-with-the-provinces-bills/article1688337/.
[50] Editorial, Ottawa should not have to pay for provinces’ trade obligations, GLOBE & MAIL, June 10, 2012, http://www.theglobeandmail.com/commentary/editorials/ottawa-should-not-have-to-pay-for-provinces-trade-violations/article4246206/.
[51] See also Barry Leon & Andrew McDougall, Left Holding the Bill: Can the NAFTA Countries Recover from Their Constituent Territories?, N. AM. FREE TRADE & INV. REP., Vol. 21, No. 1, Jan. 1, 2011, available at http://www.perlaw.ca/en/newsroom/publications/2011/1/1/left-holding-the-bill-can-the-nafta-countries-recover.
[52] SINCLAIR, supra note 39.
[53] Id.

News

This article was originally published in the December 7, 2012 issue of the Lawyers Weekly published by LexisNexis Canada Inc.

Barry Leon & John Siwiec

In this, our companion piece to “Seven tips for faster, more cost-effective arbitration” (The Lawyers Weekly, September 14, 2012, page 13) we focus on what in-house counsel who negotiate arbitration clauses or manage arbitrations can do to achieve faster, more cost effective arbitrations.

Our first article focused on procedural approaches used in international arbitration that can lead to faster and more cost-effective arbitration in Canada: an early procedural hearing; empowering and trusting the arbitrators; limiting document production; limiting oral discovery; submitting witnesses’ evidence efficiently, and agreeing on specifications for awards.

Here are seven tips to help in-house counsel realize the benefits that arbitration offers by making more informed and effective decisions both when negotiating arbitration clauses and managing an arbitration.

1. Understanding the features of arbitration
Understanding the features of arbitration and how it differs from court litigation is integral to achieving the advantages it can offer. With the growing use of arbitration, today’s in-house counsel need a basic understanding of arbitration that can be applied to negotiating arbitration clauses and managing an arbitration when a dispute arises. An understanding of arbitration should be acquired in advance, not by learning on the job.

2. Negotiating dispute resolution provisions
Because arbitration’s key feature is “party autonomy”, there is an opportunity to agree with the opposite party on almost every aspect of the arbitration. In contract negotiations, tactical advantages can be gained by taking time to consider the company’s dispute resolution objectives. Too often the dispute resolution clause is left until the eleventh hour. Consideration should be given to the types of disputes likely to arise in relation to the contract, and which dispute resolution process(es) would fit the company’s interests and objectives. If arbitration is chosen, consider the appropriate seat of arbitration, the appropriate number of arbitrators, arbitrator qualifications, the scope of confidentiality, and the use of administered arbitration.

3. Choosing arbitration counsel
The assistance of experienced and knowledgeable arbitration counsel, both when drafting an arbitration clause and for a dispute can reduce the time and costs of an arbitration. It is essential to engage outside counsel who understand arbitration and are not wedded to court rules and procedures. Outside counsel need to be open to working with the arbitral tribunal and other counsel to develop efficient procedures. Also, it should be determined beforehand whether outside counsel will have sufficient time to devote to the case.

4. Choosing the arbitral tribunal
A major benefit of arbitration is that parties have a say in the choice of their adjudicator. It begins with the arbitration clause, when the number of arbitrators and arbitrator qualifications may be fixed. The opportunity arises again when an arbitral tribunal – whether one or three arbitrators – is chosen. While tribunal selection procedures vary, in-house counsel should be involved in the opportunities available to choose the arbitrator(s).

5. Choosing procedures and timetables
In-house counsel need to stay involved and informed so that the arbitral procedures and timetables align with company priorities and objectives. Too often outside counsel are reluctant to risk “giving up rights” available under court rules and procedures when adopting arbitration procedures and timetables. In-house counsel should be present at procedural hearings to appreciate the arbitration’s dynamic, to get a feel for the tribunal, and to instruct on decisions affecting speed, cost-effectiveness, confidentiality and relationship preservation.

6. Coordinating between in-house and arbitration counsel
Once the arbitral tribunal is selected and a case timetable established, in-house counsel should coordinate with outside counsel to understand what input will be needed and when. Outside counsel need in-house counsel’s involvement when important tactical choices are being made and to ensure the availability of company personnel (as witnesses or otherwise). Coordination between in-house and outside counsel will help ensure that deadlines are met and the case proceeds as scheduled.

7. Settlement procedures
Although arbitration proceedings may have commenced, settlement procedures – negotiation or mediation – can occur at any time. Settlement is often the best outcome, saving time and saving costs. As arbitration proceedings progress, parties get a better sense of the case and the arbitral tribunal’s reactions (arbitrators live with the case throughout, unlike in court where a different judge may hear each pretrial matter), interests may change and opportunities to settle may increase. With outside counsel, in-house counsel should continually re-evaluate the case and determine whether settlement should be pursued.

The bottom line is that for a company to realize the benefits that can be achieved in arbitration, in-house counsel need to be informed and involved, starting with an understanding of arbitration, then in the negotiation of arbitration clauses, and later if a dispute arises.

Barry Leon, bleon@perlaw.ca, is an ADR Chambers Arbitrator, and a Partner and Head of the International Arbitration Group and John Siwiec, jsiwiec@perlaw.ca, is an Associate in the International Arbitration Group at Perley-Robertson, Hill & McDougall LLP/s.r.l. in Ottawa. The firm’s website is www.perlaw.ca.

News

Barry Leon & John Siwiec

This article originally appeared in the September 14, 2012, issue of The Lawyers Weekly published by LexisNexis Canada Inc.

A distinguishing feature of arbitration is that the procedural rules, whether legislated or set out in arbitral institutions’ rules, only provide a general framework for arbitral proceedings. Unlike court procedural rules, arbitration rules seldom include detailed provisions on such things as exchanging briefs, producing documents, conducting hearings, and whether and how witnesses should be heard.

This absence of detailed provisions may be due in large part to a desire to preserve “party autonomy”, a cornerstone of arbitration that enables parties to tailor their proceedings to fit their dispute. International arbitration organizations have complemented this freedom by issuing soft rules and guidelines to assist arbitrators, counsel and parties to conduct arbitrations efficiently and cost effectively. Examples include the “Rules on the Taking of Evidence in International Arbitration” of the International Bar Association (“IBA Rules”; www.ibanet.org/LPD/Dispute_Resolution_Section/Arbitration/IBA_Rules_Evidence/Overview.aspx), “Notes on Organizing Arbitral Proceedings” of the United Nations Commission on International Trade Law (UNCITRAL; www.uncitral.org/uncitral/en/uncitral_texts/arbitration/1996Notes_proceedings.html) and “Techniques for Controlling Time and Costs in Arbitration” of the International Chamber of Commerce (ICC; www.iccdrl.com).

Domestic commercial arbitration in Canada, however, is often conducted as if it was taking place in court. Counsel simply agree to apply local rules of court and many arbitrators do not encourage greater procedural flexibility. By taking this approach, parties negate many of arbitration’s advantages.

The good news is that users of arbitration in Canada are increasingly aware of procedures to achieve greater time and cost efficiencies that are available in international arbitration rules and guidelines and in the rules of Canada’s arbitral institutions, such as ADR Institute of Canada and ADR Chambers, and are increasingly taking advantage of them in domestic arbitration.

Seven Tips for Faster, More Cost-Effective Arbitration
There are seven procedural approaches used in international arbitration that can lead to more efficient and cost-effective domestic arbitration in Canada.

1. Early Procedural Hearing: An early procedural hearing is regularly used in international arbitration to identify the primary disputed issues and the procedural steps required for their resolution. Holding an early procedural hearing means that procedures for the arbitration can be settled from the outset, whether by agreement or tribunal order. A preliminary timetable with the shortest and most realistic timing should be established at the procedural hearing. There can be significant saving by simply avoiding time gaps as considerable costs can be incurred each time counsel and arbitrators need to be “re-familiarized” with the dispute.

2. Empowering and Trusting Arbitrators: Parties should encourage their tribunal to be proactive and trust their tribunal to consider the parties’ procedural submissions and that they will act fairly and sensibly. This includes enabling the tribunal to proactively manage the procedure throughout the arbitration by hearing the parties’ positions and then specifying the form, timing, content and length of written submissions, the number of exchanges of briefs, and the conduct of any hearings. A cost-effective approach with a 3-member tribunal can be to empower the presiding arbitrator to determine all or most procedural matters.

3. Limiting Document Production: The IBA Rules provide a helpful guide to document production. The Rules bridge the gap between procedural rules in common law and civil law jurisdictions (where production is often limited to documents relied upon). The Rules require that the requesting party not only be specific in its requests but also demonstrate why a requested document is “material to the outcome” of the dispute. This contrasts with court rules that often require the production of all documents that are “relevant to any matter in issue”.

4. Limiting Oral Discovery: Oral discovery is generally not available in international arbitration and pre-hearing examinations of non-parties are rarely used. In order to promote efficiencies in domestic arbitration, consider limiting oral discoveries to what is really needed and utilizing alternatives such as written interrogatories.

5. Limiting Hearings: Minimizing the length of hearings is valuable in reducing time and costs. Consider approaches such as evenly splitting the hearing time (sometimes called the “chess clock” method). For procedural hearings and motions, consider telephone and video conferencing. Many motions can be argued in writing where email communications directly with the tribunal can save time and reduce costs.

6. Use of Witnesses: Hearing fact and expert witnesses quickly adds to costs, particularly with oral evidence. Techniques used in international arbitration include using witness statements instead of direct examination, and witness conferencing. Minimize the number of experts and reports and consider using a single tribunal appointed expert.

7. Specifications for Awards: Consider agreeing to realistic timing for a tribunal to render an award, the length of the award, and whether written reasons are even required. Institutional arbitration rules and legislation often provide that the parties are free to determine whether the tribunal needs to render a reasoned award.

These seven procedural approaches, commonly used in international arbitration, can lead to faster, more cost-effective domestic arbitration. Users of domestic arbitration should consider these approaches in their next arbitration.

Barry Leon, bleon@perlaw.ca, is a Mediator and Arbitrator at ADR Chambers and Partner and Head of the International Arbitration Group and John Siwiec, jsiwiec@perlaw.ca, is an Associate in the International Arbitration Group at Perley-Robertson, Hill & McDougall LLP/s.r.l. in Ottawa. The firm’s website is www.perlaw.ca.

News

There has been a strong movement lately to get rid of Opening Statements (sometimes called Storytelling or an Opening) at the beginning of mediations. Lawyers tell me that they each understand the other side’s case, and won’t be persuaded by each other’s arguments, so don’t see the point in having an Opening. They also suggest that the Opening Statements will polarize and unnecessarily antagonize.

Many mediators agree and dispense with Openings, especially if the parties have gone through discovery.

While I agree that there are situations where an Opening is unnecessary, I think this is an unfortunate trend and that lawyers are missing an important and unique opportunity when they dispense with the Opening Statement.

Lawyers are not wrong when they say that won’t persuade each other. But that is not the purpose of the Opening.

The most important purpose of the Opening, in my opinion, is to help the other side understand the case that you will present in court that a judge could accept. In order to make concessions to you and to your client, the other side doesn’t need to be convinced that your client is right or will win, they just have to see the risk that a judge will find against them or, in their view, ‘get it wrong’. If they perceive that risk, they will make concessions. The more risk they see, the more concessions they’ll make.

So your Opening should be focused on what arguments you would make in court, what evidence you’ll be relying on, what law you’ll use to convince the judge that your client could win, not on why your client is right or why your client will win in court.

The distinction is subtle, but important. For example, if there is a credibility issue in your case, your Opening should not focus on the fact that your witness is telling the truth, but rather that your witness is believable. A lawyer at a mediation I was at said recently, “I wasn’t there; I don’t know who’s telling the ‘truth’; but I do know that my witness sounds believable. If a judge believes my witness, we’ll win the case”. The issue in a credibility case is not who is telling the truth, but whom a judge will believe. If the other side believes that your side’s witness could be believed (even if they are convinced that your side’s witness is lying), they may perceive a risk and see the benefit of making compromises.

And that’s where the mediator comes in. If lawyers present in the way I’ve suggested, the mediator can use what was said in caucus to discuss with each side the risks of a judge finding against them. The mediator doesn’t have to focus on who will win; just on the risk of a judge finding against them based on the arguments presented at the Opening.

If you present the arguments you’ll be making as opposed to arguing that your client is right and will win, that will significantly remove the risk of polarizing and antagonizing. After all, you are just presenting what you will be arguing in court, not suggesting the outcome in court. There’s nothing for the other side to argue about because you’re not saying that your arguments are the ‘objective truth’ or the ‘fair result’ (two of the common antagonizing themes in Openings), you’re just telling the other side what you’ll be arguing.

So in determining whether an Opening would be helpful, you should ask yourself whether the other side’s lawyer has explained your case to his or her client as well and as persuasively as you could. If the answer is yes, there is little value in the Opening. I’ve yet to have a lawyer tell me that the answer is yes.

Allan Stitt

Allan Stitt is the President of ADR Chambers where he mediates and arbitrates. He also teaches ADR with the Stitt Feld Handy Group.

News

Toronto Star - Toronto, Ont.
Author: Nicki Thomas Date:
Jul 28, 2011

Democrats and Republicans are dead locked over how to raise the country’s $14.3 trillion (U.S.) debt ceiling before an Aug. 2 deadline. With both sides at an impasse, the Toronto Star asked Allan Stitt, a Toronto-based mediator and arbitrator who lectures on conflict resolution, for some insight into high-stakes negotiations.

Q. Is this one of the worst examples of a stalemate that you’ve ever seen?
A. “It’s one of the worst because the impact is so severe,” Stitt said. The gridlock has caused the U.S. dollar to fall and threatens to damage the country’s credit rating. But, Stitt said, stalemates like this happen all the time. “They are very common because both sides are trying to out-think the other side in terms of what they’ll be willing to do and when they’ll be willing to cave.”

Q. What drives a situation like this?
A. Stitt said it often gets to the point where both sides could theoretically say Yes to what the other side is offering but each thinks they can cause the other side more pain by holding out. “They believe that if (they) holdout a bit longer, the other side is going to cave,” he said, adding that in moments of honesty, they might admit they would be better off accepting what the other side has to offer.

Q. So how do you break through that?
A. Mediators always look for ways their clients can save face while getting what they really want -rather than what they say they want - without forcing them to go to the other side’s position. That’s the best-case scenario and a solution that’s so often open to people and they don’t explore it,” Stitt said. More commonly, both sides end up making concessions until they hit middle ground. “People start to realize that they’re hurting everybody and in this case, they’re hurting an entire country by continuing to be obstinate.”

Q. Is there any way for the two sides in the U.S. to save face?
A. “Definitely,” Stitt said, but they have to get creative. If both sides could get together privately, with a promise that discussions would not be leaked to the media, they could talk honestly about what they really want and need.

Q. Do you think it’s more likely they’ll start making concessions instead?
A. “Unfortunately, the practical reality is they just start giving on issues,” he said, adding that the real problem is posturing from both sides. “Nobody really knows which issues are really important to either side because they’re all pretending that every issue is extremely important.”

Q. What are some of the other classic mistakes made in negotiations?
A. “They get caught up in their own rhetoric” Stitt said.” Over time, they become so entrenched in their positions that it becomes a matter of principle and they’re unwilling to budge, he said. “That’s really what’s happening here”.

Q. This is a pretty juicy negotiation. Would you like to be stuck in the middle of this?
A. “The truth is, I would,” Stitt said. “Maybe it’s the eternal optimist in me but I do believe that there are creative ways to overcome some of these difficulties. Sometimes you need someone in the middle to take the pressure on them instead of on the parties.”

News

Published on www.mississauganews24.com on July 21, 2011

BRAMPTON - The City of Brampton has stepped ahead of the curve, being one of the few Ontario municipalities to retain an Integrity Commissioner. ADR Chambers will serve in this role for a one-year period. ADR Chambers will act as a key advisor to Council on a range of important issues by providing education and advice to Council Members. The Office of the Integrity Commissioner will also preside over complaints investigations and perform functions related to the application of the Council Code of Conduct, and City legislation, rules, procedures and policies governing the ethical behaviour of the Mayor and Councillors.

The Office of the Integrity Commissioner will only pursue questions and complaints relating to Council Members. A Public Complaints Process is in place for complaints on alleged City of Brampton staff misconduct. Details on both the Office of the Integrity Commissioner and the Public Complaints Process can be found online at www.brampton.ca.

The Office of the Integrity Commissioner operates independently of City Council and City staff.

Read on (Mississauga 24 website).

News

by John G. Davies B.Arch., C.Arb.
“Claims should not be regarded as either inevitable or unpalatable, and complying with claims procedures should not be regarded as being an aggressive act.”
(The FIDIC Contracts Guide)

Stepped Alternative Dispute Resolution (ADR) provisions have been progressively incorporated into Canadian standard construction contracts (and the standard subcontract) since the concept was first introduced in 1994.
Typically these provisions exist to permit an aggrieved party to challenge:

1. an interpretation, application or administration of the contract or a failure to agree where the contract requires such agreement, which has not been resolved by a finding of the consultant (or, in the subcontract agreement, the contractor) … or

2. a matter in which the consultant has no authority to make a finding.

Such challenges are formally called disputes under the terms of each contract. Disputes are to be resolved in the first instance by way of amicable negotiation, followed, in the event of failure, by mediation and finally by way of binding arbitration. This is the process known as stepped ADR.

Although the Canadian Construction Document Committee’s (CCDC) original intent was to expedite the timely and cost-effective resolution of construction disputes, ADR provisions have not always accomplished these goals in practice.

Although the wording of the ADR provisions in this context was intended to function as a Scott Avery clause (condition precedent to further action) there remains some doubt as to whether it achieves this status with regard to the negotiation and mediation components.

Typically, stepped ADR provisions are found in the “PART 8 - DISPUTE RESOLUTION” general conditions contained in each of the standard forms. They incorporate, by reference, the standard Rules.

The burden of invoking these provisions in a timely manner resides in the aggrieved party issuing a timely notice in writing to the other party(ies) to the contract (and to the contract administrator).

A timely response from the other party(ies) is required to preserve the disputed status and to advance the dispute to the next stage for resolution.

Failure by the other party(ies) to respond within the time limits set out in the Rules will result in the aggrieved party securing a favourable default finding and in the irretrievable abandonment of the dispute by the non-responsive party to the benefit of the aggrieved party.

If the provisions are strictly followed, the parties are bound to settle their collective disputes without further recourse. The matters at issue, if subjected to the full path set out in the Rules and within the appropriate time limitations, will eventually be settled by final and binding arbitration with no opportunity to appeal such awards.
If, on the other hand, neither party exercises the binding arbitration option, the condition precedent of employing the dispute resolution mechanisms enshrined in the contract evaporates, and resolution can be sought in any forum available to the parties, such as litigation or even a form of arbitration that does not necessarily need to be conducted under the CCDC 40 Rules.

Both the Design-Build and the CCDC forms of contract provide for the parties to appoint a project mediator.
Since it is the parties who appoint the project mediator, it is reasonable to conclude that the mediator’s appointment will be paid for by both parties; that the mediator will be unconflicted; and that he/she will be impartial when performing its duties.

While the potential for such appointments has been enshrined in these contracts since their introduction, it is rare that they actually take place. This is unfortunate, since the appointment of a project mediator is much easier to achieve before the commencement of a dispute(s), than when animosity and acrimony have replaced the spirit of cooperation on a project.

While the standard provisions permit the appointment of the project mediator within 20 working days after the award of contract, it is, in fact, not only possible, but also quite feasible for an owner to include a list of pre-qualified/conflict-evaluated project mediators in its call for proposals/tenders. Such an approach permits a proponent/bidder to select a mutually acceptable project mediator from a pre-approved list for inclusion in its tender/proposal submissions. Employing such an approach, the project mediator could be appointed as early as the date of award of contract, before any disagreements arise between the parties and before time runs short to reach agreement on, and to appoint, (or to have the court appoint) the project mediator in the more traditional manner.
While many mediators in Canada are lawyers (who may have taken special training in the process of mediation), there is nothing to prevent architects and engineers from fulfilling this role. In fact, A/Es, with the right sort of training in mediation, have additional qualifications that may be especially helpful in this context. They are also free of the more traditional yokes of conflict of interest and perceptions of bias (ever present in the traditional contractual relationship structures) and can perform an independent, impartial, arms-length and constructive expert professional duty.

The problem with the early introduction of negotiation-based dispute resolution methods into the construction dispute resolution process is that these methods become, by way of the express wording of the contract, the only option available to the parties at a time when there has been no serious attempt to solve the dispute within the context of the wording of the contract. If a dispute arises, for example, as a result of a flawed consultant’s finding or worse, a self-serving, biased or partial consultant’s finding, there is no available path within the wording of the standard forms to secure a resolution within the four corners of the contract. Instead, techniques are immediately imposed on the parties to seek ‘outside the box’ negotiated (or assisted negotiated) solutions.
Only when these techniques fail to arrive at a resolution do the Rules permit reverting to the wording of the contract to secure a final and binding arbitral resolution. There is, for example, no opportunity to test the credibility of the consultant’s findings before embarking on mandatory stepped ADR.

A unique feature of the CCDC Rules is that when the mediator has exhausted all available avenues of resolution within the allotted time, he is required to terminate the mediation in writing. This approach is unique because traditionally, the mediator’s role is to assist the parties in reaching a resolution - not to act in an arbitral capacity. In a traditional mediation each party is normally seen to be in control of its own contribution and is free to withdraw from negotiations or mediations at any time it chooses. However in this instance a decision to terminate mediation by the mediator is beyond the control of the parties. It is the mediator who makes the decision and thereby controls the outcome. On the one hand, this is a powerful incentive to the parties to reach a settlement early in the mediation proceedings, on the other, this approach is unorthodox and contrary to what one normally expects of a mediator. The effect of this extrinsic decision will automatically result in the escalation of the dispute towards the only other remaining method of resolution available within the wording of the contract - binding arbitration.

Although the stepped ADR process set out in the standard contracts offers a potentially less expensive and more expedient solution to construction disputes than the more conventional route of pursuing litigation through the courts, the process of arbitration is, in many ways, becoming just as expensive and time consuming as litigation, with the added impediment of an inability to appeal the final and binding award, except under very narrow circumstances. The current stepped ADR method promulgated by CCDC in Canada, by its very structure, also eliminates opportunities to consider other tried effective and equally appropriate, methods of dispute resolution. However, these other alternatives are worthy of consideration.

Partnering:

Partnering involves a method of dispute resolution based on the principle that the best persons to resolve a dispute are those persons most closely involved in the matter on a day-to-day basis. A set period of time is allowed for these parties to resolve the dispute. Failure to do so within the allotted time requires that the dispute be escalated up the parallel ladders of authority (pre-determined by both the owner and contractor at the outset of the contract) to the next level. Again, a period of time is established for resolution at this parallel higher level of authority. Further failure requires further time limited escalations until either a resolution is achieved, a stalemate ensues at the highest level of authority or the allotted time expires. Failure at this level usually requires recourse to an alternate method of dispute resolution (e.g. mediation, arbitration or litigation).

Partnering relies on the psychological effect of a person striving to resolve a dispute at the lowest level in the quickest possible time. It could be perceived as failure on the part of the lower levels of authority not to quickly resolve a dispute before the dispute is escalated up the parallel ladders of authority. Accordingly, disputes usually get settled within established time frames by the lowest levels of authority possible on a project – just as a matter of individual pride. (In a testosterone ridden culture such as that present in the construction industry, values such as status, respect and pride are powerful motivators).

Cooperation at the lower levels of authority is encouraged and persons responsible for resolving disputes at each level are encouraged to bond with one another and sign undertakings to adhere to pre-negotiated partnering manifestos - usually following attendance at a pre-construction retreat seminar on the Partnering Method of resolution.

The benefits of this method are threefold:

1. It encourages dispute resolution in a cooperative, rather than an adversarial, manner;
2. It is inexpensive; and
3. It is quick, final and binding.

Third Party Neutral Evaluation:

An independent third party, with experience in the subject matter, called a “neutral”, is engaged by the parties to evaluate the relative merits of their dispute. The neutral’s fees and expenses are payable by all parties in advance of the delivery of the services. The neutral is required to not have any conflicts of interest or, in the alternative, to declare such conflicts and to have the parties expressly waive any concerns they may have in this regard in writing. Both parties are permitted to present their arguments to the neutral. The neutral then offers a non-binding evaluation and opinion as to the potential outcome of the dispute based upon its assessment of the relative strengths and weaknesses of each party’s case. Each party can then assess its own position with regard to pursuing the matter further or to settling the matter by negotiation.

Benefits include:

1. The service is performed by a totally independent third party free of those ongoing business pressures arising during the course of a project that tend to influence and impact on the timely resolution of disputes;
2. It permits the parties to evaluate their various positions and to make an informed decision as to whether to advance the dispute to the next level of resolution; and
3. It establishes the first opportunity for the parties to settle before the dispute takes on a life of its own.

Expert Determination:

An independent third party who is an expert in the subject matter is engaged by the parties in much the same manner as the third party neutral evaluator described above. The expert is given free reign to investigate all aspects of an individual dispute, and is able to assemble information gained from being permitted free access to all files and conducting one-on-one interviews with anyone who has a background in the dispute, with or without the other party to the dispute being present.

The expert is permitted to visit the site at will, accompanied or unaccompanied as he/she sees fit. The purpose is to gain full knowledge of all information that is available, from whatever source, without interference, to the extent needed to arrive at an expert determination of the facts. A report is prepared based on the expert’s findings and the expert’s determination based on these findings is presented. The parties agree to be bound by the expert’s determination and there is no appeal.

Unlike most forms of third party intervention, in which the provider cannot be held liable for the outcome of its findings or awards (much like a judge), a person who offers expert determination services is performing a technical professional service and is bound to bear the consequences of any negligent error, inconsistency or omission that may arise as a consequence of the performance of such services. It is wise, therefore, for the expert to include in any contracts for service appropriate wording addressing indemnification and immunity from prosecution or, at a minimum, to limit any exposure to liability arising from the performance of such services to a maximum financial limit (usually the maximum coverage of the E&O insurance coverage).

Benefits include:

1. The introduction of an expert in the subject matter of the dispute to take an informed look at the dispute, again free from the ongoing pressures of a project in progress;
2. Having an independent third party decide the matter in an expert and defensible manner thereby allowing the project to continue before the burden of adversity and acrimony destroy the project morale; and
3. The service is a professional service that, if flawed by negligent errors and omissions, can be the subject of further action to recover damages from the expert.

“Hot Tubbing”:

Each party to a dispute engages, pays for, and briefs an expert in the subject matter. The experts are then encouraged to engage one another at a peer-to-peer level and to collectively negotiate a solution independent of, and beyond the influence of, the aggrieved parties. The parties to the dispute agree to be bound by the joint resolution offered by the experts.

Benefits include:

1. The technical problems are abstracted from the day-to-day progress of the work;
2. Collective expert minds are brought to bear in dealing with complex matters, free of commercial interests;
3. Findings are usually consensual and in many cases unanimous; and
4. The process is quick, final and binding.

Dispute Adjudication Boards:

The International Federation of Consulting Engineers (FIDIC) approaches the role of the consultant in a different manner from that anticipated by the Canadian standard forms. While the Canadian standards include content addressing the role of the consultant (project engineer) as an impartial administrator and arbiter in the first instance, the international suite of standard form contracts expressly denies the impartial character of the role of the engineer who is engaged by the owner (or “employer”, in the international, rather than the Canadian, meaning of the word) and limits it to performing only pre-arbitral and express duties while exercising specified authority. Under this international model, the engineer has no authority to amend the contract, and:

(a) whenever carrying out the duties or exercising authority, specified in or implied by the Contract, the Engineer shall be deemed to act for the Employer;

The role of the engineer is thus not conceptualized as that of a wholly impartial intermediary, as it is in Canadian contracts.

Of particular note is the FIDIC’s use of an independent dispute resolution process employing a Dispute Adjudication Board (DAB). While the engineer, when acting for the employer, can make pre-arbitral ‘determinations’ in response to claims (but not disputes) raised by the contractor , these determinations (and re-determinations) are always subject to challenge and dispute by the contractor. In the interim, and unless disputed, these determinations become binding on the parties in much the same manner as interpretations and findings made by the consultant in the Canadian context, except that there is no requirement that these determinations have to be made in a strictly impartial manner. Instead, they only need to be made in a professional manner and certainly not in the capacity of arbiter in the first instance.

Should the contractor consider itself entitled to an extension of time, to additional payment, or both; suffer delays, or incur additional costs; or dispute pre-arbitral determinations made by the engineer, then it must give timely notice to the engineer, employer and to the dispute adjudication board (DAB) in order to preserve its alleged entitlement.

A DAB is appointed contemporaneously with the awarding of the contract, before the contractor commences the works. It comprises either one or three (or more) suitably qualified persons who are empowered by way of a collateral contract between the employer and the contractor on the one side and the DAB on the other.
FIDIC and other Dispute Board professional organizations offer lists of independent pre-qualified professional Dispute Board Members to employers for use in determining the make-up of DABs when procuring work from contractors. Short-listed selections are customarily listed by the employers in their tender forms for selection by successful tenderers when submitting their tenders. The terms of remuneration of the DAB are mutually agreed upon by the parties when agreeing the terms of the appointment. Each party is responsible for paying one-half of the required remuneration.

In order to maximize the DAB’s performance, its member(s) must be suitably qualified, impartial, and accepted and trusted by both parties. Equally important, they must be free from any prior relationships that could be seen to lead to bias or a conflict of interest — limitations of a minimum of two years free from prior involvement with either party are imposed on potential board members in order to further reduce the perception of bias or conflict. Therefore, although the employer usually prepares the tender documents and may prescribe the number of members of a proposed dispute adjudication board, it is essential that the adjudication arrangements and the membership of the DAB are all mutually agreed upon by the parties, and not imposed on one another by either party.

The DAB members are required to periodically visit the construction to such an extent that they are current, familiar with, and fully informed as to, the progress of the works. They are permitted access to all documentation and are allowed to attend such meetings as may be necessary to become and remain informed. They are prohibited from performing any sort of advocacy for either of the parties (unless the delivery of such advocacy is agreed to by both parties) and they remain under a constant duty to disclose any potential conflicts of interest that may arise during their term of office. The parties are jointly and severally liable to pay the DAB and any default by the contractor to do so will result in the employer paying the full amount due and deducting the defaulted half from any amounts owing by the employer to the contractor. (Conversely the delinquent amount may be added to a progress draw when the employer is in default.)

The DAB issues written ‘decisions’ with ‘reasons’ in much the same manner as an arbitrator would and these ‘decisions’ become binding on the parties unless one of the parties issues a formal notice of dissatisfaction within a strictly enforced contractual time limit.

The issuance of such a formal notice gives rise to the requirement to achieve an ‘amicable settlement’ and, failing that, binding arbitration.

Benefits include:

1. A more structured and formal method of dispute management for an entire project;
2. Support from established organizations whose members are pre-qualified for the roles of board members;
3. Established standard forms of contract for the engagement of board members;
4. Established payment structures for board members that have been tested over time internationally and have been accepted as being reasonable;
5. Established codes of ethical behaviour are in place governing the activities of board members; and
6. Procedures have been tested in the courts and there is considerable precedent enshrined in the jurisprudence of many countries both in the common law and civil code jurisdictions regarding disputes arising out of processes employed by these boards.

Other Forms of Dispute Boards:

Various other forms of dispute boards are employed on construction and engineering projects throughout the world. The International Chamber of Commerce (ICC) based in Paris, France, for example, promulgates three distinct applications based on the dispute board principle:

1. Dispute Review Boards (DRBs): Issue non-binding recommendations for consideration by the parties. If neither party objects, then the determination becomes binding on the parties. Failure to agree leaves the parties free to select any appropriate method of resolution (litigation, arbitration, expert determination, etc.)
2. Dispute Adjudication Boards (DABs): Issue enforceable provisionally binding decisions. These decisions may be reversed or modified by an arbitral panel or the court should one or other of the parties succeed in securing such a hearing. In the interim these decisions remain binding on the parties.
3. Combined Dispute Boards (CDBs): Issue non-binding recommendations that may be upgraded to provisionally binding decisions.

Dispute boards have been successfully employed in North America on the Washington D.C. Metropolitan Transit Authority project ($3B), the Boston MA “Big Dig” ($14.6B), the Toronto TTC Twin Tunnels Sheppard Subway Line ($1B), and the Niagara Water Diversion Tunnel Project ($1B) (currently under construction). Internationally, they have been successfully employed in the construction of the UK/France Channel Tunnel ($21B), the China Yellow River Diversion Project ($1.5B), the Hong Kong Airport ($15B), and the Docklands Railway Project in UK ($0.5B).
While these examples are all related to mega-projects, the governing principles still apply to smaller projects. All of the above projects possessed the common denominator of decision makers that were totally independent of the parties, highly skilled in their respective roles, paid for equally by both parties, all of whom had passed the conflict of interest and perception of bias tests and who were eminently qualified to act in the capacity of a dispute board. These are all qualities that could well be deployed on smaller projects as a viable alternative to the arbiter in the first instance method currently favoured by the Canadian construction contracts. While there may be more costs associated with the dispute board method, there is less likelihood that projects will become mired in disputes involving flawed interpretations and findings offered by conflicted and biased consultant/arbiters in the first instance. Although money is required to be spent on resolving contract disputes, with the dispute board method it is spent strategically, with a focus on expediting informed and unbiased resolutions, as opposed to arguing many and diverse points of law.

Legislated Adjudication:

Adjudication is a method of binding resolution distinct from arbitration or litigation. It is unsupported by arbitration laws and conventions, and the adjudicator decides based on its own skills and enquiries rather than the submissions of the parties, in much the same manner as the expert determination approach described above. Decisions are frequently interim and subject to appeal within time limitations, but otherwise binding on the parties.
In North America, all construction adjudication is founded in contract law, but there is a growing movement overseas to legislate adjudication as a method of dispute resolution for construction contracts. Laws requiring adjudication of construction disputes have been enacted in the UK , Australia, and Singapore. While the UK legislation addresses all types of construction disputes, the others mainly govern the outcome of payment disputes arising out of construction contracts at all levels, whether they are supplier or subcontractor-generated disputes, or top-down disputes generated by owners or general contractors.

Statutory adjudication has been in place in these jurisdictions for several years now, particularly in the UK. To a large extent, although considered ‘rough and quick justice’, these regimes appear to be working in most cases. The strongest criticisms relate to the time limitations imposed on the appointed adjudicators to reach their binding conclusions, and much ‘justice’ is sacrificed on the altar of expediency.

Adjudicators under these statutes are almost always appointed by independent organizations who keep lists of appropriately qualified individuals who they assign to resolve disputes. Adjudicators are paid by the parties on a joint and several basis and their awards are enforceable through the Courts.

The process of adjudication can be focused on single disputes or, more recently, has been performed by multi-member dispute adjudication boards promulgated by such organizations as FIDIC, the ICC, or the Dispute Board Federation.

At this time there is a movement afoot in the jurisdiction of Ontario to introduce a form of statutory adjudication in the construction industry based on the UK model, but adapted in a manner that recognizes and complements the existing lien legislation.

While the current CCDC contracts and Rules signal a structured approach to dispute resolution they, by their very structure, exclude the many and varied alternative methods of dispute resolution that are otherwise available, and in some cases more appropriate to the type of dispute involved. Unless and until the CCDC rules are adapted to permit other equally appropriate methods of dispute resolution, the attraction of stepped ADR, as being the only solution to problem solving, will remain unpopular and underutilized in the construction Industry in Canada.

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Believe it or not, the Italian Bar Association is calling on its members to strike in opposition to a mandatory mediation law. According to the website for the Organismo Unitario dell’Avvocatura Italiana (the Italian bar association- www.oua.it, lawyers are being asked to participate in a strike from March 16-22, and a public protest demonstration on March 16th. The strike is aimed at a new law commencing March 21st, requiring mandatory mediation in certain cases. Lawyers are being asked to attend the protest and to cease work on all cases during that period.

Interestingly, the timing of the strike blankets a national holiday (March 17-18) and a weekend (March 19-20), effectively extending what is already a four day weekend.

Now that mediation is an accepted part of the civil litigation process, we forget that in other parts of the world, lawyers are still fighting against measures that may settle cases and reduce legal fees. Even though there is a significant backlog of cases in Italy, lawyers are obviously not taking this new law lying down.

That said, it is interesting that the Government passed the law notwithstanding such strong opposition from the Bar.

Written by Paul Godin, LL.B., C.Med

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Having mediated a number of trust disputes, I have noticed several challenges specific to mediating trust cases. One is that the involved parties can be quite varied, including the beneficiaries (who ironically may have no legal standing to make decisions), the trustees (who may have no personal stake in the real dispute), the settlor (who may or may not have any standing, but has a large moral investment in the issues), a protector (if any), and perhaps others. Beneficiaries themselves may often have conflicting interests in regard to the trust property. More parties generally means agreement is harder to achieve.

The architecture of parties can easily complicate the decision-making process, which requires extra work on the front end clarifying who the “parties” are and the nature of their respective roles to avoid future roadblocks.

In one case, a trust company was the trustee and was the technical “party” to the litigation. On a practical level, however, the beneficiaries were the ones truly impacted, but were not litigation “parties”. Unfortunately, the trustee could not simply do what the beneficiaries wanted since the trust contemplated potential (as yet unborn) beneficiaries. That class of potential beneficiaries also had to be protected by the trustee, even if it meant going against the very living beneficiaries who were the primary focus of the trust. As a result, a mini-negotiation between the beneficiaries and trustee became necessary.

A second challenge is lack of flexibility. Various (often sensible) options may be precluded by the terms of the trust. For example, in the case of the Barnes art collection, the Barnes trust document precluded any sale or loan of the art in the trust, even if it was to earn money to protect the remaining assets. Many trusts do allow for flexibility in the trust to be created by certain acts (e.g., replacement of trustees, amendment of terms), which may create flexibility in option generation, but the extra step involved is a significant hurdle in getting parties to consider viable options. When parties take positions because the trust document limits their flexibility, remember that the trust itself may be negotiable.

Written by Paul Godin, LL.B., C.Med

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Originally published in Lawyers Weekly Magazine
Written by Luigi Benetton
Link to Luigi Benetton’s website with article

Face-to-face mediations won’t go away, but for cost reasons, they sometimes give way to videoconferencing.

Some professional mediators are banking on this trend. “It’s a great time to do online mediation,” Petra Maxwell says. The founder and CEO of New York-based MediationLine LLC, a “veteran” of about 15 video mediations (plus portions of others) gives several reasons why online mediation should take off. For starters, legal bills can quickly add up, and as the current economic climate continues to take a toll, people’s interest in saving money rises. Meanwhile, divorces, business disputes and other events calling for conflict resolution continue to occur.

There’s also an increasingly techno-comfortable market segment that expects such services. “In a divorce I recently mediated, the male was in New York, while the wife had already moved to California,” Maxwell explains. “They heard I handled mediation online and called me, asking to use Skype.”

Mark Shapiro is a newbie compared to Maxwell, having only participated in one commercial mediation so far. While with his former firm, the Toronto-based partner at Dickenson Wright LLP found himself in the offices of dispute resolution service provider ADR Chambers with the mediator (live) and the other party (via video feed from Ottawa).

“Sometimes you get cases in which dollar values aren’t huge, and this makes mediation cost-effective,” Shapiro says. “To mediate otherwise, lawyers and clients would have to travel.”

Allan Stitt, president of ADR Chambers, admits cost savings may be the only reason to use what his company calls eVideo mediation. “People can be in different cities and can cost-effectively participate in mediation,” he explains. “If somebody has a three-hour mediation, they’re only there for three hours.”

Driving home the cost savings point, he openly states that ADR Chambers charges $250 per remote location, “so lawyers ask whether they would rather pay the $250 or fly to another location for face-to-face meetings.” (Maxwell’s home page states that her services start at $249.)

Joan Kessler is another newcomer to video mediation. “I conducted a mediation where one party was in Korea,” says the Los Angeles-based expert on intercultural communications, and mediator and arbitrator for ADR Services Inc. “He did not want to fly to LA, so we arranged with attorneys to use Skype.”

“It lasted all day for us and well into the night for him. I could see he grew weary, but I had him in the loop.”

Shapiro figures the typical mediation process supports the logic behind video mediation. “After the opening caucus, the mediator shuffles between parties sitting in different rooms. The parties are not in the same room 90 per cent of the time. Do they even need to be in the same city?”

The end-to-end service from ADR Chambers impressed Shapiro. “The settlement documents were prepared, PDFed, signed and returned as if a mediator was there,” he says. “We left that mediation with a signed settlement agreement.”

Stitt claims the concept isn’t new. “At a conference in the States, I attended a session on online dispute resolution and I wanted to figure out how to create an online mediation system, to create the same feeling you get in a live mediation,” he recalls.

The system at ADR Chambers differs from generic videoconferencing. “The mediator controls the process,” Stitt explains. “People can be all on together, and the mediator can ‘drag’ people (the mediator included) into caucus and other ‘rooms.’ The mediator can ‘knock’ on the ‘door’ of a caucus, asking if the party is ready to speak.”

“The mediator can pull up drawing tools to illustrate situations, fill in settlement agreements right on screen.”

Maxwell and Kessler won’t get such tailored features from services like Skype or Google Talk, but these services do have advantages: they’re easy to install, easy to use, and free.

Nobody claims video mediation is anything but a second-best option to live, face-to-face meetings, especially given the ease with which mediators can perceive non-verbal communication from people in the same room.

“In one mediation, the couple sat together in a room and I was in another location,” Maxwell says of one Google Talk session. “I couldn’t see them both onscreen, so they had to shift the camera. I could not see all the cues, the rolling eyes, the fidgeting.”

“It helps to do a face-to-face meeting first,” Maxwell continues. “I need to see how parties interact with one another.”

Skype reliability hasn’t been perfect either, as Maxwell claims she has had to switch parties to conference calls several times.

Technical sophistication doesn’t seem to be necessary. Kessler claims she isn’t the most tech-savvy person, while Maxwell says she’s comfortable with technology, and both quickly figured out Skype.

Maxwell plans to do follow-up coaching post-mediation using online video. “It will probably take me a few months to build this out,” she says.

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