The press is riddled with stories concerning perceived problems with the court system. Various commentators say it is too slow, too expensive and procedurally unwieldy. These concerns have led some to conclude that arbitration is a better alternative. Arbitration agreements do have risks which parties should understand before agreeing to an alternate form of dispute resolution.
The long running saga of Creston Moly Corp. v. Sattva Capital Corp.provides an example of the potential pitfalls of arbitration. These parties are engaged in an ongoing dispute concerning an arbitration decision handed down on December 23, 2008, in which the arbitrator ruled that Creston was required to pay $4,140,000 plus costs as a finder’s fee in connection with the acquisition of Creston’s molybdenum property in Mexico. The dispute is over the valuation of the finder’s fee and the arbitrator ruled in favour of the finder.
Parties often enter into Arbitration agreements because they view arbitrator’s decisions as “final”. However, the Commercial Arbitration Act (British Columbia) does provide limited rights of appeal with respect to arbitration awards. Section 30 allows arbitration decisions to be overturned if they were improperly procured and section 31 allow appeals on errors of law if permission, or leave, is granted by the British Columbia Supreme Court. Similar, but arguably broader, appeal provisions are found in sections 44 and 45 of the Arbitration Act (Alberta).
In Creston Moly, these appeal rights have delayed the ultimate resolution of this case. Creston Moly first applied to the British Columbia Supreme Court for leave to appeal the arbitrator’s decision and was denied. Creston Moly then appealed to the British Columbia Court of Appeal which overturned the decision and granted leave to Creston Moly to appeal the arbitrator’s decision. Creston Moly announced on May 6, 2011 that the substance of the appeal was heard and dismissed. However, Creston Moly also stated its intention to appeal that decision to the British Columbia Court of Appeal. Nearly three years after a supposedly “final” decision, the arbitrator’s decision is still subject to review.
Creston Moly is instructive. It does not suggest that arbitration is bad and the court process is good or vice versa. Rather, it suggests that an arbitration agreement should be approached in the same manner as other commercial agreements with an understanding of each process and an effort to tailor an arbitration agreement to the specific circumstance. For example, parties should consider:
- The cost of the Arbitrator? In the court system you do not have to pay for the Judge and the cost of an arbitrator can be a disincentive to arbitration.
- The speed of the process? Arbitration may be faster. However, if you are looking for a fast process, you should consider a number of issues up front to speed the arbitration process.
- What Rules do you want to govern the arbitration? Do you want to prohibit discovery of documents or witnesses? Do you want to specifically name an Arbitrator or only a process for naming one?
All of these questions can substantially impact on the arbitration process. The most common Rules governing arbitration in British Columbia and Alberta provide an arbitrator with a great deal of discretion in setting the process for an arbitration. Accordingly, there is a good chance an arbitration may emulate a court process unless the parties intially agree that they intend a different more limited process.
The moral of the story is that one size arbitration agreements do not fit all and to “look” before you leap into one.