Drafting ADR and Arbitration Clauses for Commercial Contracts

• Author: Wendy Earle
• Pages: 41-66

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chapter two

Drafting ADR and Arbitration Clauses

for Commercial Contracts

WEndy EArlE

A. INTRODUCTION

Litigation has changed in the last thirty years. We have moved

from a time when many, if not most, disputes were tried to a time

when 98 percent of disputes are settled without a trial.1 The On-

tario Rules of Civil Procedure2 were designed to provide a fair process

to parties going to trial on any type of issue, regardless of its com-

plexity, size, or nature. While there have been signicant changes

to the Ontario Rules over the years and while there are new court

directions and initiatives designed to promote dispute resolution

outside of a trial, too many cases, if not most, grind through the

various litigation steps prescribed by the Ontario Rules — plead-

ing, documentary production, oral discoveries, motions about the

documentary production and oral discoveries, pretrial hearings,

etc. — until the parties, worn down by the accumulated legal fees,

worn out by the drain on their time and emotional resources, and

terried by the ever-present risk of losing and having to pay costs,

settle. The process is unsatisfying, costly, emotionally draining,

1 See Julie Macfarlane, The New Lawyer: How Settlement Is Transforming the

Practice of Law (Vancouver: UBC Press, 2008) at 7–9.

2 RRO 1990, Reg 194 [Ontario Rules].

WEndy EArlE

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and not particularly just. Real people, as opposed to wealthy cor-

porations and very wealthy people, cannot aord it anymore and

are eectively denied access to justice.

The focus of this chapter is on whether arbitration can do

better and whether arbitration clauses (both pre- and postdis-

pute) can be designed to (1) avoid time-consuming disputes about

the arbitration clause and process and (2) foster “fair, quick and

cost-eective”3 dispute resolution by empowering the arbitrator

to customize the process to enable the parties to obtain the in-

formation that they require to resolve their dispute (whether by

hearing or settlement) in an ecient manner.

My starting point will be to examine three common errors

made in drafting arbitration clauses that complicate and delay dis-

pute resolution, frequently causing the parties to argue endlessly

and at great expense about matters that have virtually nothing to

do with the actual dispute itself. Next I will explore the role that

procedure plays in promoting fair, quick, and cost-eective dis-

pute resolution and how procedure can promote or obstruct this

goal. I will explore how the traditional approach to procedure in

pre- and postarbitration clauses poses challenges to counsel, par-

ties, and arbitrators and how modifying the traditional approach

so as to impose more responsibility on the arbitrator for design-

ing and managing the arbitration process increases the chances

of achieving fair, quick, and cost-eective dispute resolution.

B. THE THREE COMMON ERRORS IN ARBITRATION

CLAUSES WHICH PROMOTE LITIGATION

Pre- and postarbitration clauses are complex provisions that re-

quire the consideration of many dierent issues. It is beyond the

3 The phrase “fair, quick and cost-eective” is taken from the decision of

Brown J in Farrell v Kavanagh, 2014 ONSC 905, Schedule A at para 1 (Com-

mercial List). This case, together with Brown J’s decision in George Weston

Ltd v Domtar Inc, 2012 ONSC 5001 [George Weston], should be read as oering a

wealth of ideas on how parties can work creatively with the judiciary in litiga-

tion to customize procedure to meet the needs of a particular case at all stages.