October 17, 2016 By: Craig O'Brien Read Time: 3 minutes
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Over the past decade, there has been a significant increase in the number of commercial disputes before the Ontario courts. The courts’ capacity to resolve these disputes in a timely manner has declined. Therefore, many potential commercial litigants have been looking for a more efficient system through which to resolve disputes. For better or worse, arbitration clauses have become the go-to mechanism of conflict resolution adopted in many commercial agreements.

There are a number of reasons why the speed of litigation has slowed.  Ontarians have been increasingly litigious. Disputes seem to involve more parties. The volume of evidence involved has figuratively exploded as emails have replaced phone calls during contract negotiation, leading to unwieldly  evidentiary obligations.

In Eastern Ontario, we are blessed with a highly competent judiciary, and also some truly fantastic arbitrators. From a company’s perspective, the main difference between the two is that the courts control their own process, while the parties are meant to control the arbitration process.

Arbitrations thus offer an enviable alternative to litigation. Theoretically, parties control the process by agreeing in advance as to the venue, the applicable laws, the scope of disputes to be handled through arbitration, confidentiality, and the selection of the arbitrator. Disputes can thus either be litigated for years or arbitrated for months. Commercial certainty is thus efficiently maintained, allowing the businesses to disagree, obtain a decision, and move on.

Except when they don’t, because sometimes they won’t.

The vast majority of arbitration clauses are drafted when the sun is out and the grass is green. With hope and optimism, two companies are entering into an agreement from which both expect to profit. Their interests are aligned, their principals are friendly, and nothing could go wrong. They jointly and with goodwill set terms to an agreement that will avoid future disputes. And then they pay little to no mind to the boilerplate arbitration clause sandwiched between the Scope of Work and IP Ownership clauses.

When the dispute arises and the parties do look at their arbitration clause, they’re already in a dispute, and changing the terms (even if it’s to everyone’s benefit) becomes very difficult. Frequently, two Ottawa-based companies will belatedly discover that they’ve agreed to arbitrate in Georgia, or Utah. They may discover that the dispute does not fall within the scope of the arbitration agreement. They may find out that certain sub-contractors are not bound by the agreement; that insurers will not respond to insurable claims under an arbitration clause; that separate but inter-connected contracts have conflicting arbitration terms; that timelines are impossible to achieve; that substantive legal rights have already unknowingly been bargained away.

For instance, back in December 2005 a potential multi-million dollar creditor of Bell Canada lost its right to proceed against Bell because they failed to file a Notice of Arbitration with the Arbitration and Mediation Institute of Ontario within a year of the dispute arising. Bell had received the Notice, and the normal limitation period in court is two years. But there was an arbitration agreement between the parties, the potential creditor was bound by it, and for peculiar procedural reasons their right to arbitration on its merits evaporated.

There are far too many potential pitfalls to list, and yet arbitration clauses still tend to make business sense.

Like anything in business, if it’s worth doing it’s worth doing right. For your own self-interest, please pay attention to these clauses when you’re negotiating contracts. Hope for the best and plan for the worst. The other company is likely not paying that much attention to the arbitration provisions, so there are potential strategic advantages there waiting for you.


And please remember that the default of court still exists – sometimes having no arbitration clause is better than having a bad one.

Have more questions about arbitration clauses? Contact Nelligan O’Brien Payne’s Commercial Litigation Group today.

[This article was originally published on October 17, 2016 in Ottawa Business Journal]

This content is not intended to provide legal advice or opinion as neither can be given without reference to specific events and situations. © 2018 Nelligan O’Brien Payne LLP.